HONG·KONG
LANDIAW
Sarah Nield
CHINA& l;IQt.lG
.KONG
I.AW
STUDIES
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~ LONGMAN Wl.:-k..
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Second edition 1997
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I
PREFACE TO THE SECOND EDITION
( The pace ?f life in Hong Kong is fast and developments in land law are no
exception. \over the past four years, since the first edition of this book was
published, much has happened.
( There have been the usual developments in the law that one might expect
in any jurisdiction, although many of these changes reflect influences peculiar
to Hong Kong. The territory's imminent transition to a Special Administration
Region of China is evident, particularly in relation to New Territories land.)
Also, now that the Conveyancing and Property Ordinance has been well and
truly assimilated into conveyancing practice, there can be detected an
appreciation of its far reaching implications.
,.Law reformers have been busy considering whether Hong Kong should
adopt a title registration system. The existing deeds registration system has
served the territory well but perhaps it is now time for modernisation as we
approach the 21st century i At the time of writing, a bill has been published
and subject to extensive debate, but legislative time has been short and it has
not yet been enacted. It is understood, however, that the new legislative
session may well see the enactment of a revised bill.
The management of multi-unit developments has also come under scrutiny.
So many buildings in Hong Kong are dependent on effective legal structures
to regulate both their ownership and management by more than one owner.
Thus it is not surprising that this complex area of law has drawn both legislative
and judicial attention.
This new edition tries to reflect these developments. There are new chapters
on the Land Titles Bill and Multi-UnitDevelopments. The legislativeuncertainty
that has surrounded the progress of the Land Titles Bill has not made planning
this new edition easy. It would have been ideal to have delayed publication until
the new bill had been enacted, but as the timing, and even the possibility, of
enactment, has been so uncertain it was decided to go ahead with publication
with an overview of the existingproposals. Hopefully this new chapter will provide
a useful introduction to the concept of title registration and the structure of the
proposed Hong Kong version. The new chapter on multi-unit developments has
been easier to compile: there is so much to relay in this area, both in terms of
legislation and case law.
The new edition incorporates new case law both in Hong Kong and overseas.
As I have returned to live and work in England this updating has only been made
possible with the help of those still in Hong Kong. Particular thanks on this score
must go to both Judith Sihombing and Michael Wilkinson, who have been so
helpful and generous with their time and resources. The updating process has
also provided an opportunity for me to return to Hong Kong on several occasions
but not since May 1996, thus the law is stated as at that date.
Despite my return to England I remain captivated by Hong Kong itself and
its unique laws governing land. I hope that this book will engender that same
interest in others.
SARAH NIELD
OCTOBER 1996
PREFACE TO THE FIRST EDITION
Students of Hong Kong law have had for many years to rely on textbooks
from other jurisdictions. They have thus not only had to deal with
understanding the law but also with translating the law from another
jurisdiction into the Hong Kong position. Fortunately this problem is being
addressed with the increasing number of textbooks being produced on
Hong Kong law. This book is intended to help fill the gap in the area ofland
law.
There is little research available on land law in Hong Kong so a lot of the
research that went into this book felt a little like treading in the dark. The
temptation is to start with the English position and then chart the differences.
Thus an attempt has been made to try and point out the differences between
the law in Hong Kong and England and to make cross-reference to the
equivalent English statutory provisions where relevant. This will help the
student who wishes to use this book in conjunction with one of the standard
English works. However, there are so many differences appearing between
English land law and the law in Hong Kong that in some areas it is more useful
to look at other common law jurisdictions. A concerted effort has therefore
been made to look at the position in other common law jurisdictions where
this seemed helpful.
This book is intended for students and thus its aim has been simplicity.
The format of the book is also intended to assist the student. So often it is
helpful to illustrate a point by reference to a case so that the law can be seen
in context. For this reason short extracts of the case have been incorporated
into the text and reference made to the salient points of the judgment. These
extracts are not intended as a substitute for reading the case report itself.
However, where the case is unreported, as so many Hong Kong land law
cases are, it is appreciated that the student may have difficulty in tracking
down the full report.
This book would never have seen the light of day without the help of
many other people. There have been my colleagues, Robyn Martin who
encouraged me to undertake the project, and Judith Sihombing who made
so many helpful comments on the early drafts. Although I managed to type
the text with my two fingers, the office staff at the Law Faculty at Hong Kong
University have been very patient in printing the numerous drafts and the
final manuscript. The editors at Longman have had a mammoth job in
making sense of that final manuscript. But perhaps the biggest thank you
must go to my family and in particular my children who had to put up with
the trauma that goes into writing a book.
Last but not least the law is stated as at March 1991. Unfortunately it has
not been possible to incorporate all the changes in the law since that date.
SARAH NIELD
DECEMBER 1991
CONTENTS
1
't
Preface to the Second Edition
Preface io the First Edition
Table of Cases
Table of Legislation
~
'
'I
I
(
1.
1.1
1.2
1.3
1.4
1.5
1.6
INTRODUCTION
What is Land Law?
Classification of Property
Sources of Hong Kong Land Law
Physical Limits of Land
Concept of Land Ownership
Equitable Estates and Interests
2
2.1
2.2
2.3
2.4
2.5
PRIORITY: THE DOCTRINE OF NOTICE
Introduction
Doctrine of Notice
Bona Fide Purchaser of Legal Estate for Value Without
Notice
Notice
Deficiencies of the Doctrine of Notice
3
3.1
3.2
3.3
3.4
3.5
PRIORITY: LAND REGISTRATIONORDINANCE
Introduction
Concepts of Registration
Mechanics of Registration
What is Registrable?
Effect of Registration
4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
LAND TITLES BILL
Introduction
History of Title Registration
Principles of Title Registration
The Land Registry
The Effect of Registration
Overriding Interests
Registrable Matters
Dealings with and Transmissions of Registered Land
Rectification and Indemnity
i
~
'
✓
-!
~.
iii
iv
ix
x:x:vi
y
1
5
9
17
25
,,
31
33
37
45
48
49
52
58
74
75
78
82
84
87
91
93
HONG KONG LAND LAW
I
vi
5
5.1
5.2
5.3
5.4
5.5
FORMALITIESAT LAW /
Introduction
Deeds - Section 4
Documents in Writing - Sections 3 and 5
Oral Agreements - Sections 4(2) and 6
The Conveyancing Perspective
6
6.1
6.2
6.3
6.4
6.5.
FORMALITIES:TI-IEINTERVENTION OF EQUI1Y
Introduction
Part Performance
The Rule in Walsh v Lonsdale
Resulting and Constructive Trusts
Proprietary Estoppel
110
7
7.1
7.2
7.3
7.4
7.5
ADVERSEPOSSESSION
Introduction
Possession and Title
Limitation Periods
Adverse Possession
Leasehold Land
157
8
8.1
8.2
8.3
8.4
8.5
8.6
8.7
8.8
FUTURE INTERESTS
Introduction
Vested and Contingent Interests
Reversions
Remainders
Executory Interests
Rule Against Perpetuities
Rules Against Inalienability
Rule Against Accumulations
181
9
9.1
9.2
9.3
9.4
SETTLEMENTSAND TRUSTS FOR SALE
Introduction
Strict Settlements
Trusts for Sale
Chinese Customary Trusts
209
10
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
CO-OWNERSHIP
Introduction
Joint Tenancy and Tenancy in Common Contrasted
The Four Unities
Creation of Co-ownership
Severance
Termination of Co-ownership
Tenancies by Entireties
Coparcency
228
95
97
106
107
116
120
139
158
163
171
182
184
186
188
191
199
200
212
219
229
231
241
244
258
265
CONTENTS
11
11.1
11.2
11.3
11.4
11.5
11.6
LEASES
Introduction
Lease Essentials
Types of Leases
Relationship of Landlord and Tenant
Remedies for Breach of Covenants
Termination of Leases
266
12
302
12.1
12.2
12.3
GOVERNMENT LEASESAND SHORT TERM TENANCY
AGREEMENTS
Introduction
Crown and Government Leases
Short-term Tenancy Agreements
13
13.1
13.2
13.3
13.4
13.5
13.6
EASEMENTS
Introduction
Characteristics of Easements
Acquisition of Easements
Extent of Use
Termination of Easements
Easements and Similar Rights
318
14
14.1
14.2
14.3
14.4
LEASEHOLD COVENANTS
Introduction
The Original Parties
Assignees
Subtenants
344
15
15.1
15.2
15.3
15.4
15.5
LAND COVENANTS
Introduction
Covenant Terminology
The Burden - Who Can Be Sued?
The Benefit - Who Can Take Action?
Modification and Extinguishment of Covenants
364
16
16.1
16.2
16.3
16.4
16.5
16.6
MULTI-UNIT DEVELOPMENTS
Introduction
Multi-ownership Structures
Regulating Co-owners' Rights
Enforcement of Deeds of Mutual Covenant
Management of the Building
Interrelationship of Management Structures
395
.,,,
)
i
276
279
289
296
309
325
338
340
342
347
351
362
365
367
378
391
399
408
422
436
vii
HONG KONG LAND LAW
17
17.1
17.2
17.3
17.4
17.5
MORTGAGES
Introduction
The Nature of Mortgages
The Rights of the Mortgagor
Mortgagee's Rights and Remedies
Discharge of Mortgages
441
LICENCES
Introduction
Types of Licence
Revocation of Contractual Licences
Licences by Estoppel
Personal or Proprietary Interests?
487
18.1
18.2
18.3
18.4
18.5
/18
Index
447
464
485
489
501
502
503
TABLE OF CASES
A Ketley Ltd v Scott [1980) CCLR 37; [1980) 130 NLJ 749, 457
Abbey National Building Society v Cann [1990] 2 WLR 832; [1990] 2 WLR 145;
[1990] 2 HKLR 84, 43-44, 45,47, 460
Abbey National Building Society v Maybeech [1985] Ch 190, 294
Abbey National Building Society v Moss [1993] NPC 153, 264
Active Keen Industries Ltd v Fok Chi Keong [1994] 1 HKLR 396, 405
A-G of Hong Kong v Humphrey's Estate (Queen's Garden) Ltd [1987] AC
114, 105, 145, 148
A-G v Melhado Investment Ltd [1983] HKLR 327; [1983] 2 HKC 211, 306
AG v Pon Yup Chong How Benevolent Association 0992) HCt MP No 1896
of 1991, 200
AG Securities v Vaughan [1988] 3 WLR 1205, 272
Aie Company Ltd v Kay Kam Yu (1994) HCt No A48 of 1991, 51
Alder v Blackman [1953] l QB 146, 276
Aldin v Latimer Clark Muirhead & Co [1894] 2 Ch 437, 281
Alpenstow Ltd v Regalian PLC [1985] 1 WLR 721, 105
American Cyanamid Co v Ethicon Ltd [1975] AC 396, 417
American Express International Banking Corp v Hurley [1985] 3 All ER 564,
• 473,479
Ample Treasure Ltd v Eight Gain Investment Ltd [1992] 1 HKC 457, 70-71
Anchor Brewhouse Developments Ltd v Berkley House (Docklands)
Development Ltd [1987] 2 EGLR 172, 16
Andrews v Partington (1791) 3 Bro CC 401, 194, 195
Annen v Rattee (1985) 273 Est Gaz 503, 240, 247
Ansalt Nybro v Hong Kong Resort Co Ltd [1980] HKLR 76, 58
Antoniades v Villiers [1988] 3 WLR 1205, 272
Arlesford Trading Co Ltd v Servansingh [1971] 1 WLR 1080, 351
Ashburn Ansalt Ltd v Arnold [1989] 1 Ch l; [1989] AC 1, 92, 129, 275,
499-500
Ashely Guarantee Plc v Zacaria [1993] 1 WLR 62, 465, 466
Austerberry v Corporation of Oldham (1885) 29 Ch D 750, 367
Avon Finance v Bridger [1985] 2 All ER 281, 458
Bailey v Barnes [1894] 1 Ch 25, 476
Baker v Baker 0993) 25 HLR 408, 152-153
Ballard's Conveyance, re [1937] Ch 473, 374, 386
Banco Exterior Internacional v Mann [1995] l All ER 936, 460-461
Bank of Baroda v Rayerel 0995) 27 HLR 387, 460
Bannister v Bannister [1948] 2 All ER 133, 129
Barclays Bank v O'Brien [1994] 1 AC 180, 47, 81, 127, 458, 459
Barclays Bank Plc v Hendricks 0995) CLY 2365, 264
Barrett v Lounova (1982) Ltd (1988) 57 P&CR 216, 283-284
Barton v Morris [1985] 1 WLR 1257, 252
Basham Dec'd, re [1986] 1 WLR 149B; [1986] Ch 1498; [1986] 1 WLR 1948;
[1986] 1 WLR 1498, 144, 146, 149, 153
Battison v Hobson [1896] 2 Ch 403, 62
Baxter v Four Oaks Properties Ltd [1965] Ch 816, 383
BCCI v Ahoody [1990] 4 All ER 983, 458
Beacon Heights (Management) Ltd v Leung Ping Hung (1994) HCt MP No
3570 of 1991, 435
Beacon Hill Management Ltd v Leung Ping Hung 0994) HCt MP No 3570
of 1991, 424
•.
HONG KONG LAND LAW
Beatty v Guggenheim Exploration Co (1990) 225 NY 380, 126
Beautiglory Investment Ltd v Tang Yet Tai Tong & others 0993) HCt HC MP
No 531 of 1989, 22, 223-224
Beesley v Hallwood Estates Ltd [1960) 1 WLR 549, 55
Benn v Hardinge 0992) 66 P&CR 246, 341
Berkley v Poulett [1976) 241 Est Gaz 911; [1976] 242 Est Gaz 39, 11
88 Berkley Road NW9, re [1971) Ch 648, 254
Bernard v Josephs [1982) Ch 391, 236, 244
Bernstein v Skyviews & General Ltd [1978) QB 479, 16
Best Sharp Development Ltd v Lucky Shoe Repairing & Key Duplication
Centre [1988) HKC 286, 268
Beswick v Beswick [1968] AC 58, 390
Bewar v Goodman [1909) AC 72, 360
Biggs v Hodinott [1898) 2 Ch 307, 452, 453, 454
Billson v Residential Apartments Ltd [1992) 1 AC 494, 293, 294
Binions v Evans [1972) Ch 359, 92, 129, 499
Bird v Syme Thomson [1979) 1 WLR 440, 40
Blyth v Fladgate [1891) 1 Ch 337, 129
Bonsor v Musicians Union [1956) AC 104, 409
Borman v Griffith [1930) 1 Ch 493, 328, 333
Bovill v Endle [1895) 1 Ch 648, 485
Boyer v Warbey [1953) 1 QB 234, 354
Bradley v Carritt [1903) AC 253, 452
Breams Property Investment Co Ltd v Strongler [1948) 2 KBl, 360
Bretherton v Paton [1986) 1 EGLR 172, 269
Brew Brothers Ltd v Snax (Ross) Ltd [1970) 1 QB 612, 313
Brickwood v Young (1905) 2 CLR 387, 238, 239
Brilliant v Michaels [1945) 1 All ER 121, 273
Bristol & West Building Society v Henning [1985) l WLR 778, 47, 460
British Railways Board v Glass [1965) Ch 587, 340
Broomfield v Williams [1897) 1 Ch 602, 329
Broughton v Snook [1938) Ch 345, 116
Brown v Flower [1911) 1 Ch 219, 280
Brown v Gould [1972) Ch 53, 103
Brunner v Greenslade [1971) Ch 993, 385
Buchanan-Wollaston's Conveyance, re [1939) Ch 738, 264
Buckinghamshire County Council v Moran [1989) 3 WLR 152, 165, 170-171
Bull v Bull [1955) 1 QB 234, 218
Burgess v Rawnsley [1975) Ch 429, 251, 252, 253, 254
Burkes Case, re [1881) 9 LR Ir 24, 52
Burns v Burns [1984) Ch 317, 123, 124
Byrne, re (1906) 6 SR (NW) 532, 239
Cadell v Palmer (1833) 1 Cl and F372, 192
Caerphilly Concrete Products v Owen [1972] 1 WLR 372, 314
Caerns Motor Services Ltd v Texaco Ltd [1995) 1 All ER 247, 362
Campbell v Holyland (1877) 7 Ch D 166, 480, 481
Campbell v Sovereign Securities Holding Co Ltd (1958) 13 DLR (2d) 195, 265
Canada Life Assurance Co v Kennedy (1978) 89 DLR (3d) 397, 239
Carradine Properties v Aslam [1976) 1 WLR 442, 298
Castle City Ltd v Choi Yue Development Ltd [1995) 2 HKC 593, 159
Caunce v Caunce [1969) 1 WLR 286, 40, 41, 42, 45, 47
Cave v Cave (1880) 15 Ch D 639, 38
Cavendish Property Development Ltd v A-G [1988) HKC 480, 306
Celsteel Ltd v Alton House Holdings (No 2) [1987) 1 WLR 291, 350
Centaploy Ltd v Matlodge Ltd [1974) Ch 1, 277
X
TABLE OF CASES
Centrovincial Estates Pie v Bulk Storage Ltd (1983) 46 P&CR 393, 347
Chalmers v Pardoe [1963] 1 WLR 677, 151-152
Chamberlain v Scalley (1992) 26 HLR 26, 299
Chan Hung-kay v A-G [1981] HKLR 171, 308
Chan v Lau Wai-kwong (1984) HCt HCA No 5062 of 1982, 299, 301
Chan Shiu-yee Shirley v Chang Kia-Chung Peter (1987) HCt HCC No A5170
of 1986, 242
Chan Yat v Fung Keong Rubber Manufactory Ltd [1967] HKLR 365, 105
Chandler v Kerley [1978] 1 WLR 693, 496
Chaney v Maclow [1929] 1 Ch 461, 104
Cheam Theam Swee v Equiticorp Finance Group Ltd [1992] 1 AC 472, 484
Cheese v Thomas [1994) 1 WLR 129, 461
Cheong Pik Shan v Lee Bun & another (1994) HCt No A3113 of 1992, 119
Chester v Buckingham Travel Ltd [1981] 1 WLR 96, 288
Cheuk Chau Co Ltd v Chau Kwan-nam & others (1983) HCMP No 274 of
1982, 174, 175, 176
Cheung Yeung-kan v Lui-kwan [1973-1976) HKC 237, 287
Cheung Yuet v Incorporated Owners of Oriental Gardens [1979] HKLR 536;
[1977-1979] HKC 168, 420
Chiap Hua Flashlights Ltd v Markfaith Investments Ltd [1990] 2 WLR 145;
[1990] 2 WLR 1451; [1990) 2 HKLR 84, 45, 55, 59, 63, 68, 86
China South Seas Bank Ltd v George Tan [1990) 2 WLR 56; [1989] 1 HKC 155,
472, 473-474
Chinachem Investment Co Ltd v Chung Wah Weaving and Dyeing Factory
Ltd [1978) HKLR 83, 295
Chiu Shu-Choi v Merrilong Dyeing Works Ltd [1990) 1 HKLR; [1984] HKC
535,403
Chokar v Chokar [1984] FLR 313, 236
Chow Chin-Tai v Chan Tak-Ming [1994) 1 HKLR 274, 56, 57
Chu Kit Yuk & another v Countryside Industrial Ltd [1995) 1 HKC 363, 34,
119
Chu Tak-hing v Chu Chan Cheung-kin [1968] HKLR 542, 220
Chu Yam-on v Li Tam Toi-hing (1954) 38 HKLR 114(CA); (1956) 40 HKLR
250(PC); [1946-1977] HKC 55, 52, 53
Chui Shui On v Tang Koon Yung & another [1992] 2 HKC 323, 176
Church of England Building Society v Piskor [1954] Ch 553, 279
CIBC v Pitt [1994) 1 AC 200, 127, 458-459
CIR v Yeung Cheung Foon, David (1989) CA Civ App Bo 142 of 1988, 122
Citibank NA v Lai Tat-chee [1986] 2 HKLR 885; [1986) HKC 155, 52, 54, 64, 149
Citiward Ltd .v Tai Ping Wing [1995) 2 HKC 181, 394
Citro, re 0990) The Times 7 June, 264
City of London Building Society v Flegg [1986) 1 All ER 989, 218
City of London Building Society v Flegg [1988) AC 54, 58
City of London Corporation v Fell [1993] 3 WLR 1164, 347, 351
Cityland & Property (Holdings) Ltd v Dabrah [1968] Ch 166, 455, 464
Clore v Theatrical Properties Ltd [1936) 3 All ER 483, 497
Coatesworth v Johnson (1886) 54 LT s20; (1886) 55 LJQB 220, 111, 119
Cockerill, re [1929) Ch 131, 199
Cohen v Nessdale Ltd [1981] 3 All ER 118, 105
Colchester Borough Council v Smith [1991) Ch 421, 166
Coldunell v Gallon [1986) 2 WLR 466, 458
Commercial Bank of Hong Kong Ltd, The v Wellstead Textile Co Ltd &
another (1993) HCt MP 3785 of 1991, 34
Commonwealth of Australia v Verwayen (1990) 170 CLR 394, 139
Consolidated Sales Ltd v Turner C Lynn [1970) HKLR 222, 61, 67-68
Cook v Shoesmith [1951] 1 KB 752, 313
xi
HONG KONG LAND LAW
Cooke v Head (1972] 1 WLR 518; [1972] 2 All ER 38, 128, 135
Coombe v Smith (1986] lWLR 808; [1987] 1 WLR 808, 145, 148
Cooper v Critchley [1955] Ch 431, 217
Copeland v Greenhalf (1952] Ch 488, 323
Coronation Street Industrial Properties Ltd v Ignall Industries Plc [1989] 1
WLR 304,361
Cornish v Midland Bank Plc [1986] 1 WLR 119, 462
Country Rich Development Ltd v Ma Chan Fuk Kiu (1994) HCt HCA No
A5503 of 1993, 166
Cousins, re (1886) 31 Ch D 671, 38
Cowcher v Cowcher [1972] 1 WLR 425, 244
Cowell v Rosehill Racecourse Co Ltd (1937) 56 CLR 605, 490, 491
Cowley v Watts (1853) 17 Jur 172, 103
Crabb v Arnn District Council (1976] Ch 179; [1979] Ch 179, 143, 146, 148,
150, 153, 501
Crippen, in the estate of [1911] P108, 127
Crips, re (1906) 95 LT 865, 213
Crocodile Garments Ltd v The Prudential Enterprise Ltd [1989] 1 HKC 474, 362
Crofts v Middleton (1856) De GM and G 192, 184
Cromwell Investment Co Ltd v Fook Sun Enterprises Ltd (1975] HKLR 1;
(1973-1976] HKC 335, 260
Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949, 470-471, 473
Cumberland Court (Brighton) Ltd v Taylor [1964] Ch 29, 485
D & F Estates Ltd v Church Commissioners [1989] AC 177, 285
Dalton v Angus & Co (1881) 6 App Cas 740, 337
Dandenong Estates Co Ltd v Yu Kai To & others [1989] 1 HKC 587, 420
Daniels v Trefusis (1914] 1 Ch 788, 104
Darlingford Estates Ltd & others v Incorporated Owners of Evelyn Towers
(1987] 3 HKC 127, 427
David Wong v Li Suk-bing [1984] HKLR 65, 495
Davis v Symons [1934] Ch 442, 450
Dawson, re (1888) 39 Ch D 155, 194
D'Eyncourt v Gregory [1866] LR 3 Eq 283, 11
de Lasala v de Lasala (1979] 2 All ER 1146, 8
De Luxe Confectionery Ltd v Addington [1958] NZLR 272, 355
Dealmead Ltd v Chin (1987) 281 Est Gaz 531, 273
Dearle v Hall (1823) 3 Russ 1, 445
Demaiter and Link, re (1973) 36 DLR (3d) 164, 265
Dennis v McDonald [1982] Fam 63, 236
Dennis, re (1995] 3 WLR 367, 250
Department of the Environment v Thomas Bates and Sons Ltd (1989]1 All
ER 1075, 285
Dexter & others v Petersham (1994) LT EMA No 1 of 1994, 436, 438, 439, 40
Dickinson v Burrow (1904] 2 Ch 339, 116
Dillwyn v Llewelyn (1862) 4 De GF&J 517, 140, 146, 149, 153
Discovery Bay Services Management Ltd v Buxhaum (1994) DCt DCCA No
4782 of 1991, 411, 412, 416, 430, 435
Dodsworth v Dodsworth 0973) 228 Est Gaz 1115, 152, 154
Doe d Gill v Pearson (1805) 6 East 173, 199
Doherty v Allman (1878) 3 App Cas 709, 287, 417
Dolling v Evans (1867) 36 LF Ch 474, 103
Dolphin's Conveyance, re [1970] Ch 654, 383
Downsview Nominees Ltd v First City Corporation Ltd [1993] 2 WLR 86, 472, 478
Dr Franklin Li & Others v Crocus Properties Inc [1981] HKC 367, 103-104, 400
Drake v Whipp (1995) Tbe Times 19 December, 120
xii
TABLEOF CASES
Drapers Conveyance, re [1969] 1 Ch 486, 250, 253, 254
Drewell v Towler 0832) 3B&AD735, 325
Drinkwater v Ratcliffe [1875] 20 LR Eq 528, 261
Dugdale, re 0888) 38 Ch D 176, 199
Duke of Norfolk's Case 0681) 2 Swanst 454, 192
Duke of Westminster v Guild [1985] QB 688, 284, 403
Duke v Robson [1973] 1 WLR 267, 475
Dumpor's Case 0603) 4 Co Rep 119b, 392
Easyknit Investment Co Ltd v Yetonce Ltd 0991) HCt MP No 1454 of 1991, 121
Ecclesiastical Commissioners for England's Conveyance, re (1936] Ch 430,
390,391
Elias v George Sahely & Co (Barbados) Ltd (1983] AC 646, 106
Elias v Mitchell (1972] Ch 652, 217
Ellenborough Park, re [1956] Ch 131, 318-319, 320, 322, 487
Elliston v Reached1908] 2 Ch 374, 382, 383, 384, 415
Emile Elias & Co Ltd v Pine Groves Ltd (1993] 1 WLR 305, 384
Enway Development Ltd v Light Ocean Investment Ltd (1994] 3 HKC 31, 226-227
Equity & Law Home Loans Ltd v Prestidge (1922] 1 WLR 137, 47
ER Ives Investment Ltd v High [1967] 2 QB 379, 155, 327, 368, 501, 502
Erewash Borough Council v Taylor [1979] CLY 1831, 465
Errington v Errington & Woods (1952] 1 KB 290, 498
Escalus Properties Ltd v Robinson (1995] 3 WLR 524, 293
Esso Petroleum Co Ltd v Alstonbridge Ltd (1975] 1 WLR 1474, 465
Esso Peroleum Co Ltd v Harper's Garage (Stockport) Ltd (1968] AC 269, 455
Evers Trust, re (1980] 1 WLR 1327, 264
Eves v Eves (1975] 1 LWR 1388; (1975] 1 WLR 1338, 131, 135, 136
Expert Clothing Service & Sales Ltd v Hillgate House Ltd [1986] Ch 340, 292
Facchini v Byson (1952] 1 TLR 1386, 270
Fairclough v Swan Brewery Co Ltd (1912] AC 565, 451, 454
Fairfax Ltd v AG (1995] 2 HKC 401 & 617, 394
Fairweather v St Marylebone; Property Co Ltd (1962] 2 WLR 1620, 174, 175
Fast Forward Ltd v Magicsound Co Ltd (1990] 2 HKC 494; (1991) Civ App
Nos 180 of 1990 and 3 of 1991, 59-60, 61, 92, 500
Federated Homes Ltd v Mill Lodge Properties Ltd (1980] 1 WLR 594, 387, 388-389
Ferguson v Miller (1978] NZLR 819, 233
Field v Barkworth [1986] 1 WLR 137, 313
Financial and Investment Services for Asia Ltd v Baik Wha International
Trading Co Ltd (1985] HKLR 103, 53, 54, 61, 68, 81, 485
First Base Development Ltd v Or Lau Chun 0991) HCt MP No A2669 of 1990,
176
first National Securities Ltd v Hegarty (1985] QB 850, 248, 260
Flight v Bentley (1835) 7 Sim 149, 351
Foo Kam-shing v Local Printing Press (1953) 37 HKLR 208, 338
Ford Chung v Ho Wai-man (1959] HKLR 12, 276
Forda Investors Ltd v UOB Finance (HK) Ltd (1979] HKLR 382, 262
Formby v Barker [1903] 2 Ch 539, 373
Formking Development Ltd v Lee Kwok Hung, Robert (1993] 1 HKC 412, 121
Fortune Year Development Ltd v Mui Shu Huen 0993) HCA No A2951 of
1993, 176
Four Maids Ltd v Dudley Marshall (Properties) Ltd (1957] Ch 317, 465
Freeman v Laing (1899] 2 Ch 355, 483
••
Freize v Unger (1960] VR 230, 247
Frencher Ltd (in liquidation) v Bank of East Asia (1995] 2 HKC 263, 481
Frost, re (1889) 43 Ch D 246, 194
xiii
HONG KONG LAND LAW
Fu Lam Investment Co Ltd v Mok Cheong-che (1983) HCt No 1978 of 1983, 287
Fu Mei Ling Mary v Yeung Kong [1994) 2 HKC 1, 176
Fung Kam Cheung v Kwok Yiu Wing [1991] 1 HKC 321, 159
Fullerton v National Bank of Ireland [1903] AC 309, 53
Fulltrend Co Ltd v Longer Year Development Ltd & another [1990] 1 HKC
542, 121
Gaites Will Trust, re [1949) 1 AU ER 459, 194
Garner v Blaxill [1960) 1 WLR 752, 314
Garnet and McGoran, re (1980) 117 DLR (3d) 649, 260
George Wimpey Co Ltd v South [1967) Ch 487, 167
Giant River Ltd v Asia Marketing Ltd [1990] 1 HKLR 297, 404
Gissing v Gissing [1971] AC 886, 81, 123, 124, 127, 128, 130-134 passim, 139, 244
Goldberg v Edwards [1950] Ch 247; [1952) Ch 247, 325, 328, 330
Golden Bay Investment Ltd v Chou Hung & others [1994)2 HKC 197, 263
Golden City Theatre Ltd v Kwan Ching-tak (1956) 40 HKLR 198, 470
Gonin, re [1979) Ch 16, 115
Goodall's Settlement, re [1909) 1 Ch 440, 214
Goodman v Gallant [1986] Fam 106, 242
Goodman v J Eban Ltd [1954) 1 QB 550, 104
Goodtex Land Company Ltd v Lung Kwong Emporium Co Ltd [1993) 1 HKC
645,400,402
Gore and Snell v Carpenter (1990) P&CR 456, 252
Graham v Philcox [1984] QB 747, 330
Grand Junction Co Ltd v Bates [1954] 2 QB 160, 444
Grangeside Properties Ltd v Collingwood Securities Ltd [1964] 1 WLR 139, 446
Grant v Edwards [1986] Ch 638; 1 WLR 808, 134, 136, 139, 148, 156
Greasley v Cooke [1980) 1 WLR 1306, 146, 147, 149, 153, 501
Greenfield v Greenfield (1979) 38 P&CR 570, 252
Greenwich LBC v McGrady (1983) 46 P&CR 223, 240
Grenville House Ltd v Incorporated Owners of Grenville House [1978]
HKLR 235, 425, 426
Griffies v Griffies (1863) 8 LT 758, 234
Griffiths v Williams 0917) 248 Est Gaz, 146
Grigsby v Melville [1972J1'WLR 1355, 323
GS Fashions Ltd v B&Q Pie & others [1995] 1 WLR, 290-291
, !
HA Warner Pty v Williams (1946) 73 CLR 421, 270
Hadjiloucas v Crean [1988] 1 WLR 1006, 271
Hall v Ewin (1887) 37 Ch D 74, 374
Halsall v Brizell [1957] Ch 169, 368-369, 410, 411
Hammersmith and Fulham London Borough Council v Monk [1992] 1 AC
478,240,241
Hampstead & Suburban Properties Ltd v Diomedous [1969] 1 Ch 248, 417
Hang Seng Bank v Mee Chong Developments Ltd [1970] HKLR 94, 480
Hang Tak Co Ltd v A-G (1986) HCt HCA No 2567 of 1983, 284
Hang Wah-chong Investment Co Ltd v A-G [1981) 1 WLR 1141, 306
Hansford v Jago [1921] 1 Ch 322, 333
Hardwick v Johnson [1978) 1 WLR 683, 494
Harmer v Jumil (Nigeria) Tin Areas Ltd [1921] 1 Ch 200, 281
Harris v Flower (1905) 74 LJ Ch 127, 339
Harris v Goddard [1983) 3 All ER 242, 254
Harvey v Harvey [1982) Fam 83, 236
Harvey v Pratt [1965) 1 WLR 1025, 273
Hawkesley v May [1956] 1 QB 304, 253
Hayim v Citibank NA [1987] AC 730, 472
xiv
TABLE OF CASES
Haywood v Brunswick Permanent Benefit Building Society (1881) 8 QBD
403, 371
Haywood v Chaloner [1968] 1 QB 107, 172
Health First Technology Ltd v Chan Chi-cheung [1993] 2 HKLR 473, 57
Henderson v Eason (1851) 17 QB 701, 234
Herbert Duncan Ltd v Cluttons [1993] 3 WLR 1164, 347
Heslop v Burns [1974] 1 WLR 1241, 271, 278
Hetherington dec'd, in re [1989] 2 WLR 1094, 200
Hill v Hickin [1897] 2 Ch 579, 234
Hill v Hill [1947] Ch 231, 104
Hill v Tupper (1863) 2 H&C 121, 321, 322
Hilten, re [1890] 2 Ch 548, 213
Hindcastle Ltd v Barbara Attenborough Associates Ltd [1994] 4 All ER 129, 349
Ho Hang-wan v Ma Ting-cheung (1989) CA Civ App No 42 of 1989, 169
Ho Nga Sheung v Ma Fook Leung (1993) 2 HKC 647, 122, 242, 250, 254
Ho Sei-shing v Wan Ying-him [1959] HKLR 483, 57
Ho Wai-fong v Tang Mei-lin [1987] 3 HKC 458, 286
Ho Yee Ming Theresa v Chung Loi Toi [1994] 1 HKC 618, 176
Hodgson v Marks [1971] Ch 892, 40
Holland v Hodgson [1872] LR 7CP 328, 11
Holliday, re [1981] Ch 405, 264
Holmes, re (1885) 29 Ch D 786, 446
Home Restaurant Ltd, The v A-G [1987] HKLR 237, 22, 308
Hon Hing Enterprises Ltd v Honolulu Land Investment Co Ltd 0992) HCt HCA No
A3557 of 1991, 418, 420
Hon Po Sun v Lau Ngai [1995] 1 HKC 556, 127
Hong Kong Housing Authority, The v Hung Pui [1987] 3 HKC 495, 105
Hong Kong Land Co Ltd v Cheung Chiu-moon (1976) CA Civ App No 214
of 1976, 420
Hongkong and Shanghai Banking Corporation, re (1993) MP No 4049 of
1992, 57
Hong Kong Ferry (Holdings) Co Ltd v Chan Kwan & others [1995] 1 HKC
542, 177
Hong Kong Ping Jeng Lau Co Ltd v Incorporated Owners of United Centre
[1990] 1 HKC 178, 414
Hong Yip Service Company Ltd v Ng Wai Man (1988) CA Civ App No 159
of 1988, 419
Hop Woo-cheung Enterprises Ltd v Intergroup Industries Ltd [1982] HKC
436,301
Hopkinson v Rolt (1861) 9 HCL 514, 483
Horne's Settled Estate, re (1888) 39 Ch D 84, 213
Horracks v Forray [1976] 1 WLR 230, 495
Hotchkys, re (1886) 32 Ch D 408, 213, 215
Hounslow LBC v Twickenham Garden Developments Ltd [1971] Ch 233,
488,491,492
Hoyle, re [1893] 1 Ch 84, 105
Hua Chiao Commercial Bank Ltd v Chiaphua Industries Ltd [1987] AC 99,
360-361, 368
Hughes v Cork (1994) EGCS 25, 168
Hui Kay-cheong v Chi Wo Properties Ltd [1992] HKD CLR 51, 434
Hulme v Brightman [1943] KB 152, 11
Hunt v Luck [1902] 1 Ch 428, 39
Huntingdon v Hobbs (1992) 24 HLR 652, 242, 250
Hurst v Picture Theatres Ltd [1914] 1 KB 1; [1915] 1 KB 1, 488, 490, 491
Hussein v Mehlman [1992] 32 Est Gaz 59, 301
xv
HONG KONG LAND LAW
Incorporated Owners of Chungking Mansions, The v Shamdasani [1991] 2
HKC 342,405
Incorporated Owners of Dragon View v Nalpak Ltd [1989] 1 HKC 549, 419
Incorporated Owners of Golden Crown Court, The v Chow Shun Yung
(1987) HCt HCA No 4322 of 1986, 406, 420
Incorporated Owners of Hoi Luen Industrial Centre, The v Goodwell
Property Management Ltd (1994) HCt HCA No A5450 of 1993, 419
Incorporated Owners of Hoi Luen Industrial Centre v Ohashi Chemical
Industries (HK) Ltd [1995) 2 HKC 11, 420
Incorporated Owners of Mai On Industrial Building v Hedit Ltd (1987) HCT
HCA No A6529 of 1987, 417
Incorporated Owners of South Seas Centre, The v Great Treasure
Development Ltd [1994] 1 HKC 197, 418
Incorporated Owners of South Seas Centre v South Seas Centre
Management Ltd [1986] HKLR 457, 429, 431
Industrial Properties (Barton Hill) Ltd v Associated Electrical Industries Ltd
[1977] QB 580, 279
International Tea Stores Co v Hobbs [1903] 2 Ch 165, 328
Inwards v Baker [1965] 2 QB 29, 151, 501
Ip Cheung Kwok v Ip Siu Bun [1988] HKC 437, 200, 221
Irani Finance Co Ltd v Singh [1971] Ch 59, 217
Irene Loong v Pun Tsun-hang [1959] DCLR 192, 11-12
Irvin v Blake (1993) 67 P&CT 263, 136
J Sainsbury Plc v Enfield LBC [1989] 1 WLR 590, 389
Jackson v Horizon Holidays [1975) 1 WLR 1468, 490
Jacobs v Seaward (1872) LR 5 HL 464, 231, 232, 247, 406
James S Lee & Co (Kowloon) Ltd v Kapok Garments Ltd [1985] 2 HKC 383, 301
Jarvis v Swan Tours [1973] 2 QB 233, 490
Jelbert v Davies [1968] 1 WLR 589, 339
JLW Management Services Ltd & another v Charter Dragon Development Ltd
[1995] 2 HKC 501, 401, 406
John So & another v Lau Hon Man [1993] 2 HKC 356, 407, 416
John Trenberth Ltd v National Westminster Bank Ltd [1979] 39 P&CR 104, 16
Johnson, re [1915] 1 Ch 435, 213
Johnstone, re [1973] Qd R 347, 254
Jones, in re [1893] 2 Ch 461, 239
Jones v Challenger [1961] 1 QB 176, 264
Jones v Lavington [1903] 1 KB 253, 281
Jones v Price [1965] 2 QB 618, 323
Kai Sun Investments Ltd v Dah Sing Bank Ltd [1983] 2 HKC 554, 67
Kan Fat-tat v Kan Yin-tat [1987] HKLR 516, 8, 220, 221, 224
Karak Rubber Co Ltd v Burden [1972] 1 All ER 1210, 130
Keech v Sandford (1776) Se! Cab King, 130
Keefe v Amor [1965] 1 QB 334, 338
Kelsin v Imperial Tobacco Co (of Great Britain and Ireland) Ltd [1957] 2 QB
334, 16
Kemp v Public Curator of Queensland [1969] Qd R 145, 255
Kenny v Preen [1963] 1 QB 499, 280
Kenten Investment Ltd v Hui Lap Ping Sam HCt MP No 3447 of 1991, 119
King, re [1963] Ch 459, 350
King v David Allen & Sons Bill Posting Ltd [1916] 2 AC 54, 497
King's Motors (Oxford) Ltd v Lax [1970] 1 WLR 426, 103
Kingsmill v Millard (1855) 11 Exch 313, 180
Kingsnorth Finance Co Ltd v Tizard [1986] 1 WLR 783, 41-42, 43, 45, 46
xvi
TABLE Or'--
Kingsnorth Trust Ltd v Bell [1986] 1 WLR 119, 46, 460
Kingswood Estate Co Ltd v Anderson [1963] 2 QB 169, 113, 114, 115
Knightsbridge Estates Trust Ltd v Byrne [1939] Ch 441, 450
Kok Chong Ho v Double Value Developments Ltd [1993] 2 HKLR 423, 404, 405
Koo Cheuk Son v Tang Wai Chun [1973] HKLR 891, 407
Koy Investment Co Ltd, in re [1983] HKLR 28, 309
Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25, 454, 455
Kumar v Dunning [1989] QB 193, 361
Kun Wai-ying v A-G [1975] HKLR 1, 308
Kung Wai-ying v A-G [1974) HKLR 1; [1975] HKLR 1, 292
Kung Wong Sau Hin v Jung Kwok-sun [1985] 2 HKC 547, 249
Kwok v Kwok and Smith (1910) 5 HKLR 247, 57
Kwok Siu-lau v Kan Yang-chee (1919) 8 HKLR 52, 61-62, 64
Kwong Ka Hung & another v Lai Wah Development Co Ltd 0996) HCt No
A10566 of 1994, 401-402
Kwong Kai Hing & another v Chan Lik 0995) HCt MP No 1529 of 1995, 121
Kwong Suk-chun v Wong Fung-ming 0989) HCt MP No 66 of 1989, 211, 212, 215
Lace v Chantler [1944] KB 368, 274
Lady de Soysa v De Pless Pol [1912] AC 194, 289
Lai Chi Kok Amusements Park (No 2) v Tsang Tin-sum [1966) HKLR 124, 226
Lai Moon Hung v Lam Island Development Co Ltd [1994] HKC 11, 176-177
Lai Wing Ho v Chan Siu Fong 0992) HCt MP No 2835 of 1992, 401
Lam Kee On v Lam Hing [1992] 2 HKC 317, 176
Lam Kwok-leung v A-G [1979] HKLR 145, 281
Lam Man-yuen v Lucky Apartment [1964] HKLR 689, 269
Lampet's Case (1612) 10 Co Rep 466, 190
Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265, 35-36
Lau Leung Shiv Lau Po Tsun (1911) 6 HKLR 149, 200
Lavender v Betts [1942] 2 All ER 72, 280
Law Ping-wong v Ho Chi-na 0987) HCt HCA NO A1652 OF 1986, 242
Law v Jones [1974) Ch 112, 104, 105
Law Shi Ying v Law Kam Tai [1994] 1 HKC 378, 262, 263
Le Neve v Le Neve (1748) 2 W&T 175, 62
Leake v Bruzzi [1974] 1 WLR 1528, 236
Lee Parker v Izzet [1979] 1 WLR 1688, 296
Lee Siu Man v Chu Chi Wing [1992] 1 HKC 266, 71
Lee Tak Chun v East Weal International Ltd & another [1994] 1 HKC 722, 400
Lee Tak Kwong v Choi Pui Kei Stephen [1991] 2 HKC 1091, 119
Lee v The Showman's Guild of Great Britain [1952] 2 QB 329, 409
Leek and Moorlands Building Society v Clark [1952] 2 QB 788, 240
Leeman v Stocks [1951] Ch 941, 104
Leigh v Dickenson (1885) 15 QED 60, 237, 238, 239
Leigh v Jack (1879) 5 Ex D 264, 164, 171
Leigh v Taylor [1902] AC 157, 11
Leigh's Settled Estates, re [1926] Ch 852, 214
Lemmon v Webb [1895] AC 1, 16
Leung Chung-ting v Tin Yat Co [1963] HKLR 58, 298
Leung Kwok-kau v Tam So-wa [1968] HKLR 673, 10
Lewis v Baker [1905] 1 Ch 46, 274
Lewis v Frank Love Ltd [1961] 1 WLR 261, 449-450
Lewis v Stephenson (1989) 78 LJ QB 296, 314
Lewvest Ltd v Scottia Towers Ltd [1982) 126 DLR 9 (3d) 239, 16
Li Ming On v Lucky Apple Ltd & another [1994] 2 HKLR 111, 400
Li Tang-shiv Li Wai-kwong [1969] HKLR 367, 220, 226
Li Wing-sum v Wu Man [1978] HKLR 575, 279
xvii
HONG KONG LAND LAW
Lily Cheung v CED (1987] 3 HKC 307, 122
Lim Teng Huan v Ang Swee Chuan [1992] 1 WLR 113, 148-149
Lionwill Investment Ltd v Triple Will Ltd [1992] 2 HKC 430, 121
Liu Kwok-wah v Chung Hang-fai Nancy [1989] 2 HKC 259, 242
Liu Ying-wah v Great Mace Trading Co Ltd [1987] 1 HKC 167, 295
Liverpool City Council v Irwin [1977] AC 239, 282, 283, 284, 403
Lloyds Bank v Bundy [1975] QB 326, 458
Lloyds Bank Pie v Rosset [1989] Ch 350; [1990] 2 WLR 867; 43, 45, 128, 134,
135, 136
Lloyds v Banks (1868) 3 Ch App 488, 445
Lo Shun Cheung v Fung Siu Kam [1984] HKC 107, 279
Lo Yu ~hu v Kam Fu Lai Development Ltd [1994] 3 HKC 18, 418, 421
Loi Po Investment Co L~dv Real Reach Co Ltd (1985) HCt MP 1430 of 1984, 306
Lok On Co Ltd v A-G (1982) HCt MP 561 of 1982, 309
London & Blenheim Estates Ltd v Ladbrooke Retail Parks Ltd [1994] 1 WLR 31; [1993]
1 All ER 307, 319, 322, 323
London and South Western Railway Cd v Gomm (1882) 20 Ch D 562, 376
London County Council v Allen [1914] 3 KB 642, 373
London & Country (A&D) Ltd v Wilfred Sportsman Ltd [1971] Ch 764, 351
Long v Gowlett [1923] 2 Ch 177, 329, 330
Lord Hastings v Sadler (1898) 79 LT 355, 180
Lord Waring v London and Manchester Assurance Co Ltd [1935] Ch 310, 476
Lui Kam Lau & another v Leung Ming Fai [1994] 3 HKC 477, 120, 131, 137
Lyons v Lyons [1967] VR 169, 248
Lysaght v Edwards (1876) 2 Ch D 499, 118
Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044, 92, 128, 129, 475, 499
McCormick v McCormick (1921) 40 NZLR 384, 234
McCrea! v Wake (1986) 269 Est Gaz 1254, 286
MacDonald v MacDonald (1976) 73 DLR (3d) 341, 263
McDowell v Hirschfield, Lipson & Rumney [1992] FLR 126, 252
McGrath v Willis [1995] 2 FLR 114, 123
McHardy and Sons (a firm) v Warren [1994] 2 FLR 338, 138
McMahon v Burchell (1846) 2 Ph 127, 235
McMahon v The Public Curator of Queensland [1952] St R Qd 197, 237-238, 239
McManus v Cooke (1887) 35 Ch D 681, 327
Maddison v Alderson (1883) 8 App Cas 467, 111, 112, 113, 115
Maharaj v Chand [1986] 3 All ER 107, 144, 148, 149-150
Mak Him v Chan Hung-pak [1965] HKLR 87, 62
Mak Woon Shui (dec'd), re [1992] 2 HKC 144, 122
Malayan Credit Ltd v Jack Chia MPH Ltd [1986] AC 549, 244
Man Kam-tong v Man Lin-tai (1984) MCA No 5478 of 1981; [1984] HKLR 181;
[1985] 2 HKC 299, 167, 304
Manchester Brewery Co v Coombs [1901] 2 Ch 608, 358
Manjang v Drammeh (1990) 61 P&CR 194, 334
Marchant v Charters [1977] 1 WLR 1181, 268
Marketing Ltd v Cheerifat Investment Ltd (1995) HCt MP No 2727 of 1995, 399
Markou v Da Silvaesa (1986) 52 P&CR 204, 273
Marquess of Zetland v Driver [1939] 1 Ch 1, 374, 386
Marriott v Anchor Reversionary Co (1861) 3 De GF&J 177, 467
Marten v Flight Refuelling Ltd [1962] Ch 115, 381, 384, 387
Massey v Midland Bank Pie [1995] 1 All ER 929, 460
Matharu v Matharu (1994) 68 P&CR 93, 142, 146
Matthew Manning's Case (1609) 8 Co Rep 946, 190
Matthews v Goodday Ltd (1861) 31 LJ Ch 282, 447
Matthews v Smallwood [1910] 1 Ch 777, 295
xviii
TABLE OF CASES
May King Development Co v Young Ching-huo Ltd [1981] HKLR 280, 270
Mayfield Holdings Ltd v Moana Reef Ltd [1973] NZLR 309, 492
Mayho v Buckhurst (1617) CroJac 438,360
Mayluck Investment Ltd v Lee Yih Ping & others 0996) HCt MP No 1537
of 1995, 400
Melvin v Melvin (1975) 58 DLR (3d) 98, 263
Mexx Consolidated (Far East) Ltd V A-G [1987] HKLR 1210, 306
Midland Bank Ltd v Farmpride Hatcheries [1980] 260 Est Gaz 493, 499
Midland Bank Pie v Cooke [1995] 4 All ER 562, 128, 138
Midland Bank Pie v Dobson [1986] 1 FLR 171, 135
Midland Bank Pie v Serter (1995) 1 FLR 1034, 460
Midland Bank Trust Co Ltd v Green [1981] AC 513, 33, 49, 62-63
Mileover Ltd v Brady [1983] 3 All ER 618, 273
Miles v Easter [1933] 1 Ch 611, 382
Miller v Ecmer Products Ltd [1956] Ch 304, 325
Mobil Oil Co Ltd v Rawlinson (1981) 43 P&CR 221, 465
Monnickendam v Leanse [1923] 29 TLR 445, 101
Moody v Steggles (1879) LR 12 Ch 261, 321, 325
Moore v Rawson (1824) 3 B&C 332, 341
Morris v Redland Brick Ltd [1970] AC 652, 419
MRA Engineering Ltd v Trimster Co Ltd (1987) The Times 22 October, 330
Mulahy v Curramore PEY Ltd [1974] 2 NSW LR 464, 165
Multiservice Bookbinding Ltd v Marden [1978] Ch 84, 456
Mumford v Bank of Scotland 0995) The Times 29 September, 457
Murphy v Brentwood District Council [1990] 2 WLR 944, 285
Mutual Life Assurance Society v Langley (1886) 32 Ch D 460, 446
National Carriers Ltd v Panalpine (Northern) Ltd [1981] AC 675, 300
National Provincial Bank v Ainsworth [1965] AC 1175, 39, 496
National Westminster Bank Pie v Morgan [1985] AC 686; [1985] 2 WLR 588,
46,458,459
National Westminster Bank Pie v Skelton [1993] 1 WLR 72, 465, 466
Navigation Co v Lamberg Bleaching Dyeing & Furnishing Co Ltd [1927] AC
226,340
NC Chan v Chung Lee Construction Co [1964] HKLR 254, 492
New Hart Builders v Brindley [1975] Ch 342, 116
Newbould, re (1913) 110 LT 6, 213
Newton Abbott Co-operative Society Ltd v Williamson & Treadgold Ltd
[1952] Ch 286, 380-381
Ng Fung Property Investment Ltd v Lam Ting Sin 0993) HCMP No 2446 of
1993, 176
Ng Kam-ha v Vincent Sina Traders (HK) Ltd [1987] 2 HKC 517, 68
Ngai Hong Cycle (Electric) Ltd v China Harmonious Ltd 0994) HCt MP No
4343 of 1993, 122
Ngan Chor Ying Ann v Yeat Trend Development [1995] HKC 605, 420, 437
Niceboard Development Ltd v China Light & Power Co Ltd 0993) LT MP
No 14 of 1991, 306
Nickerson v Barraclough [1981] Ch 426, 334
Nielson-Jones v Fedden [1975] Ch 222, 251-252, 253, 254
Nisbett and Potts' Contract, re [1906] 1 Ch 386, 376-377
Noak v Noak [1959] YR 137, 239
Noakes v Rice [1902] AC 24, 453, 454
North v Loomes [1919] 1 Ch 378, 104
Oates v Oates [1949] SASR 37, 232, 247
Oceania Manufacturing Co v Pang Kwong-hon [1979] HKLR 445, 7
xix
HONG KONG LAND LAW
Olivesburg Ltd v Volstead Travel Service Co Ltd [1994] 2 HKC 507, 293
One Queen Co Ltd v.Chan Siu-Lan [1989] 1 HKC 146, 273
Orient Leasing (Hong Kong) Ltd v NP Etches [1985] HKLR 292, 13
Osachuk v Osachuk (1971) 18 DLR (3d) 413, 235
Owen v Gadd [1956] 2 QB 99, 280
O'Brien v Robinson [1973] AC 912, 285, 286
P & A Swift Investments v Combined English Stores Group Plc [1989] AC 632;
[1989] AC 633, 361, 362, 374, 414
Palmer, re [1993] Ch 72, 250
Pang Kwan-lung v Ma Choi-hop [1989] 2 HKC 449, 337
Parkash v Irani Finance Ltd [1970] Ch 101, 485
Parker Tweedale v Dunbar Bank Plc [1990] 2 All ER 577, 471-472, 478
Parker v British Airways Board [1982] QB 1004, 17
Parker v Taswell (1858) 2 De G&J 559, 118
Parker's Settled Estates [1928] Ch 247; 214
Parsons v Parsons [1983] 1 WLR 1390, 240
Pascoe v Turner [1979] 1 WLR 431, 153-154
Patten, re (1883) 52 LJ Ch 787, 217
Pearce v Gardner [1897] 1 QB 688, 106
Pearl Island Hotel Ltd v Incorporated Owners of Pearl Island Villas (1988)
HCt HCA No A1528 & 7777-8 of 1987, 414, 429, 431
Pearl Island Hotel Ltd v Li Ka Yu [1988] HKC 512, 411, 439
Peffer v Rigg [1977] 1 WLR 285, 92
Penta Continental Land Investment Co Ltd v Chung Kwok Restaurants Ltd
[1967] DCLR 22, 12
Perera v Vandiyar [1953] 1 WLR 672, 280
Perkins v Perkins, re (1972) 31 DLR (3d) 694, 263
Peter and Angeli Wong Co Ltd v Silverera Ltd [1995] 3 HKC 411, 393
Petrie, re [1962] Ch 355, 213
Petrol Filing Station, re (1969) 20 P&CR 1, 450
Pettitt v Pettitt [1970] AC 777; [1969] 2 All ER 385, 127, 130
Phillips v Mobil Oil Co Ltd [1990] 1 WLR 276, 55 ·
Phillips' Trusts, re [1903] 1 Ch 183, 446
Phipps v Pears [1965] 1 QB 76, 324, 329
Pilcher v Rawlins (1872) Ch App 259, 32, 33
Pinewood Estate, re (1958) Ch 280, 380
Pitt v Jones (1880) 5 App Cas 651, 261
Plimmer v Wellington Corporation (1884) 9 App Cas 699, 141, 149, 150, 501
.potter v Duffield (1874) LR 18 Eq 14, 103
Powell v Mcfarlane (1979) 38 P&CR 452, 165, 168, 169, 170, 171
Predeth v Castle Williams Finance Co Ltd (1986) 279 Est Gaz 1355, 473
Propert v Parker (1832) 3 My & K 280, 289
Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386, 275, 277
Prudential Enterprises.Ltd, The v PH Shek Ltd (1988) HCt HCA No A4911 of 1987,
291,295
Public Trustee of Manitoba and Le Clerc, re (1982) 123 DLR (3d) 694, 256
Pulteney v Warren (1801) 6 Yes 73, 234
PunJong-sau v Pong Wing-kong [1980] HKLR 662; [1977-1979] HKC 210, 262
Purchase v Lichfield Brewery Co [1915] 1 KB 184, 354, 355
Pyer v Carter (1887) 1 H&N 916, 333
Quennel v Maltby [1979] 1 WLR 318, 465
R v Ng Kam-chuen [1986] HKLR 1202, 17
R v Secretary of State for the Envionrnent (1990) P&CR 487, 166
xx
TABLE OF CASES
Ramsden v Dyson (1866) LR 1 HL 129, 140, 141
Rance v Elvin (1985) P&CR 65, 323
Rasmanis v Jurewitsch 0969) 90 WN (NSW) 154, 255
Rawlinson v Ames (1925] Ch 339, 116
Red House Farms (Thorndon) Ltd v Catchpole (1977) Est Gaz 798, 167
Reebok Trading (Far East) Ltd v Pok Fu Lam Management Ltd (1994] 3 HKC 1, 434
Reeve v Lisle (1902] AC 461, 449
Reeves v Pope (1914] 2 KB 284, 37
Regent Oil Co Ltd v JA Gregory (Hatch End) Ltd (1966] Ch 402, 374
Regis Property Ltd v Dudley [1959] AC 370, 288, 313
Registrar-General of New South Wales, The v Wood (1826) 39 CLR 46, 265
Reid v Bickerstaff (1909] 2 Ch 305, 382
Renals v Cowlishaw (1878) 9 Ch D 125, 380, 382, 386
Rhone v Stephens [1994] 2 All ER at 73, 369
Rhone v Stephens (1994] 2 WLR 429, 411
Rhone v Stevens (1994] 2 AC 310, 371
Rice v Rice (1884) 2 Dres 73 VC, 35
Richards v Morgans (1753) 4 Y&C Ex 570, 468
Richardson v Feary (1888) 39 Ch D 45, 262
Risch v Mcfee (1991) 61 P&CR 42, 244
Riseway Investment Ltd v Wong Kwok Chiang & another (1995] 2 HKC 25, 259
Robson v Hallett (1967] 2 QB 939, 488
Rogers v Hosegood [1900] 2 Ch 388, 374, 380, 385, 387
Rose Spicer, Rose v Hyman [1912] AC 623, 293
Rosher, re (1884) 26 Ch D 801, 199
Rossiter v Miller (1878) 3 App Cas 1124, 103
Royal Victoria Pavilion Ramsgate, re (1961] Ch 581, 376
Rugby School (Governors) v Tannahill [1935] 1 KB 87, 292
Ruptash and Lumsden v Zawick [1956] 2 DLR (2d) 145, 239
Rye v Rye (1962] AC 496, 328
Rylands v Fletcher (1868) LR 3 HL 330, 56, 285
Salt v Marquess of Northampton [1892] AC 1, 450
Salvation Army Trustee Co Ltd v West Yorkshire Metropolitan County Council [1980]
41 P&CR 179, 105
Samuel v Jarrah Timber and Wood Paving Co Ltd (1904] AC 323, 449
Sanderson v Berwick-Upon-Tweed Corporation (1884) 13 QBD 547, 281
Sandon v Hopper (1843) 6 Beav 246, 468
Santley v Wilde [1899] 2 Ch 474, 451, 453
Satanita, The [1985] P 249; [1897] AC 59, 409
Saunders v Vautier (1841) 4 Beav 115, 27, 208
Scala House & District Properties Ltd v Forbes (1974] QB 575, 292
Schwaan v Cotton (1916] 2 Ch 120 & 459, 333, 336
Score International Enterprises Ltd v Continental Cement & Gypsum Co Ltd
0995) CA Civ App No 228 of 1994, 103
Security Trust Co v Royal Bank of Canada (1976] AC 503, 63
Selous Street Properties Ltd v Orone! Fabrics Ltd (1984) 270 Est Gaz 643, 347
Selwyn v Garfitt (1888) 38 Ch D 273, 476
Seton v Slade (1802) 7 Yes Jun 265, 447
Shamji v Johnson Matthey [1991] BCLC 36, 478
Sharpe, re [1980] 1 WLR 219, 152
Sheepnip Industries Ltd v Champion Billion Development Ltd 0995) HCt
MP 1390 of 1995, 400
Shephard v Jones (1882) 21 Ch D 469, 468
Shields v Chan [1972] HKLR 121, 312
Shiloh Spinner's Ltd v Harding (1973] AC 691, 292, 294
xxi
HONG KONG LAND LAW
Shun Shing-hing Investment Co Ltd v A-G [1983) 2 HKC 314, 309
Sik Tak Sheung & others v Sik Miu Wai 0993) HCt MP No 2797 of 1993, 216
Silver Source Development Ltd v Time Century Ltd [1992] 1 HKC 366, 299
Simmons v Dobson [1991] 1 WLR 720, 337
Siu Chun-wah Alice v Malahon Credit Co Ltd [1987] 2 HKC 79, 242, 249
Smith and Snipes Hall Farm Ltd and others v River Douglas Catchment Board [1949)
2 KB 500, 378, 379
Smith Bird v Blower [1939] 2 All ER 406, 105
Smith v City Petroleum Co Ltd [1940) 1 All ER 260, 14
Smith v Marrable 0843) 11 M&W 5, 282
Snell & Prideaux Ltd v Dutton Mirrors Ltd [1994] EGCS 78, 342
So Amy & Others v Au Leslie [1995) 2 HKC 113, 104
Somma v Hazelhurst [1978] 1 WLR 1041, 268, 272
Song Ling Investment Ltd v Kin Hing Godown Ltd 0994) CA Civ App 4 of
1994, 423
Southern Centre of Theosophy Inc v State of South Australia [1982) AC 706, 15
Sovmots Investments Ltd v Secretary of State for the Environment [1979) AC
144,330
Spencer's Case 0583) 5 Co Rep 16a, 353-357 passim, 362, 363, 376
Spicer v Martin (1888) 14 App Cas 12, 382
Springette v Defoe [1992) 2 FLR 388, 139
Spyer v Phillipson [1931) 2 Ch 183, 14
Squire v Rogers (1979) 27 ALR 330, 234, 235
Squarey v Harris-Smith (1981) 42 P&CR 118, 332
St Edmundsbury & Ipswich Diocesan Board of Finance v Clarke (No 2) [1975) 1 WLR
468,326,338
Stacey v Hill [1901) 1 KB 660, 349
Stafford v Lee 0992) 65 P&CR 172, 334
Standard Chartered Bank v Walker [1982) 1 WLR 1410, 471, 472, 473
Steadman v Steadman [1976] AC 536, 113-114, 116
Stedman v Smith (1857) SE and Bl, 232
Stokes v Anderson [1991) 1 FLR 391, 244
Street v Mountford [1985] AC 809, 267, 269, 270-271
Strelly v Winson (1684) 1 Vern 297, 234
Sudbrooke Trading Estate v Eggleton [1983) 1 AC 444, 103
Sun Hing Co Ltd v Brilliant Investment Co Ltd [1966) HKLR 310, 290
Sunface International Ltd v Meco Engineering Ltd [1990) 1 HKC 434, 285
Supreme Honour Development Ltd v Lamaya Ltd [1991) 1 HKC 198, 370, 374, 409,
414
Suttill v Graham [1977] 1 WLR 819, 236
Sweet & Maxwell Ltd v Universal News Services Ltd [1964) 2 QB 699, 313
Take Harvest Ltd v Lui [1992) 2 WLR 785, 298, 299
Tam Mo Yin & another v AG & others (1995) HCt MP No 1868 of 1994, 167,
177, 180
Tang Bik-ching v Wong Yuet-ying [1987) DCLR 30, 286
Tang Chi Ho v Wong Yuk Ho & others (1996) CA Civ App No 198 of 1995, 157
Tang Kai-chung v Tang Chik-shang [1970) HKLR 276, 9, 219, 223
Tang Kun Nin v Tang Chun Chak 0992) HCt MP No 761 of 1991, 159
Tang Mei-lin v Tsui Lin [1967) DCLR 33, 298
Tang Ping-hoi v A-G [1987) HKLR 324, 22, 308
Tang Shu Tin v Tang Kin Kwok [1994] 2 HKC 727, 177
Tang Tin-fat v Chan Fok-kei [1993] 2 HKLR 373, 336, 337
Tang Yau Yi Tong v Tang Mou Shau Tso [1995] 2 HKC 245, 221-222
Tang Yin Ling v Wong Sai 0994) HCt MP No 2527 of 1992, 232, 235
xxii
TABLE OF CASES
Tang Ying Ki & another v Maxtime Transportation Ltd 0996) HCt MP No
407 of 1996, 474, 476
Tanner v Tanner [1975] 1 WLR 1346, 494
Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133, 144, 147
Taylor v Ellis [1960] Ch 368, 463
Thames Guaranty v Campbell [1985] QB 210, 248
Thellusson v Wood 0799) 4 Ves 227, 207
Thians Plastics Co Ltd v Tins Chemicals Co Ltd (No 2) [1971] HKLR 249, 57
Thirkell v Cambi [1919] 2 KB 590, 104
Thomas v Hayward 0869) LR 4 Ex 311, 360
Thompson v Park (1944] KB 408, 491
Thornley v Thornley [1893] 2 Ch 229, 265
Thrift v Thrift 0976) 10 ALR 332, 235
Thursby's Settlement, re [1910] 2 Ch 181, 215
Tichbourne v Weir 0892) 67 LT 735, 178
Tickner v Buzzacott (1965] Ch 426, 179
Timmins v Moreland Street Property Co Ltd [1958] Ch 110, 105-106
Tinsley v Milligan [1993] 3 WLR 126, 124
Tito v Wadell (No 2) [1977] Ch 106, 368, 369
Tiverton Estates Ltd v Wearwell [1975] 1 Ch 146, 104, 105, 106
Tophams Ltd v Earl of Sefton (1967] 1 AC 50, 376, 389
Torrens v Walker [1906] 2 Ch 166, 286
Total Oil Great Britain v Thompson Garages (Biggin Hill) Ltd [1972] 1 QB 318, 301
Treloar v Nute [1976] 1 WLR 1295, 165, 167-168
Tribe v Tribe (1995] 3 WLR 912, 125
TRW Steering Systems Ltd v North Cape & others 0993) 69 P&CR 265, 368, 410
TS Cheng & Sons Ltd v A-G 0986) HCt MP 8595 of 1986, 306
Tsang Chuen v Li Po-kwai (1932] AC 715, 52
Tsang Wing-lun v Tsang Lun (1993] 2 HKLR 23, 222-223
TSB Bank Plc v Camfield [1995] 1 WLR 430, 462
Tse Kwong-lam v Wong Chit-sen [1983] 1 WLR 1349, 472-473, 474, 476
Tulk v Moxhay 0848) 2 Ph 774, 179, 370, 371, 382, 410, 411
Turner v Morgan 0808) ~ Ves Jun 143, 234
Twentieth Century Bank Corp Ltd v Wilkinson [1977] Ch 99, 479
Union Assurance Society of Canton v The Hong Kong Land Co Ltd [1977]
HKLR 597; 0978) 8 HKLJ 230, 280
United Bank of Kuwait v Sahib (1995] 2 All ER 973, 447
United Dominions Trust Ltd v Shell Point Trustees Ltd [1993] 3 All ER 310, 293
Vane v Lord Barnard 0716) 2 Vern 738, 287
Vaudeville Electronic Cinema Ltd v Muriset (1923] 2 Ch 74, 13
Villar, re [1929] 1 Ch 243, 193
Viscount Hill v Bullock [1897] 2 Ch 482, 11
Voice v Bell 0993) 68 P&CR 441, 319, 322
Voyce v Voyce 0991) 62 P&CR 290, 148
Wagstaff Settled Estates, re [1909] 2 Ch 201, 214
Wah Ying Properties Ltd v Sound Cash Ltd (1994] 1 HKC 786, 71
Wakeham, re'[1945] Ch 177, 215
Wakeham v Mackenzie [1968] 1 WLR 1175, 113
Wallis's Cayton Bay Holiday Camp Ltd v Shell Mex & BP Ltd (1975] QB 94,
165, 166-167, 171
Walsh v Lonsdale [1882] 21 Ch D 9, 29, 91, 116, 117, 119, 120, 276, 303, 310,
327,329,354
Ward v Duncombe (1893] AC 369, 446
xxiii
HONG KONG LAND LAW
Ward v Kirkland [1967) Ch 194, 332, 333
Warmington v Miller [1973) QB 887, 119
Warren v Kean [1954) 1 QB 15, 287, 288
Waverley Borough Council v Fletcher [1995) 3 WLR 772, 16
Wayfoong Credit Ltd v Li Chi Kin (1985) HCt HCA No A1865, 465
Webb's Lease, re [1951) 1 Ch 808, 335
Wedd v Porter [1916] 2 KB 91, 288
Wellmake Investments Limited v Chan Yiu Tong 0996) CA Civ App No 246
of 1995, 55, 63-64, 92, 500
Welltech Investment Ltd v Easy Fair Industries Ltd 0996) HCt No A5853 of
1994, 405
West v Williams [1899] 1 Ch 132, 484
Western Bank Ltd v Schindler [1977] Ch 1, 465
Wettern Electric Ltd v Welsh Development Agency [1983] 2 WLR 897; [1983)
QB 796, 284, 489
Whaley, re [1908) 1 Ch 615, 11
Wheeldon v Burrows (1878) 12 Ch D 31; 0879) 12 Ch D 31, 85, 330, 331,
332,333,336,397,403
Whitby v Mitchell 0890) 44 Ch D 85, 195
White Rose Cottage, re [1965) Ch 940, 469
White v Bijou Mansions Ltd [1938] Ch 351, 390, 391
White v City of London Brewery Co (1889) 42 Ch D 237, 468
White v Grand Hotel Eastbourne Ltd [1913] 1 Ch 113, 339
White's Settlement, re [1930] 1 Ch 179, 213
Wilford's Estate, in re 0879) 11 Ch D 267, 252
Wilkes, in re [1891] 3 Ch 59, 250
Wilkes v Spooner [1911] 2 KB 473, 36-37
Wilkinson v Haygarth 0847) 12 QB 837, 232
William Brothers Direct Supply Ltd v Raftery [1958) 1 QB 159, 164-165, 168
William & Glyn's Bank Ltd v Boland [1981) AC 487; [1980] 3 WLR 138, 41,
43, 4~ 81, 21~ 218
Williams v Bensman (1861) 1 J & H 546, 245
Williams v Staite [1979] Ch 291, 154-155, 502
Willis v Stradling O 797) 3 res 378, 115
Wilmott v Barber 0880) 15 Ch 96, 142
Winbase Industrial Ltd v Mightyton Property Management Ltd (1994) HCt
HCA No A10232, 437
Winfield Investment Co Ltd v Henry Fok Estates Ltd [1966] HKLR 399, 306, 339
Wing Ming Garment Factory Ltd v The Incorporated Owners of Wing Ming
Industrial Centre [1994] 2 HKC 748, 407
Winster Development Co Ltd v Pang Yin Chang [1993] 1 HKC 95, 359
Winter Garden Theatre (London) Ltd v Millennium Productions Ltd [1948]
AC 173, 490-491
Wong Bei-nie v A-G [1973) HKLR 582, 306
Wong Chim-ying v Cheng Kam-wing [1990] 2 HKLR 111; [1990] 1 HKC 418, 42
Wong Kam Lam v Well Win Investment Ltd [1995] 3 HKC 381, 394, 400
Wong Kam-wing v Cyril Murkin (HK) Ltd [1989) 2 HKC 603, 51, 67, 69
Wong Kam-ying v Man Chi-tai [1967] HKLR 201, 9
Wong Kau v Wong Hsien-chau [1964] HKLR 422, 273
Wong Kwok-chiang & another v Longo Construction Ltd & another [1986]
HKC 362; [1987] 3 HKC 34, 58
Wong Lai Fun v Le Ha [1992] HKLR 125, 119
Wong Lai Ha v Chung Sau Wah [1994] HKC 646, 105
Wong Lai Suk Chun v Wong Chin Ming [1993) 1 HKC 522, 34
Wong Lai-ying v Chinachem Investments Co Ltd (1979) PC PApp No 9 of
1979, 300
xxiv
TABLE OF CASES
Wong v Beaumont Property Trust Ltd [1965] 1 QB 173, 334-335
Wong Wai-fong v Chung Ho [1960] DCLR 218, 279
Woo Turban & another v Taiwan Fuji Trading (HK) Ltd [1995] 2 HKC 481,
399-400
Woodhouse & Co Ltd v Kirkland (Derby) Ltd [1970] 1 WLR 1185, 339
World Realty Ltd, The v Ngar Yin [1986] HKC 508; [1987] 3 HKC 148, 280, 299
Wright v Gibbons (1949) 78 CLR 313, 246
Wright v Macadam [1949] 2 KB 744, 323, 328
Wrotham Park Estates Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798, 375, 387
Wu Koon Tai and another v Wu Yan Loi [1995] 2 HKC 732, 102
Yale v MacMaster (1974) 46 DLR (3d) 167, 263
Yangtsekiang Garment Manufacturing Co Ltd v JM Ronald Denault & Scott Ltd
[1977] HKLR 320, 105
Yau Fook Hong Co Ltd & another v Ng Kwan On & another (1995] HKD CLR
51,438
Yau Fook-hong Co Ltd v A-G [1986] HKC 502; [1988] HKLR 196, 304
Yau Fook-hong Co Ltd v Man Cheung Construction Company [1981] HKLR
60,493
Yeap Cheap Neo v Ong Cheung Neo (1875) LR 6 PC 381, 200
Yeung Kit Lam & another v Lau Yin Shing (1995) HCt MP No 3392 of 1994,
121
Yeung Siu Hong v Chan Siu Mee Sandie [1992] 2 HKC 559, 108
Yeung Wah v Alfa Sea Ltd [1993] l HKC 440, 280
Young v Young [1984] FLR 375, 244
Yu Jing-jeun v Wong Pe-wun (1986) HCt No P2 of 1986, 57
XXV
TABLE OF LEGISIATION
Acts 31 and 32 of Henry VIII, 259
Age of Majority (Related) Provisions
Ordinance No 32 of 1990
ss 8 and 21, 207
Antiquities and Monuments
Ordinance, 17
Application of English Law
Ordinance, 5-8, 190, 233, 234, 337
s 3(1), 7
s 3(2), 7
s 4, 6
Item 31, Sched, 297
Item 33 Sched, 298
Banking Ordinance, 484
Bankruptcy Ordinance, 33, 83
s 47(1), 84
s 49(1), 84
s 59, 300
Basic Law of the Hong Kong Special
Administrative Region, 304
Articles 120-123, 23
Building Management Ordinance,
403, 408, 424, 429-433, 436-440
s 2, 407
s 3A, 424
s 4, 424
ss 5-6, 424
s 14(1), 425
s 14(2)-(3), 425
s 15, 438
s 15(2), 438
s 16, 425, 430
s 18, 426
s 18(2)c, 430
s 18(4), 440
s 19, 428, 435
s 20(2)-(4), 426
s 20(3) and (5), 427
ss 20-22, 430
ss 20-23, 427
s 20A(l), 426
s 21, 427
s 21(1A)(2)-(3), 428
s 21(5), 440
s 22, 427
s 23, 438
s 24, 428, 438
s 27, 427
s 27(2), 439
s 27(5), 440
s 28(1), 439
s 29, 428
xxvi
ss 30-31, 428
s 33, 428
s 34C(2), 440
s 34E, 430, 431, 438, 440
s 34E(2)(b), 431
s 34F, 422, 440
sub-s 34F(2), 423
s 34G, 435
s 34H, 404
s 341, 405
s 34], 440
s 34K, 424
s 341, 440
s 40, 404
s 45, 436, 437, 439
s 45(3), 438
s 45(4)(j), 439
Second Sched, 424
5th Sched, 427
Paras 1-6 7th Sched, 433
Para 7 7th Sched, 431
Para 7(5) 7th Sched, 431
Para 7(6) 7th Sched, 431
Para 8 7th Sched, 432
Eighth Sched, 422
Tenth Sched, 436
Para 1 10th Sched, 437
Para 2 10th Sched, 437
Para 3 10th Sched, 437
Para 4 10th Sched, 437
Para 5 10th Sched, 437
Para 6 10th Sched, 437
Para 7 10th Sched, 437
Para 8 10th Sched, 437, 439
Para 9 10th Sched, 437
Para 4(a) Tenth Sched, 437
Para 4(b)-(c) Tenth Sched, 437
Para 4(d) Tenth Sched, 437, 439
Buildings Ordinance, 70, 71, 86, 307,
404,405,429
s 26, 285
s 27, 285
s 33, 71
s 33(9), 83, 84, 469
Church of England Trust Ordinance,
302
Civil Aviation Act 1949 and the
(Overseas Territories) Order 1969,
16
Companies Ordinance, 428
s 268, 300
Part V, 83, 84
TABLE OF LEGISLATION
Control of Exemption Clauses
Ordinance, 434
Convention of Peking 1860, 22, 23
Convention of Peking 1898, Second,
22
Conveyancing and Law of Property
Act 1881
s 58(1), 389
Conveyancing and Property
Ordinance, 4, 8, 242, 303, 442, 443;
444,445,447,467,469
s 2, 96, 99, 328, 441, 443
s 3, 95, 97, 101, 118, 217, 298, 446
s 3(1), 100, 108
s 3(2), 110
s 4, 95, 98, 258, 298, 327, 341, 423
s 4(1), 95
s 4(2), 96, 106
s 4(2)(d), 107
ss 4-5, 485
s 5, 95, 97, 127, 298
s 5(1), 120
s 5(l)(a), 99
s 5(l)(b), 97, 98
s 5(2), 120
s 6, 95, 106
s 6(1), 106
s 6(2), 107
s 7, 95, 110
s 8, 253, 257
s 9, 243
s 9(3), 230
s 10, 230
s 10(3), 243
s 11, 230
s 13. 38, 158
s 14, 303, 304, 307, 445
s 14A, 392
s 16, 120, 328, 332, 333-334
s 16(1), 327
s 19, 96
s 24, 326
s 25(2), 241
s 26, 390, 412
s 29, 295, 393
s 30, 359
s 31, 350, 356, 357, 467
ss 31-32, 359
s 32, 356, 467
s 35(l)a, 348, 354, 368, 410
s 39, 353, 378, 388
s 40, 375, 389, 415
s 40(2), 353
s 41, 85, 179, 348, 355, 370, 377,
387,410, 411-415, 429,435,467,
468
s 41(2), 423
s 41(8), 348, 349, 368, 410
sub-s 41(l)a, 412-413
sub-s 41(l)b, 375
sub-s 41(l)c, 372, 413
sub-s 41(2), 348, 370, 371, 377,
388,411,414
sub-s 41(2)a, 372
sub-s 41(2)c, 372, 374, 388
sub-s 41(3), 370, 377, 387, 388, 411
sub-s 41(4), 372, 416
sub-s 41(5), 372, 412
sub-s 41(7), 374, 413
sub-s 41(8), 377
sub-s 41(9), 377, 415
s 44, 248
s 44(1), 443
s 44(3), 444
sub-s 44(2), 444
sub-s 44(3), 465
sub-s 44(4)a, 469
s 45, 482, 484
sub-s 455(3), 483
s 46, 445
s 47, 463, 469
s 48, 244
s 49, 462
s 50, 477
s 50(2), 477
s 50(6), 477
s 51, 465, 466, 467, 469, 477
s 51(3), 469
s 51(4), 465, 470
sub-s 53(1), 475
sub-s 53(2), 479
s 54, 467, 476, 477
s 55, 476
s 56, 464, 485
s 56A, 56
s 58, 291, 308, 444
s 58(2), 293, 294
s 58(4), 293
s 62, 253, 254, 297, 298, 470
s 62(2), 297
s 63, 216
Part I First Sched, 348, 354, 368,
410
Cl(c) Part C Second Sched, 464
Cl(f) Part C Second Sched, 463
Form 1 Third Sched, 109, 415
Form 3 Third Sched, 109, 445
Forms 4-5 Third Sched, 443, 464,
469
Form 5 Third Sched, 483
Form 6 Third Sched, 485
Fourth Sched, 477, 479
Para 2 Fourth Sched, 465, 466
Para 4 Fourth Sched, 467
xxvii
HONG KONG LAND LAW
Para 8 Fourth Sched, 469, 470, 475
Para 11 Fourth Sched, 470, 479
Crown Lands Ordinance, 279
Crown Lands Resumption Ordinance,
86,221,309
s 2(d), 309
Crown Lease Resumption Ordinance,
309
Crown Leases Ordinance, 175, 305,
307
s 5(2), 308
s 8, 290
s 15, 340, 391
Crown Rent and Premium
(Apportionment) Ordinance, 354
Crown Rights Re-entry and Vesting
(Remedies) Ordinance, 308
s 3, 308
s 6, 295
s 8, 308
Defective Premises Act 1972, 285
Demolished Buildings
(Redevelopment of Sites)
Ordinance, 307
Distress for the Rent Act 1737
s 18, 298
District Court Ordinance
s 69, 292
s 69(2), 291
Electricity Network (Satutory
Easements) Ordinance, 343
English Land Registration Act 1925
s 70(1)g, 80, 85
English Partition Act 1868, 262
Estate Duty Ordinance
s 3Cl)c, 70
s 5, 70
s 18, 70
s 18(1), 70, 86
Foreshore and Sea-bed (Reclamations)
Ordinance, 15
Grantees of Reversions Act 1540, 356
Inland Revenue Ordinance
s 5, 469
Interpretation and General Clauses
Ordinance
s 2, 5
s 3, 4, 5
Intestates' Estates Ordinance, 4, 33,
265
Judicature Acts 1873 and 1875, 26
xxviii
Land Acquisition (Possessory Title)
Ordinance, 309
Land Charges Act 1972, 6, 48, 49, 6263
s 2(1), 496
s 2(7), 496
Land Development Corporation
Ordinance
s 15, 309
Land Registration Act 1925, 6, 40, 41,
48, 74, 84
Land Registration Ordinance, 8, 34,
48-71, 79, 80, 82, 83, 84, 85, 86,
119, 257, 377
s lA, 56
s 2, 52
s 2A, 56
s 2A(2), 56
s 3(1), 65, 66-70, 377, 482
s 3(2), 54, 58, 59, 60, 61, 62, 6470, 71, 377, 415
s 4, 61, 64
s 5, 65, 51
s SA, 51
s 14, 50
s 16, 57
ss 19-21, 57
Land Registration Regulations, 49
Land Transfer Acts 1862, 1875 and
1897, 74
Landlord and Tenant Act 1730, 297
Landlord and Tenant Act 1927
s 19(1)a, 313
Landlord and Tenant Act 1985
s 11(1), 282
Landlord and Tenant
(Consolidation) Ordinance, 4,
267,298,314
s 52(3), 290
s 93, 296
s 126, 290
Part I, 298, 311, 316
Part I-II, 295, 315
Part II, 280, 286, 298, 311, 316317
Part III, 295
Part IV, 295, 297, 314, 315, 316,
317,347
Part IV-V, 297
Part V, 316, 317
Landlord and Tenant (Covenants)
Act 1995, 347
s 2, 360
s 3, 353, 355, 356, 357
s 5, 348
ss 6-8, 350
Lands Tribunal Ordinance
s 8(9), 292
TABLE OF LEGISLATION
Law Amendment and Reform
(Consolidation) Ordinance
s 13A, 111
Law of Property Act 1925, 5, 8, 20,
217,259,260
s 1(1), 185, 186, 191
s 1(3), 185, 186, 191
s 1(6), 102, 228
s 2(1)(ii), 217, 218
s 4(2), 184
s 23, 217
s 25(1), 213
s 25(2), 216
s 25(4), 213
ss 26(1)-(2), 216
s 26(3), 218
s 28(1), 215
s 28(3), 259
s 30, 259
s 32(1), 215
s 34, 228
s 34(2), 229
s 35, 229
s 36(1), 229
s 36(4), 253
s 38, 389
s 39, 389
s 53(1)(c), 100
s 54, 107
s 56, 390
s 62, 327, 328, 329, 332
s 78, 378, 379, 389
s 79, 375, 389
sub-s 84(1), 392
ss 85-87, 248
s 93, 482
s 99, 463
s 137, 445
s 139, 359
s 141, 350, 357, 362
s 142, 356
s 143, 393
s 145, 275
s 146(2), 294
ss 149(1)-(2), 274
s 149(3), 274
s 149(6), 275
s 154, 358
s 185, 300
s 199, 37
s 199(1)ii, 37
s 205(1) (xix), 185
Law of Property (Enforcement of
Covenants) Ordinance, 370, 411
Law of Property Miscellaneous
Provisions Act 1989
s 2, 101, 111
Law Reform and Amendment
(Consolidated) Ordinance
s 9, 430
Limitation Act 1874, 159
Limitation Act 1980
s 4, 167
Limitation (Amendment) Ordinance
1991, 159, 160, 173
Limitation Ordinance, 83, 86, 87, 157,
158, 165, 167, 176, 177, 222, 485
s 4, 159
s 4(3), 159
s 7, 158
s 8(1), 160
s 9, 161
s 9(1), 178
s 10, 158
s 12, 172, 173
s 13, 158, 160
s 14, 160
s 18, 173
s 19, 159
s 20, 162
s 22, 162
s 26, 163
Marine Fish Culture Ordinance
s 12, 15
Married Persons Status Ordinance,
130,236, 265
s 4(2), 200
s 6, 253, 264
s 9, 133, 134
Married Woman's Property Act 1882,
265
s 17, 130
Matrimonial Homes Act 1983, 496
s 2(8), 496
Matrimonial Property and Proceedings
Ordinance, 236, 264
Mining Ordinance
s 3, 14
Money Lenders Ordinance, 448, 457
ss 24-25, 457
s 25(3), 457
MTR (Land Resumption and Related
Provisions) Ordinance, 309
Multi-storey Buildings (Owner's
Incorporation) Ordinance, 436
s 18(l)c, 421
New South Wales Strata Titles Act
1973, 397
New Territories Leases (Extension)
Ordinance, 22, 175, 308
s 7, 9, 290, 340, 391
New Territories Ordinance
s 8, 22
xxix
HONG KONG LAND LAW
s 13, 9, 219, 220, 343
s 15, 225, 226
Part II, 85
New Territories (Renewable Crown
Leases) Ordinance, 175, 176, 177,
180, 336
s 4(4)c, 176, 177
New Zealand Illegal Contracts Act
1970
ss 6-7, 125
Partition Act 1868, 259, 263
Partition Ordinance, 122, 223, 232,
259,260,263,264
s 2(c),
s 3, 259
ss 4-5, 261
s 4(2), 261
sub-s 4(3), 260
s 6(1), 261
s 6(3), 261
s 6(4), 263
s 15, 260
Perpetuities and Accumulqtions Act
1964, 191
Perpetuities and Accumulations
Ordinance, 8, 191, 196
s 1, 195
s 6, 196
s 7, 197
ss 8(1)-(3), 196
ss 8( 4)-(5), 196
s 9, 197
s 10, 198
s 11, 199
s 17, 207
s 18, 208
Powers of Attorney Ordinance
s 2, 424
Prescription Act 1832, 337, 338
s 2, 338
s 3, 338
Probate and Administration Ordinance
s 62, 212
Public Health and Municipal Services
Ordinance, 285
ss 12-15, 285
s 47, 285
s 127, 285
Public Order Ordinance, 342
s 23, 290, 466
Rating Ordinance
s 21, 468
Real Property Act 1845, 95
Rent and Premium (Apportionment)
Ordinance, 305
XXX
Road (Works Use and Compensation)
Ordinance, 309
Sale of Goods Ordinance, 282
Settled Land Act 1925, 5, 153, 210,
211, 214, 215
ss 38-39, 211
ss 41-42, 211
s 71, 211
Singapore Land Titles (Strata) Act No 2
of 1976, 397
Singapore Land Titles (Strata) Act No
23 of 1982, 397
Statute of Anne, 234
Statute of Frauds 1677, 95, 100, 110,
113
Statute of Quia Emptores 1290, 20
Statute of Uses 1525, 188, 189, 190
Statute of Uses 1535, 27, 28
Statute of Westminster II 1285, 233
Statute of Wills 1530, 190
Supreme Court Ordinance
ss 21F-21H, 292
s 21G, 291
Tenures Abolition Act 1660, 20
Treaty of Nanking, 21, 23
Trustee Ordinance, 214
s 2, 212
s 4, 215
s 4(1)b, 215
s 13, 214
s 15(2), 216
s 33, 200
s 34, 207
s 56, 211, 215
Trusts of Land and Appointment of
Trustees Act 1996, 210, 217
ss 5-6, 215
s 11, 218
Waterworks Ordinance, 14
ss 23-29, 14
Wills Act 1530, 184
Wills Act 1540, 20
Wills Act 1837, 184, 190
Wills Ordinance, 4
s 3, 184, 190
Introduction
1.1
What is Land Law?
Land law is concerned with the relationship of people to land. In Hong
Kong, a number of people may have an interest in a particular piece of land.
There is the owner of the land; there may be persons, or more commonly
a bank, who have provided the money for the owner to buy the land; there
is the person actually occupying the land, who may not be the owner of the
land; and there will be people who come onto the land at the request of
the owner or occupier. An owner of neighbouring land may also have an
interest, in the form of rights over part of the land. He may also be able to
prevent the owner from using the land in certain ways for the benefit of his
adjoining land. All these people have some connection with the land- they
all have some interest in it. It is these relationships of the involved people
to the land and to each other that we will be concerned with in this book.
Studying land law is similar to putting together a jigsaw puzzle: it is not
easy to find a place to start. It is often not until a good portion of the picture
has taken shape that the relationships among the pieces are understood and
appreciated. The traditional approach is to look first at the historical
development of interests in land, through the doctrine of tenure and estates
and the development of basic concepts inherent in ownership interests in
land. The problem with this approach is that it can be a little tedious and
off-putting to the new student. What, after all, does the ownership of a flat
in Hong Kong have to do with the ownership of a castle in medieval
England? The answer is quite a lot, but it is not necessary to appreciate this
fact at the start of one's study.
This introductory chapter looks at traditional concepts of tenure and
estates and the development of equity, as well as other fundamental areas,
namely the classification and definition of land and the sources of our law
governing land. The new student should, initially, skim through this
matfrial and use it as a reference point, returning to it for a greater
appreciation of the subject as his or her knowledge develops.
1.2
Classification
of Property
Land is not the only type of property. The average person will own or have
some interest in a whole variety of things: a flat to live in, personal
possessions such as clothes, furniture, and perhaps a car; cash and perhaps
some investments such as shares in a company and/or an insurance policy,
or an interest in a provident fund or retirement scheme. All these things
come within the concept of property. They have common features but they
differ in a number of ways too. The law, in regulating the relationship
between people and property, identifies these similarities and differences,
and thus
property
is classified
in a number
of ways.
1
HONG KONG LAND LAW
Property in E_nglishcommon law is traditionally classified into three categories:
•
•
•
real property,
personal property, and
chattels real.
l.2.1
Real Property
In early common law, only certain legal actions were available to force a
defendant to return property to its rightful owner. These actions were
known as 'real actions' (in Latin, an action in rem). Real actions were only
initially available in respect of freehold land, which was therefore classified
as real property. The owner of freehold land who had been dispossessed
by another thus could go to court to demand the eviction of a squatter.
1.2.2
Personal Property
The owner of property other than freehold land could not always recover
the property should he for some reason lose possession or control. This
meant that real actions were not available to him. The best the court could
do for him was to require the defendant either to return the property or pay
the owner the value of the property. As the court order was directed to the
defendant personally the action became known as the 'personal action' (in
Latin, an action in personam). Thus the expression 'personal property' is
used to classify all property falling outside the realm of real property.
1.2.3
Chattels Real
Although freehold property enjoyed the benefit of real actions, it suffered from
a number of disadvantages that encouraged the creation of an interest in land
which fell outside the freehold system. This was the lease. Initially,the common
law regarded the lease as no more than a personal contract between the parties
by which the owner of land permitted someone else to occupy the land. The
occupier or lessee might recover possession of the land from the owner or his
heirs who had breached their agreement to lease, but could not recover
possession from a third party. Only personal actions were available to the lessee.
Thus leases were initiallyregarded purely as personal property. The common law
gradually developed actions that enabled the lessee under a lease to recover
possession of the land against a wider circle of defendants and, by the end of the
15th century, with the writ of ejectment a lessee was able to recover possession
against anyone who might dispossess him. Although the lessee now had a real
action, leases were not admitted to the realm of real property. However, it was
clear that the position of leases as personalty was anomalous. Some distinction
had to be made, and thus a separate category of property on the borders of real
and personal property was created to accommodate the lease. Leases came to
be classified as chattels real to mark their hybrid nature.
Within the traditional classifications of realty and personalty, property is
divided into tangible and intangible categories.
2
INTRODUCTION
1.2.4
Corporeal and Incorporeal Hereditaments
At common law, the word 'hereditament' denoted property that descended
to an heir on intestacy, ie realty as opposed to personalty. Traditionally
hereditaments are classified as either corporeal or incorporeal. Corporeal
hereditaments relate to the physical characteristics of the land over which
rights may be exercised and include the land itself; buildings erected on the
land; minerals under the surface of the land; and crops, trees, or other
vegetation growing on the land. Incorporeal hereditaments encompass
rights that are exercisable over the land, the most important of which are
easements (see Chapter 13).
1.2.5
Choses in Possession and Choses in Action
Personalty is also classified into things that are tangible and things that are
intangible. Choses in possession are those moveable objects such as books,
cars, clothes, and jewellery that can be physically possessed. Choses in
action are a little more difficult to define. They encompass intangible rights
in personal property, such as copyrights, patents, and company shares.
They also include the fruits of rights that can only be claimed by taking
action (as opposed to physical possession). The most common example of
a chose in action is a debt.
A traditional property classification can thus be summarised
diagrammatically as follows:
Fig 1.1
Property Classification
Real Property
Personal Property
Chattels Real
Incorporeal
Heriditaments
1.2.6
Corporeal
Heriditaments
Choses
In Possession
Choses
In Action
New Classifications of Property?
The traditional classification of property is important because it is within
these categories that the law has evolved. Many of the developments in land
law depend upon these traditional distinctions, and the traditional terminology
persists. But these categories are no longer very useful in identifying the
distinct characteristics of property rights today. Personal property may now
be recovered by action. The devolution of property on death, which used
to mark one of the· major distinctions between personal and real property,
3
HONG KONG LAND I.AW
is now governed by common rules which in Hong Kong are to be found
in the Wills Ordinance 1 and the Intestates Estates Ordinance. 2 Also the term
'hereditament' has lost much of its significance now that there is no
difference between the devolution of real and personal property on death,
and is not often used. The enforceability and transmissibility of different
interests in property is more helpful in identifying the vital distinctions
between proprietary and personal rights. 3 For instance, one important
current issue is the status of licences over land. These have traditionally
been classified as personal rights, but because they have in certain
circumstances bound third parties, the question arises whether they should
now be regarded as proprietary in nature. But even the tests of enforceability
and transmissibility are under challenge with the emergence of new rights
which, though enjoyed only by the original grantee, are nevertheless
valuable assets: for instance a provident fund entitlement or a tenancy that
is protected under the Landlord and Tenant (Consolidation) Ordinance. 4
The fact is that our rapidly changing world calls for changing perceptions
of our concepts of property.
1.2.7
The Hong Kong Perspective
It may come as a surprise to many that when studying land law in Hong
Kong we are not concerned with real property. We may call builders 'real
estate developers' and land sales agents 'real estate agents', but they do not
develop or sell real estate. They should more correctly be called 'chattel real
developers' and 'chattel real agents', for almost all land in Hong Kong is
leasehold. But the expression 'chattels real' is a mouthful and it is tempting
to use familiar terms. However, it is important for the student or lawyer
negotiating the intricacies of property law to remember that land in Hong
Kong does not fall within the traditional classification of real property.
It is the distinction between personal property and chattels real, rather
than real and personal property, that is of importance in Hong Kong. The
terms 'moveable' and 'immoveable property' are adopted in most ordinances, 5
although the ordinance with which we will be most concerned, the
Conveyancing and Property Ordinance, 6 prefers the term 'land'. The
difference is merely a matter of terminology for the statutory definitions of
'land' and 'immovable property' are almost identical:
land includes:
(a)
land covered by water;
(b)
any estate, right, interest or easement in or over land;
(bb) the whole or part of an undivided share in land and any estate,
right, interest, or easement in or over the whole or part of an
undivided share in land; and
Cap 30
Cap 73
See Lawson: Principles of Property Law, Oxford, Clarendon Press (1958), Chapter 2.
Cap 7
See s 3 Interpretation and General Clauses Ordinance Cap 1.
See s 2 Cap 219.
4
INTRODUCTION
(c)
things attached to the land or permanently fastened to anything
attached to the land. 7
The definitions include both the tangible and intangible aspects of
property rights in land. Paragraphs (a) and (c) identify the physical state of
the land, while paragraphs (b) and (bb) look to the intangible rights that can
exist in or over land. Moveable property is simply defined to include all
property other than land. 8 All these definitions are useful for illustrating the
nature ofland but it must be remembered that they provide only a legislative
definition not a legal classification. The purpose of these definitions is solely
to clarify the meaning of a legislative provision when the term 'land' or
'immoveable property' is used.
1.3
Sources of Hong Kong Land Law
It is impossible to embark on the study of a subject without an idea of its
sources. A detailed study of the sources of Hong Kong law is certainly
outside the scope of this book, but a brief review is useful. There are three
main sources of land law in Hong Kong:
• English law;
• local legislation and case law; and
• Chinese customary law.
1.3.1
Application of English Law
1.3.1.1
English Legislation
9
The application of English legislation in Hong Kong changed dramatically
in 1966 with the enactment of the Application of English Law Ordinance. 10
It is important, however, to be aware of the application of English legislation
before this change.
(a)
Pre-1966 position
Hong Kong is a ceded colony. At the date of its cession, which is normally
taken to be 5 April 1843, the laws of England then in force were applied so
far as suitable to the circumstances of Hong Kong and its inhabitants. This
meant that statutes that were in force in England on that day were
incorporated into Hong Kong law unless they were unsuited to Hong Kong
or its inhabitants. Statutes passed in England after that date were not
incorporated into Hong Kong law unless they necessarily applied because
7
8
9
10
Sees 2 Cap 219. The definition in the Interpretation and General Clauses Ordinance
does µot include para (bb).
See s 3 Interpretation and General Clauses Ordinance Cap 1.
A detailed examination of the reception of English law is found in Professor Wesley
Smith's article 'The Reception of English Law in Hong Kong' (1988) 18 HKLJ 183.
Cap 88
5
l
HONG KONG LAND LAW
of their terms, or were specifically applied by prerogative legislation or by
the enactment of a local ordinance.
(b)
Post-1966
The difficulty of establishing the extent and content of pre-1843 legislation
led to the enactment in 1966 of the Application of English Law Ordinance.
Section 4 of that ordinance applies such English statutes as are set out in the
schedule to the ordinance (subject to such modification as local circumstances
may require) or which are applied to Hong Kong by Order in Council, by
local ordinance, or by the enactment itself either expressly or by necessary
implication. The full text of pre-1843 legislation which is applied expressly
by the ordinance is found in Appendix IIA to the Laws of Hong Kong, and
there is a comparative table of English legislation that has been incorporated
into Hong Kong law by local ordinances in Appendix IIB.
Hong Kong law has not embraced many of the more recent legislative
changes introduced in England, and only some of the far-reaching property
reforms of the 1925 property legislation have been incorporated. 11 Hong
Kong law governing priorities, co-ownership, and settlements are examples
of areas which now differ significantly from current English law. Particular
care, therefore, is required in reading English cases and land law materials,
and it is often the older cases and materials that provide a more accurate
guide to the Hong Kong position. It is necessary always to check first
whether or not a certain statute has been incorporated into Hong Kong law
by reference to the Appendices to the Laws of Hong Kong.
(c)
Applicable pre-1843 English legislation
The schedule to the Application of English Ordinance appears simple: if the
e'nactment is not listed in the schedule it should have no application to Hong
Kong. Unfortunately, the matter is not so simple. What, for instance, is the
position where a pre-1843 statute was applicable to the circumstances of
Hong Kong and had, prior to 1966, been part of Hong Kong law but does
not appear in the schedule? Prima facie it does not apply and the law has
been changed at a stroke of the legislative pen. Unfortunately that stroke
may have the effect of turning the clock back to the common law that was
in force many years ago when quite different social, economic, and political
conditions prevailed. Furthermore, the background to the development of
the law in a particular area may be altered by the removal of an influential
enactment. It can then be difficult to make sense of the altered scene. Given
the long history of the common law relating to land we will encounter
several areas where this problem arises.
The problem may be overcome where the omitted statute abolished a
common law or equitable rule, for it is an accepted rule that the repeal of
11
6
The Land Registration Act 1925, the Land Charges Act 1972, and the Settled Land Act
1925 do not apply to Hong Kong, and only some of the Law of Property Act 1925
provisions apply.
INTRODUCTION
a statute cannot revive the rule it abolished. 12 Thus, if a statute allowed the
exercise of a right that the common law had removed, the Application of
English Law Ordinance has not resurrected the limitation that the repealed
statute removed. But this rule is no comfort where the discarded statute
created a right or obligation not recognised at common law. 13
1.3.1.2
Common Law and Equity
Section 3(1) of the Application of English Law Ordinance provides that the
common law and rules of equity shall be in force in Hong Kong so far as
they apply to the circumstances of Hong Kong and its inhabitants, and
subject to such modification as circumstances require or as may be amended
by any legislation applicable in Hong Kong.
The application of the common law is not limited in time. Developments
in the common law also apply to Hong Kong, subject only to their applicability
to the local scene. Thus it is not the common law as at 1843 that is applicable
to Hong Kong but the common law in its current state of development.
The common law and rules of equity applicable to Hong Kong are not
affected by any legislative amendment that there may have been or may be
made by statute in England unless the statute is itself incorporated into Hong
Kong law. 14 This provision presents the difficulty of establishing exactly
what the common law was before a statute, which does not apply to Hong
Kong, was passed. That may be easy where the statute is recent but where
it was passed many years ago the task is difficult and the result could be
bizarre. Was it really intended that we should turn back the clocks in some
areas to the 15th or 16th century? Land law is unfortunately one of the areas
where ancient statutes still operate and where this question is particularly
pertinent. Some assistance is derived from the rule, already noted, that the
repeal of a statute does not revive anything that the statute abolished, but
problems persist where the statute created a right or obligation that did not
exist at common law. 15
The rules of common law and equity applicable in Hong Kong may be
affected by decisions of the English courts provided that the decision does
not turn upon a statutory provision that is enforced in England and not in
Hong Kong. There is some difference of opinion as to whether all decisions
of the Privy Council, as the highest court in Hong Kong, are binding on the
Hong Kong courts. Certainly decisions of the Privy Council on appeals from
Hong Kong are binding, but the applicability of decisions from other
jurisdictions may be limited to cases where the law at issue in the case is
the same or very similar. The creation of a final court of appeal for Hong
Kong should remove these uncertainties; Privy Council decisions will
become merely persuasive.
12
13
14
l5
Oceania Manufacturing Co v Pang Kwong-hon [1979] HKLR 445
See Wesley Smith: 'The Effect of Pre-1843 Acts of Parliament in Hong Kong' 0984) 14
HKLJ 142.
See s 3(2) Cap 88.
See Wesley Smith (1984) 15. 'The Effect of Pre-1843 Acts of Parliament in Hong Kong'
14 HKLJ 142.
7
HONG KONG LAND LAW
The decisions of the House of Lords are not binding in Hong Kong but
are of very strong persuasive authority, given the similar membership of the
House of Lords and the Privy Council. The decisions of the English Court
of Appeal and High Courts are only persuasive, with, needless to say, the
decisions of the higher court given more weight. 16 Decisions of the courts
in other common law jurisdictions are also of persuasive authority, and
indeed prove particularly useful in areas of land law where the position in
the relevant jurisdiction is closer to that of Hong Kong than the prevailing
English position.
The English common law and equity can only be applied as appropriate
to the circumstances of Hong Kong. The courts have adopted a strict test:
only if the rule will cause hardship or oppression will it not apply in Hong
Kong.17
1.3.2
Hong Kong Ordinances and Case Law
1.3.2.1
Hong Kong Ordinances
England had its property revolution in 1925, but Hong Kong waited until
1984 to follow suit with the Conveyancing and Property Ordinance. 18 Even
then the full breadth of the 1925 property reforms was not enacted simply
because they are not applicable to the differing circumstances of Hong
Kong in the late 20th century. Only selected provisions of the Law of
Property Act 1925 have been enacted, and in some cases the provisions
have been amended and updated. The Conveyancing and Property
Ordinance goes further than merely enacting selected provisions of the
Law of Property Act 1925. It also introduces reforms unique to Hong Kong,
and consolidates existing provisions relating to property that were scattered
through a number of ordinances.
There are, of course, a range of other ordinances, some of which
duplicate current English legislation. An example is the Petpetuities and
Accumulations Ordinance. 19 Others are derived from earlier English or
colonial legislation, which have been repealed in their country of origin. An
example is the Land Registration Ordinance. 20
1.3.2.2
Hong Kong Decisions
There is a growing body of Hong Kong case law in the property area. As
far as possible reference will be made to Hong Kong decisions, but
inevitably decisions from other jurisdictions are relied on extensively.
16
17
18
19
2
8
°
de Lasala v de Lasala [1979] 2 All ER 1146
for instance, Kan Fat-tat v Kan Yin-tat [1987] HKLR 516.
See,
Cap
Cap
Cap
219
257
128
INTRODUCTION
1.3.3
Chinese Customary Law
Chinese customary law continues to operate in the New Territories. The
New Territories Ordinance 21 recognises the continued force of Chinese
customary law in relation to land in the New Territories, and where
customary law is applicable the courts are obliged to give effect to it.22
Not all land in the New Territories falls within the operation of s 13 of
the New Territories Ordinance, however. There is power under s 7 to
exclude grants of land from the operation of the ordinance. Grants of land
in New Kowloon are exempted and a few grants in the rest of the New
Territories have been exempted on a case by case basis, but the vast majority
of the land in the New Territories falls within the operation of the ordinance
and is subject to Chinese customary law. There is perhaps a need for more
widespread exemption of land from Chinese customary law, given the
widespread urbanisation of the New Territories.
Where customary law does operate, it primarily affects family matters
including marriage, adoption, divorce, and succession (all of which are
outside the scope of this book). But customary law does continue to play
a role in the holding of tong and tso land, which we will consider
in Chapter 9.
Chinese law and custom is to be found in the Codes of the Qing dynasty
as supplemented by customary rules. Chinese customary law is not fixed.
Unlike the English law concept of customary law, it does not need to have
existed from time immemorial. It may vary from locality to locality or even
from one clan or family group to another. It may also adapt to changing
circumstances by evolution ratherthan any procedural process of amendment.
At one time it was thought that Chinese customary law should be frozen in
the 1840s but it is now accepted that it may develop with changing
circumstances in Hong Kong. 23
It is not easy to find out exactly what the customary law is, and when
a case comes to court much reliance is placed upon the evidence of
recognised experts on the subject.
1.4
Physical limits of Land
At common law the principle is that the ownership of a piece of land includes
everything above the land and everything beneath the land. However, there
are now so many limitations on this general principle that we must look a little
more carefully at exactly what the ownership of a piece of land includes.
1.4.1
Buildings
Land includes any buildings that are erected on the land. In Ho~g_I<.g_11_g__
most
buildings comprise many storeys, anc:l_<!ldmugh-.the-r--Gcifofa.huikli11_g__may
----~---·---------·
----
21
Section 13 of Cap 97
22
Tang Kai-chung v Tang Chik-shang [1970] HKLR 276
Wong Kam-ying v Man Chi-tai [1967] HKLR 201
23
9
HONG KONG I.AND IA W
~ be a long way from the ground it is considered part of the land. Many people
r
wish to own a part of a multi-storey building_:_ indeed there are few people
in Hong Kong who can afford to purchase a whole building! The horizontal
-\7~~.?h~J?of a piece of airspace or underground terrain is possible, but is
fraught withprc561ems: that ownership~nron~_JBJPPOrt
of the
ownership of the airspace Q~nathe
protection of the airspace
orsoila56ve: ________ _
In Hong Kong th"<:~!l~rshi~1~nits
it:ha__mclti::Storey
~ng
is
achieved though th~~
o~ co-~~~
(see Chapter 10).ijngland has
also been reluctant to deve~~p_the_Jmrizontal..ow:ne~--4-a--pieee
of
airs.pace. Although 'flyingfweholds', as they are known, do exist, the
o~nership structure
a ~uiti-si:;rei building in England is usually
achieved tbrough.the-use.J).fleases. Othe;}urisdictions, including Australia,
New Zealand, Malaysia, and Singapore have developed systems to overcome
the problems of the horizontal ownership of airspace through the adoption
of the concept of strata titles. 24
The vertical division of the ownership of a piece of land into a number
of smaller lots causes few problems other than one of degree. There can
come a point where it is impossible to. divigejt piece o£.laoo-imc,sm:atter
parts, simply because oflhe difficulty of acc~ratelyidentify.ing.theoY.J:JJia-Fies
of that land. tr instance·,--i~--Hong-Kong ii°has been decided that it is
5
.T1inp6ssibleto own the bare.surface ofa wan as 012posed.to-the.w..a1Litsel£}
. Jx~_)}
o:r
1.4.2
Fixtures
A chattel, when it becomes attached to the land or a building which forms
part of the land, may also become part of the land. When a chattel beco_rnes
part_9f.th~ land by attachm~ it is kno~_a--'-fmure';
Whether or not a
chattel becomes a fixture will depend uponthe intention with which .the
chattel was brought onto the land. If it was brought onto the land with the
intention of its forming part of the land it will become a fixture. There are
two tests to be applied to ascertain the owner's intention: first, the degree
of annexation, and second, the purpose of annexation.
1.4.3
Degree of Annexation
Prima facie the affixing of a c:h~!teLt2!he)~_I2<1-Will
point to an intention that
it is to be incorporated into the· land. It is for the party claiming that the
chattel has remained as such to ~fixrnre...
On the other
hand, if the chattel is not annexed to the land as such but merery tests on
the land by its own-weight.,. the12re.§_l!m2tion,Js.
that-it-remaifis-.a-e:hattel.In
this case, a party claiming that it is a fixture must bear the burden of proof.
One of the justifications for the degree of annexation test was the fact
that a ~!b3.t~as firmly affix~ciwasJikely-tohe.mgre cljfficultto remove
without damaging-the-Ian~-o~- the chattel itself. Advance~ in-technology
24
2
,,
J
10
England is contemplating introducing a strata title system known as 'Commonhold'.
s Leung Kwok-kau v Tam So-wa [1968) HKLR
673
INTRODUCTION
make it much easier to affix and r-_em_ove
ch_attel~wjthouulamagingtheland,
so this consideration ha;b~~omel~~s.i111Qgrt::m,L.;1nd the degree.of
annexat1011isno long~r the ~edsive test.
1.4.4
•
Purpose of Annexation
The decisive test to establish whether there is sufficient intention for a
chattel to become a fixture is to consider the purpose of annexation. Even
if a chattel is attached quite firmly to the land it will not qualify as a fixture
if the reason it was so attached was for the better enjoyment of the chattel
rather than the better enjoyment of the land(Thµs, for instance,. a machine
whi<;=_~.!.~~a~ed
on ~h: ~r()und so thatit, can be betteroperated,will re~aj;i
a chatt~J.¢ but where a machine is fixed to the ground not just to assist in
its oper..a.f·i···o·
n·
..···b.utwith th~. u·····l··t·im
.. ate.. 1.·n···•t·e•.•n··t•.io.
>IyGffimproving the value of the
property, the machine will become a fixtur~ikewise
tapestries, pictures,
or other works of art that are fixed firmly to}the wall may remain chattels
where it can be established that the reason they were attached was to be
better enjoyed as works of art. 28 On t9:;;:gth,er
hand, statues that rest by their
own weight on the ground may be pl::iced there as part of the overall
architectural design of the property, pointing to an intention that they
should become fixtures in sµife of their lack of attachment to the land. 29
Although the purpose of annexation is now considered the decisive
guide to the party's intention, it is a test still fraught with difficulty. The test
can become somewhat circular, for the purpose of attaching most arti~les
to the land is to improve the enjoymenfofthe land in some way. Various
factors may, however, help to pinp~int whether the ultimate object of
annexation was for the better enjoyment of the chattel or the land. For
instance, if the article is only pla~ed on the land temporarily it is likely that
it was not intended to become part of the land since its removal is
anticipated. If an article cannot be enjoyed on its own as a chattel but only
as part of the land, then the inference is likely to be that article has become
a fixture, since its only purpose can be to improve enjoyment of the land.
The tests are easy to state but their application is often far from easy. The
difficulties are neatly illustrated by a number of cases in Hong Kong which
consider whether or not various types of air-conditioners are fixtures.
FACTS
The defendant rented property from the plaintiff where he ran a ballroom.
He hired four 'window type' air-conditioners, which were installed by the
29
Hulme v Brightman [1943] KB 152
Holland v Hodgson [1872] LR 7CP 328
Leigh v Taylor [1902] AC 157; Berkley v Poulett [1976] 241 Estates Gaz 911 and 242
Estates Gaz 39; and Viscount Hill v Bullock [1897] 2 Ch 482
D'Eyncourt v Gregory [1866] LR 3 Eq 283 and Re Whaley [1908] 1 Ch 615
11
HONG KONG LAND LAW
use of brackets into windows of the ballroom but could easily be removed.
The defendant fell into arrears with the rent and the plaintiff took out a
distress warrant which entitled the bailiff to seize moveable goods on the
premises in order to meet the arrears of rental. The bailiff seized the
air-conditioners. The hirers of the air-conditions complained, claiming that
the air-conditioners had become fixtures and could not be the subject of
distress, which is exercisable only against moveable property.
JUDGMENT
____
The air-conditioners were(fixtu[es'. 1
''-,:-_:;,:;;:."~
r-Although the air-conditioners could be easily removed without injury to
/the windows or the building, it was the purpose of annexation which
Ipersuaded the court that the air-conditioners were fixtures. Huggins J,as he
/ then was, commented that:
l
f
An air-conditioner cannot be enjoyed separately from a room or
building. Clearly the purpose of installing these particular machines was
to improve the premises by rendering the atmosphere inside more
conducive to the practice and enjoyment of the art of dancing and not
for the better enjoyment of the machines as chattels.
.
Furthermore he rejected arguments that the air-conditioners had been
~fixed only temporarily.
Penta Continental Land Investment Co Ltd v Chung Kwok Restaurant Ltd
[1967] DCLR 22
FACTS
The defendant rented restaurant premises from the plaintiff but he fell
behind in payment of his rent and the plaintiff took out a distress warrant.
Three air-conditioning machines were seized by the bailiff but the defendant
claimed they were fixtures. The machines were bolted to frames which
rested by their own weight on a roof adjacent to the premises. Electricity
was supplied to the machines by wires, and the cold air produced by the
machines was fed into the building by ducts, which the court accepted were
fixtures.
i
JUDGMENT
,,
I
The air-conditioning plants h;:id"tiot become fixtures.
/
12
-.~,,,,,,_~.,.
INTRODUCTION
r
The court was almost solely concerned with the degree of annexation,
ivhich they concluded was not sufficient to rob the machines of their status
4s chattels. The purpose of annexation was hardly considered except to
i/i_otethat, although the machines were of little use if not connected to the
~uilding, they were complete units in themselves.
l.
Leasing
v NP. Etches [1985] HKLR 292
FACTS
The plaintiff supplied a number of I?~~-5~(~-S:~~~al,:ir-conditioning system
to a developer for installation into a'building he was consfruc:ting. A dispute
arose between the plaintiff and the developer's mortgagee as to whether the
parts were fixturt;s and subject to the defendant's mortgage.
JUDGMENT
The parts were ~fi~~s.
Although the degree of attachment of some of
the parts was slign('the clear intention was that they should all become an
integralpart ofihe building'. - --_,__. -
"-· -, ,~, I
•
These three different decisions may be reconciled on the basis that they
all related to ciifferent parts of air-co11ditioning systems, but the reasoning
uporiwhich distinctions were dra~~ i~ less easy"fo reconcile. Perhaps the
simple answer is that in applying the tests there is ample room for the
exercise of judicial discretion, so that although a particular chattel may
qualify as a fixture in the circumstances of one case it may not do so in
another.
1.4.5
Removal of Fixtures
If a chattel becomes a fixture, its ownership will vest in the owner of the
land and will change with the ownership of the land. A vendor is thus not
entitled to remove fixtures when he sells his land unless he has agreed
specifically with his purchaser that he can do so. The same general rule
applies to mortgages and leases but with some slight variation.
1.4.5.1
Mortgagor/Mortgagee
Fixtures whether affixed before or during the life of the mortgage will
become subject to the mortgage and can only be removed with the consent
of the mortgagee. 30
30
Vaudeville Electronic Cinema Ltd v Muriset [1923] 2 Ch 74
13
HONG KONG LAND LAW
1.4.5.2
Landlord/Tenant
Not all fixtures will return with the land to the ownership of the landlord
at the end of a lease. A tenant has a right to remove trade fixtures 31 or
ornamental and domestic fixtures 32 during his tenancy or within a
reasonable period after its expiry, and provided he can do so without
substantial or irreparable damage to the land.
I
!
1.4.6
Vegetation and Minerals
Plants, trees, and crops growing on the land form part of the land, although
crops do not automatically pass on the sale of land since they are the
product of the owner's labour as well as the soil. Minerals found beneath
the ground belong to the Crown. It is a standard provision in Crown leases
in Hong Kong to reserve minerals to the Crown, but in any event they are
deemed to belong to the Crown by legislation. 33
l.4.7
Water
The fact that land is covered by water does not prevent it from qualifying
as land. Thus lakes, streams, or fish ponds that are situated within the
boundaries of a piece of land form part of that land. Where the land abuts
a non-tidal river or stream, the owner of the land is deemed to own up to
the mid-point of the river bed, but he may not be free to use the water as
he wishes for he does not own the water as such. Where an owner's land
abuts the sea or a tidal watercourse, he has no rights over the foreshore
which is owned by the Crown.
At common law an owner can draw on water from a well or other
percolating source. His right to take water from a stream or river, however,
is limited to such water as is reasonable for the ordinary enjoyment of the
land unless the water is restored to the water course in substantially the
same volume and condition.
The supply of water, which is a scarce commodity in Hong Kong, is
within the control of the Water Authority under the Watenuorks Ordinance. 34
It is an offence to unlawfully take water from waterworks under the control
of the Water Authority. Waterworks include not only reservoirs but also
catchment areas in which privately owned land may lie. However, the Water
Authority, in mapping out catchment areas,is required to take into account
traditional rights to water for agricultural and domestic purposes. 35
I
j,
!';
I
31
32
33
31
35
14
Smith v City Petroleum Co Ltd [1940] 1 All ER 260
Spyer v Phillipson [1931] 2 Ch 183
Section 3 Mining Ordinance Cap 285
Cap 102
Sections 23 and 29
INTRODUCTION
1.4.8
Accretion and Erosion to the Land
Land may be lost or added to by forces of nature: for instance, the action
of water and wind may erode or increase land that abuts water. The
common law recognises that the ownership of a piece of land may be either
extended or eroded by the forces of nature provided that, in the case of the
addition of land, the accretion must be gradual and imperceptible over a
period of time.
The question has been considered by the Privy Council in:
-~-~-~IELLUD==
■
=-'■·
Southern Centre of Theosophy Inc v State of South Australia [1982] AC 706
FACTS
A plot of land in Southern Australia bordered a lake. Over a period of 65
years, approximately 20 acres were added to the land where it bordered the
lake as a result of the deposit of sand and soil by the retreat of water from
the lake, and sand blown by the wind from nearby sand dunes.
JUDGMENT
The additional 20 acres formed part of the plot as a result of the doctrine
of accretion. Although it was possible to ascertain the original boundaries
from the Crown lease under which the land was held, the doctrine still
applied.
1.4.9
Reclamation
Reclamation of land in Hong Kong has considerably extended the land
available for development since the territory was first established. All
reclamation is now controlled by the Government under the Foreshore and
Sea-bed (Reclamations) Ordinance, 36 and the ownership of the reclaimed
land vests in the Crown as owners of the sea-bed.
1.4.10
Animals and Fish
A wild animal does not belong to the owner of land on which it lives,
although if the owner kills the animal it becomes his property. An owner
also has a right to fish in the river, stream, lake, or pond upon his land or
upon which his land abuts. The public has a right to fish in tidal waters except
in those areas which the Government has designated fish culture zones.37
36 Cap 127
37 Section 12 Marine Fish Culture Ordinance Cap 353
[uuAN
·cou.ic·u.··,uiiic
.Lm;msJ
1s
HONG KONG I.ANDIA W
1.4.11
Airspace
It is clearly impractical in this age of air and space travel for the owner of
land to be able to control the use of the airspace above his land. Indeed it
has been doubted that anyone can own airspace beyond the height of the
atmosphere. Even in the lower atmosphere an owner's rights are restricted.
For instance, the Civil Aviation Act 1949 and the (Overseas Territories)
Order 1969 prevents an owner bringing any action in trespass or nuisance
in respect of aircraft that fly over his land at a reasonable height, or when
landing or taking off from an airport. 38 An owner can bring an action for
infringements of that portion of the airspace over his land which is
necessary for the reasonable enjoyment of his land. 39 Overhanging trees, 40
advertising signs, 41 and cranes 42 have all been the subject of successful
trespass actions.
1.4.12
Lost and Hidden Objects
Chattels under the ground will prima fade belong to the owner of the land.
Waverley Borough Council v Fletcher [1995] 3 WLR 772
FACTS
The plaintiff council owned a park to which members of the public had free
access. The defendant as a member of the public had gone into the park
with his metal detector and had found a medieval gold brooch buried about
nine inches under the ground. He dug the brooch out and reported the find.
The brooch was returned to him but the plaintiff claimed it was their
property having been found on their land.
JUDGMENT
The council were entitled to the brooch. Where a chattel was found in or
attached to the land the owner of the land had the better title to the chattel
than the finder.
Articles found on the ground or in a building erected on the land will only
belong to the owner of the land instead of the finder of the article if the
owner has clearly shown his control over the building or the land and the
things that are in the building or upon the land. For instance, if the article
38
39
40
41
42
16
See Sections 40 and 41
Berstein v Skyviews & General Ltd [1978] QB 479
Lemmon v Webb [1895] AC 1
Kelsin v Imperial Tobacco Co (of Great Britain and Ireland) Ltd [1957] 2 QB 334
Lewvest Ltd v Scottia Towers Ltd [1982] 126 DLR 93d) 239; John Trenberth Ltd v National
Westminster Bank Ltd [1979] 39 P&CR 104; and Anchor Brewhouse Developments Ltd v
Berkley House (Docklands) Development Ltd [1987] 2 EGLR 172
1.Y~J...,,i
~, , .,:.~§"f.c:
'.,1•·'.$
INTRODUCTION
is found in a private flat over which the owner has exclusive rights of
control, the owner may well have a superior claim to the finder. But the test
is not easy to satisfy as is illustrated by the following case.
Airways Board
FACTS
A gold bracelet was found by a passenger on the floor of the executive
lounge at Heathrow Airport. The passenger claimed ownership of the
bracelet.
JUDGMENT
The bracelet belonged to the passenger rather than the airport authority.
Although access to the lounge was restricted to a certain class of traveller,
that was insufficient to demonstrate an intention to control all things that
might be found in the lounge.
Interestingly, the Hong Kong courts have adopted the same test to govern
the entitlement to a valuable article found in an aircraft. 43
The rights of a land owner to a chattel that is found by someone else on
his land are not absolute. The owner of the chattel has a prior claim, and
the land owner is obligated to take all reasonable steps to locate the true
owner and to look after the chattel in the meantime.
At common law, 'treasure trove', which is confined to gold and silver
articles, belongs to the Crown. In Hong Kong, however, the Antiquities and
Monuments Ordinance 44 now governs the ownership of articles found on
land that are of interest by reason of their age. Fossils or articles that were
made or otherwise created by human agency before 1800 are termed 'relics'
and automatically belong to the Government. The Government may, if they
wish, disclaim such ownership, in which case the article becomes the
property of the owner of the land or the finder according to the common
law rules discussed above. 45
1.5
Concept of Land Ownership
English common law does not recognise the concept of absolute ownership
of land. All land is owned by the Crown, which then grants the right to use
the land to an individual. What the individual therefore 'owns' is a bundle
of rights and obligations which will subsist for a certain period of time. This
leads to two fundamental concepts:
43
See R v Ng Kam-chuen
44
Cap 53
45
See 1.4.12.
[1986] HKLR 1202.
17
HONG KONG I.AND I.AW
• tenure: describes the nature of rights and obligations enjoyed by the
individual; and
• estate: describes the period of time for which a given tenure subsists.
1.5.1
Doctrine of Tenure
In order to appreciate the development of the different tenures recognised
by the common law and how they have been applied in Hong Kong it is
necessary to embark on a journey back in time.
1.5.1.1
The 'Feudal Fairy Tale'
Once upon a time England was conquered by the French king, William the
Conqueror. To bring his newly conquered lands under his control, William
introduced a system of land holding from Europe called the 'feudal system'.
Under this system all land was owned by the king, who granted the right
to possess and use the land to his faithful lords in return for the performance
of certain services. These lords in turn would grant the use of the land to
others in return for services. This system of granting land in return for
services was repeated to build up a chain of ownership (see diagram
below).
Fig 1.2
Feudal Chain of Ownership
The King
I
I
I
Tenant in Chief
(to whom the King granted the land)
I
I
Lords
I
I
Tenants in Demesne
(the tenant in actual possession)
The process of adding another link to the chain was known as
'subinfeudation' since the interest of each person in the chain was known
as a 'fee'.
The various forms of service that could be required from a tenant by his
lord initially were numerous. Land was in effect used as a form of exchange,
but as time went on these services became standardised. The type of
services that were required dictated the relationship or tenure between the
tenant and his lord. The main tenures can be summarised as:
18
INTRODUCTION
• Military Tenure, which required the provision of military assistance to
the lord. This took the form of, for instance, the provision of knights,
known as 'knight service', or the provision of services of a more personal
nature, known as 'grand serjeanty'.
• Spiritual Tenure, which
as the saying of prayers
services were known
depending on whether
•
required the provision of religious benefits, such
or the conducting of religious ceremonies. These
as either 'divine service' or 'frankalmoign',
the type of benefit was specified.
Socage Tenure, which covered a whole range of services, often of an
agricultural nature, such as so many days of ploughing or harvesting.
Socage became the residual tenure into which land was classified if the
sevices did not fall into the other tenures.
• Villein or Copyhold Tenure, which also required the prov1s1on of
agricultural work. In contrast to socage, the nature of the work that the
lord could require his tenant to perform was not specified: for instance,
a number of days' labour was simply required.
The tenures were divided into free and unfree tenures. Military, spiritual,
and socage tenures were classified as free tenures. Villein tenure was
classified as unfree because the tenant was uncertain as to what he would
have to do to perform his obligations to his lord. He might have to plough
a field or harvest a crop. It ,was up to his lord to decide.
Military services, although prestigious, carried additional burdens known
as 'incidents' which for the most part were due when the tenant died. For
instance, if the tenant died leaving an heir of full age, the lord could demand
a type of tax known as relief; if the tenant died leaving an infant heir, the
lord was entitled to take over the land during the heir's minority subject to
an obligation to look after the heir. This latter right was known as 'wardship'
and also permitted the lord, as the heir's guardian, to arrange his marriage.
If the tenant died leaving no heir at all, the land reverted to his lord, an
occurrence known as 'escheat'.
As the years passed the value of the services diminished. Money become
a more important form of exchange, and the services were transformed into
money payments. The distinction between the different types of services
thus disappeared, and with them the imp01tance of the different tenures.
The money equivalent of the services in tum declined in importance as the
value of money fell, so that they became hardly worth collecting. But the
incidents remained important, in fact more important, because they were
to some extent inflation-proof: their value was tied to the production value
of the land.
The process of subinfeudation seriously affected a lord's right to
incidents. He could easily lose track of his direct tenant, where that tenant
had allowed another to take possession of the land, and thus he did not
know when he was entitled to claim his valuable incidents. Also wardship
could turn out not to be so valuable if the services that the ward required
19
HONG KONG LANDLAW
of his tenant were of little or no worth. As a result the process of
subinfeudation was abolished by the Statute of Quia Emptores 1290. If a
lord wished to dispose of his land, the new lord had to take his place in the
chain rather than add another link. This process was called 'substitution'.
The combined effect of escheat and the Statute of Quia Emptores 1290
was thus to shorten the feudal chain so that more land became held directly
from the Crown, and as a result its revenue from incidents grew. This source
of revenue was very convenient for the Crown because it was not
dependent on the sanction of Parliament. It is thus not surprising that in the
17th century, when the king and his Parliament were locked in a bitter battle
for constitutional change, that Parliament struck at the Crown's revenues
raised from incidents by passing the Tenures Abolition Act 1660. This act
abolished incidents and effectively reduced the tenures to two: socage,
more commonly known as freehold; and copyhold tenure. The Law of
Property Act 1925finally abolished copyhold, leaving freehold as the only
remaining feudal tenure.
Fig 1.3
The Development of Tenure
Tenure
Free
Spiritual Tenures
Unfree
Military Tenures
(effectively abolished by the
Tenures Abolition Act 1660)
VilleinorCopyholdTenures
(abolished by LPA 1925)
Socage or Freehold
The feudal system of tenures was, of course, not introduced to Hong
Kong as its importance had long since disappeared by the 19th century.It
has nevertheless left an indelible mark.
1.5.2
The 'Leasehold Paradox'
Feudal tenures were creatures of their time, and although they did adapt to
social and political pressures they continued to be hedged with more
disadvantages than other forms of property. The military tenures suffered
from the disadvantage of incidents. The feudal tenures were also not freely
alienable. The Statute of Quia Emptores 1290 permitted the substitution of
land from one tenant to another without the consent of the lord, but it was
not until the Wills Act 1540 that a tenant could leave any of his land by will.
Even then his right to leave land held in knight service was restricted. These
20
INTRODUCT/Ol'v
disadvantages encouraged landowners, or rather their lawyers, to try and
think up schemes to avoid them in much the same way that many lawyers
now are employed to reduce the tax burden of their clients or find ways
around some other unpopular legislation. The lease provided a suitable
alternative vehicle to confer upon someone the right to use land without
suffering the disadvantages of feudal tenures. The exclusion of leases from
the realm of real property and feudal tenures was thus not a handicap but
an advantage.
Initially the lease was developed as a security interest to circumvent the
canon law's prohibition on charging interest on loans. The lender instead
of interest could claim the income generated from the land. Leases then
became popular as a method by which land could be granted to tenants for
agricultural purposes.
Leases initially were considered merely as personal contracts that
reflected their essentially commercial nature. As such, the real actions were
unavailable to a lessee so that he could not recover the land from anyone
who might dispossess him. The development of the writ of ejectment in
1499, however, provided the lessee with the remedy he required and from
that time he was able to protect his possession of the land. Although leases
fell outside the system of feudal tenures and were never recognised as real
property, leases did come to be recognised as a new type of tenure.
A further distinction between freehold and leasehold tenure was that
freeholders enjoyed seisin but leaseholders did not. Seisin denoted a
particular type of possession of the land which has no significance today
but was of vital significance during the evolution of our land law. The right
to seisin carried with it, on the one hand, the right to a real action to recover
the land and, on the other, an obligation to meet the feudal services. It was
thus to the freeholder and not to the leaseholder, who was in physical
possession of the land, that a lord looked for the payment of services.
Inevitably, perhaps, leasehold tenure reflects many features of feudal
tenures. We find similar characteristics in the payment of rent as in the
payment of services, the right to take back or forfeit the lease and the right
to exercise distress or seize goods if the rent is not paid. The terminology
is also similar. Thus we have 'landlords', 'tenants', and 'rent service', now
more commonly called 'rent'. It is somewhat paradoxical that leasehold
tenure, which originally was not recognised as a tenure at all, is now the
only tenure of any practical importance.
1.5.3
Crown Leases in Hong Kong
When the Colony of Hong Kong was established by the Treaty of Nanking
1842, the Crown instructed the Governor that freehold land was not to be
granted, although it had originally been hoped by the early settlers that
freehold grants would be given. Instead the Crown only sanctioned the
grant ofleases for initial terms of75 years for building land and 21 years for
other land. The only exception, St John's Cathedral, was granted in
perpetuity but subject to the condition that the land continues to be used
21
HONG KONG LAND LAW
as a church. The early settlers were disappointed by the short length of the
leases they were granted, and in 1848 the Crown authorised th.e extension
of existing leases to 999 years.
A similar policy was adopted when Kowloon peninsula was ceded by
the Convention of Peking 1860 although, like the early settlers, 999-year
leases were granted to Chinese owners who previously had been in
possession of the land.
Towards the turn of the century, grants of 75 years with a right of renewal
for a further 75 years for land in both Hong Kong and Kowloon became the
norm.
The lease of the New Territories from China, endorsed by the Second
Convention of Peking in 1898, presented different problems. Clearly the
Crown could only grant leases since that was all that it enjoyed, the terms
of the Crown leases being for three days less than the 99-year term granted
by the Chinese Emperor.
Unlike Hong Kong and Kowloon, the New Territories was already
widely populated. The indigenous owners held the land from the Emperor
in return for the payment of land taxes - a system similar to the English
feudal tenures. The Crown conducted a survey to ascertain the extent of this
ownership, and established a Land Court to deal with disputed land claims.
Their task was daunting, but at the turn of the century existing ownership
rights were extinguished 46 and replaced by Crown leases granted for the
same term as other Crown leases in the New Territories, ie 99 years less the
last three days from 1 July 1898. These Crown leases granted to existing
indigenous owners became know as 'Block Crown leases' for, instead of
granting leases to each existing owner, one Crown lease for an area or block
of land covering a number of properties in different ownership was granted. 47
The return of Hong Kong to Chinese rule in 1997 heralds a new phase
in Hong Kong's history, but the intention is for its system of land holding
to remain largely unchanged. The Joint Declaration between the British
Government and the Government of the People's Republic of China on the
future of Hong Kong as a Special Administrative Region of China sets out
in Annexure III that:
i)
all Crown leases including rights of renewal extending beyond 1997
will continue to be recognised.
ii)
all Crown leases expiring before 30 June 1997, which includes all
New Territories leases, may be renewed without the payment of
premium but at an increased rental. The New Territories Leases
(Extension) Ordinance 48 now provides that Crown leases in the New
Territories, subject to a number of exceptions, are extended to 30
June 2047. Other leases expiring before 30 June 1997 in Hong Kong
Island and Kowloon may be extended by agreement with the Crown
but there is no right for the lessee to demand an extension. 49
46
47
48
49
22
Sees 8 New Territories Ordinance Cap 97.
See generally for integration of New Territories land Sihombing, 'The Torrens System
in the New Territories' (1984) HKLJ 291 and Beautiglory Investment Ltd v Tang Yet Tai
Tong & others 0993) HCt HC MP No 531 of 1989.
Cap 150
The Home Restaurant Ltd v A-G [1987] HKLR 237 and Tang Ping-hoi v A-G [1987] HKLR
324
INTRODUCTION
iii)
the Crown will only grant leases to expire on or before 30 June 2047
and their right to grant such leases is limited to 50 hectares a year,
excluding land granted for public housing to the Housing Authority.
A Land Commission has been set up to oversee the implementation of
the terms of the Joint Declaration.
The Basic Law of the Hong Kong Special Administrative Region, which
was promulgated in April 1990, provides in Articles 120-123 for the
continued recognition of Crown leases extending beyond 1997 in the
manner agreed in the Joint Declaration. Thus in Hong Kong it is leasehold
tenure that has triumphed (see Chapters 11 and 12).
1.5.4
Doctrine of Estates
The feudal system of tenures and subinfeudation led to several people
holding tenure in a piece of land at the same time. They clearly could not
all own the land as such, and thus the common law developed the notion
that each person interested in the land held an estate in the land.
Estates in land differ according to how long they are to last. Estates are
divided into two categories: estates of uncertain duration, which are known
as 'freehold estates'; and estates of certain duration, known as 'estates less
than freeholds' or, more commonly, 'leasehold estates'.
l.5.5
Freehold Estates
Freehold estates owe their name to the free tenures which were all held for
an uncertain duration. There are three types of freehold estate.
• Fee Simple. The fee simple estate is the largest estate. It lasts for the
lifetimes of the tenant and his heirs. It can therefore continue indefinitely
provided heirs of the tenant remain alive. For instance, the wording of
the Treaty of Nanking and the Convention of Peking indicate the ceding
of Hong Kong Island and the Kowloon peninsula in fee simple.
• Fee Tail. The fee tail estate lasts for the lifetimes of the tenant and his lineal
descendants. It too can last indefinitely, but the chances are less in view
of the more restricted class of descendants to whom the estate can pass.
• Life Estate. The life estate lasts only for the life of the tenant. When it is
termed an 'estate per autre vie, it lasts for the lifetime of another person.
It is thus bound to end, but no one can say exactly when.
l.5.6
Leasehold Estates
There are two types of leasehold estate, plus two borderline claimants.
• Fixed Term. The fixed term lasts for a specified number of years or for
a period of less than a year. It is possible to say with certainty that a fixed
23
HONG KONG LAND LAW
term will not exceed a given duration, but it is impossible to say that it
always will. The term may be brought to a premature end before it has
expired, for instance if the landlord agrees that the tenant may surrender
or give up the lease.
• Periodic Term. The periodic term continues for a renewable period until
terminated by a notice served by either the landlord or tenant, for
instance from month to month. The fact that it is not certain when a
periodic tenancy will end until notice is served does not prevent its
classification as a leasehold estate. The time when the lease will end may
be uncertain, but either party can make it certain by serving a notice.
• Tenancy at Will. A tenancy at will continues until terminated by either
the landlord or tenant. Although there is the relationship of landlord and
tenant or tenure between the parties, it is doubtful that the duration of
that relationship is sufficiently certain to qualify as a true estate.
• Tenancy at Sufferance. A tenancy at sufferance arises where a tenant
continues in possession after his original term comes to an end. He is
not a trespasser because he entered into possession with consent, but
it is doubtful that he enjoys either tenure or an estate.
The classification of estates can thus be summarised as follows:
Fig 1.4
Classification of Estates
Estates
Freehold
Fee Simple
Leasehold
Fee Tail
Life Estate
Fixed Term
Periodic Term
Tenant at Will
Tenant at
Sufferance
Life of
Tenant
1.5.7
Per Autre
Vie
Tbe Hong Kong Perspective
In Hong Kong we are only concerned with leasehold estates. Leaseholds
only came to be regarded as estates in land with their recognition as a
distinct species of chattel that shared both the characteristics of tenure and
estates with real property. Nevertheless they were always considered
inferior to freehold estates, so it is impossible at common law to carve a
freehold estate out of a leasehold term. It is thus not possible at common
24
INTRODUCTION
law to create a life estate or a lease for life out of a Crown lease in Hong
Kong, for both a life interest and a lease for life are classified as freehold
estates. However, it is possible for such estates to exist in leasehold
property in equity (see Chapter 9).
1.5.8
Future Interests
The doctrine of estates allows the creation of successive interests in
property. A fee simple owner may grant a life interest to his wife and then
a life interest to his unmarried daughter and finally provide that his property
should go to his eldest son. His wife, unmarried daughter, and eldest son
all have a present interest in the property although only one of them will
have a right to actual enjoyment of the property at any one time. During the
wife's lifetime that is the wife. She is said to hold her interest in possession
while her unmarried daughter and eldest son are said to hold interests in
expectancy, or future interests, since during their mother's lifetime their
right to enjoyment is in the future. There are three types of future interest:
remainders, reversions, and executory interests (see Chapter 8).
1.5.9
Other Interests in Land
The common law has also recognised a number of interests in land that fall
short of full ownership. These include the right to use the land of another
for a specified purposes ~ the easement - and the right to look to the
debtor's land for the repayment of a debt- the mortgage. We will look at
these interests in detail in later chapters.
1.6
Equitable Estates and Interests
Estates and interests in land may be recognised at law or in equity. The
reason for this distinction is again historical.
1.6.l
Development of Equity
In medieval England,. as in many early societies, the king's authority was
derived not only from force, but also from a respect supported by an intricate
web of formalities and ceremonies often beyond the comprehension of the
ordinary man. So, too, with the enforcement of that ruler's authority - the
law. Jhecommon lay'f~gurts would only pr2,yic:_l~n::~d!~ssto
the litigant who
was able to brigg his com12laintbefore them in the form of aHmited number
;f recognised. writs. The assistance that the common law courts could·
provide was th~~li~t;c( and bas~d more()~ form than justice. If ·a litigant's
~~;se1..h9.~~y~~j~~S-~!th:.<:r..9id~ot~-;-~~-~ithu:;:the fo~ (?f~r~s:gg9}sed ·writ_
orwasngt dosely analogous to an existing writ, he was left without redress.
It was possible, however, to petition the king directly (and faterfos
most
important administrative officer, the Chancellor), to prevent injustice. While
these petitions were initially on a case by case basis, the Chancellor and his
25
HONG KONG LAND LAW
office, the Chancery, gradually established themselves as an independent
judicial institution. By the end of the 15th century, the Courts of Chancery were
recognised as separate and distinct from the common law courts and the king.
The Courts of Chancery also developed a separate and distinct system
of rules that reflected their independent status. The Courts of Chancery did
not look to compliance with an existing writ system but rather to the justice
or equity of the case before them. They were concerned with_substance and
not form. Initially that justice depended on the individual conscience of the
Chancellor, who was often a prominent member of the church. However,
the Courts of Chancery, under the influence of a number of chancellors who
were lawyers rather than churchmen, moved towards a mote systematic
application of principles. By the early 19th century the principles of equity
were as well regulated and settled as the principles of the common law. AD
element of conscience does survive in the discretionary nature of equitable
remc'.di~~-~-~K~ unlike redress before the c;;mmonI1:;-courts, cannot be
de111~11c:l~sL~~-~
right.
There were thus two systems of redress: the Courts ~aw and theCoUJ:1~
QfC]:1anceryor Equity. Not surprisingly, from these two systems a distinction
evolved between interests recognised and enforced by th~ <::ourts?(!,,a~,
ie_!egalinterests, and those recognised and enforced by thes:;ourts ofEquity,
~9_1:1Jtal:ile interests.
But the presence of two parallel but separate systems for the administration
of justice was undesirable because it encouraged a multiplicity of actions.
Thus, in England in the mid-19th century, the two systems merged so that
the rules and remedies of both systems were operated in and available from
a unified supreme court. 50
In Hong Kong, however, the procedural problems of separate courts of
common law and equity never arose because, from the establishment of the
colony, there was only ~ unified court systerr1_that operated both the
common la~ and equital:lle rul~s. Although the administration of justice has
been unified, the separation of legal _a11_c:l_~quitable
intei;-ec51:§_
__t:~1_!1~in5-~'1_i!al
feature of proprietary interests.
1.6.2
Development of the Trust
Equity's most important product had been the trust. Trusts have a very long
history which is tied up closely with the doctrine of tenure.
1.6.2.1
Medieval 'Use'
Trusts have their origins in the medieval 'use', which enabled an owner of
property to pass the use of his property to someone who was legally unable
to hold the property directly himself.
For instance, if A owned land from which he wanted his son to benefit
while he was away at war, he could agree with his good friends Tl and T2
that they would look after his property for the benefit of his son and he
would transfer the property to them to enable them to do so.
26
50
Judicature Acts 1873 and 1875
INTRODUCTION
Medieval Use of Trusts
Fig 1.5
A
t------------1
T 1 T2
(feofees to uses)
to the use of
A's son
(cestique use)
If Tl and T2 defaulted in performance of these obligations of trust, the
common law courts provided A's son with no remedy. In law, Tl and T2
were the legal owners of the property and entitled to do what they liked
with it. Equity would, however, provide redress - for instance, by requiring
Tl and T2 to transfer the property to A's son when he attained majority. 51
Thus while at law Tl and 'f2 were the owners of the property in equity, A's
son was the owner, known as the 'equitable' or 'beneficial' owner.
Uses came to be employed in many ways. For instance, although
freehold land could not be left by will prior to the mid-16th century, a
landowner could effectively leave his land to whom he liked by transferring
his land to trustees - or 'feoffees to uses' as they were then termed - to
the use of his preferred beneficiary, or 'cestique use'. The use could also be
employed to avoid the onerous feudal incidents by a well-timed transfer to
trustees for the use of his heir or preferred beneficiary. In the context of
leasehold land, the use could be employed to create life estates and future
estates in land which could not be created at common law.
1.6.2.2
Statute of Uses
Whilst the use was a favourite with landowners, it was not so with their lord
particularly, the king, who owned large tracts of land and was thus the most
powerful lord. Thus in 1535 the Statute of Useswas enacted to execute the
use so that the ben,eficiary, or cestique use, took a legal estate and could
not avoid the obligations imposed on that estate.
However, the Statute of Uses 1535 did not apply to all interests in land.
In particular it did not execute the use in respect of leasehold land nor 'the
use upon a use'. Thus in Hong Kong, where all land is leasehold, the Statute
of Uses 1535 has no application and the trust is simply the modern
equivalent of the medieval use. The difference is one of terminology. In
order to distinguish the unexecuted use of leasehold property from
executed uses of freehold property, the term 'trust' was employed for uses
of leasehold property.
In England the use was too convenient a vehicle to be struck down
completely by the Statute of Uses 1535. In the latter half of the 17th century,
'the use upon the use' was recognised as achieving, once more, a separation
51
Saunders vVautier(l841) 4 Beav 115
27
HONG KONG LAND LAW
of the legal and equitable ownership in land. Again the term 'trust' was
adopted, no doubt also to distinguish 'the use upon a use' from the use
executed by the Statute of Uses 1535.
1.6.2.3
Nature of the Trust
The essence of a trust thus lies in the separation of the title and the beneficial
enjoyment of the trust property between the trustee and the beneficiary. The
trustee
legal or equitable,
-~ holds the p~er title to the Jlli)~rJ:y, which may• be
..
....-:and it is he who is responsible for the administration or 'inanagement of the
property. The beneficiary holds an equitable inter~J)11_1he.pi:9perty and is
entitled to the enjoy111~11Loftlie·propertyTnduding the inc:<:>_111~~-or·other
benefits frrriay
piod~ce. The trustee is the owner in ria~~ only. It is the
beneficiary who is the real oroeneficial owner:· • -- •
-~,---
Fig 1.6
The Modern Trust
A
f-----------------,
T 1 T2
(trustees)
on trust for
(beneficiary)
1.6.2.4
Purpose of Trusts
Trusts are created for many reasons. A person may have personal reasons
for wishing to create a trust. He may wish to provide for a person who is
underage or suffers from some disability; or to provide for a number of
people by the grant of interests in succession: for instance, to provide for
his wife during her life and then for his children; or he may wish to keep
secret the fact that he owns property by transferring the title of the property
to trustees to hold for his benefit. Trusts also play an important role in
commercial life. Many tax-saving schemes use the trust, and it plays a
prominent function in the operation of unit trusts and provident funds.
1.6.2.5
Classification .of Trusts
Trusts can be classified as either express or implied. Implied trusts include
resulting and constructive trusts, while express trusts can be divided into
settlements and trusts for sale.
28
INTRODUCTION
Fig 1. 7
Classification of Trusts
Trusts
Express Trusts
Settlements
Trusts for Sale
Implied Trusts
Resulting
Constructive
A detailed examination of the law relating to trusts is outside the scope
of this book. However, it is important to appreciate the proprietary concepts
inherent in the structure of a trust relating to property in Hong Kong: see
Chapters 8 and 9.
l.6.3
Other Equitable Interests
The trust is not the only product of equity. There are a number of others
in land law.
1.6.3.1
Informal Transactions
The common law has always been more concerned with form than
substance. Although the old writ system is long gone, the love of the
common law for form lives on in the strict formal requirements that are
necessary for dealing with legal interests in land. 52 The principles of
conscience upon which equity is based dictate a concern with substance
rather than form. Equity looks on as done that which ought to be done.
Equity is thus prepared, in certain circumstances, to give effect to transactions
that fall short of the strict legal requirements. For instance, an equitable
interest arises where equity is prepared specifically to enforce an agreement
to create a legal estate or interest even though at law an agreement is
insufficient to create the intended estate or interest (see Chapter 6). 53
1.6.3.2
Covenants
A contract will not usually bind third parties, but equity is prepared to
recognise that a covenant relating to land may form an exception to the strict
principles of privity of contract. Where a covenant restricts an owner's use
of his land - if, for instance, it stops him using the land as a factory, equity
will not allow a subsequent owner to disregard this restriction if he was well
52
53
See Chapter 5.
Walsh v Lonsdale[1882] 21 CH D 9
29
HONG KONG LAND LAW
aware of it when he bought the land and if the restriction benefits adjoining
or other land. Equity's recognition of the enforcement of land covenants has
given rise to an important property right (see Chapter 15).
1.6.3.3
Equity of Redemption
At common law a mortgagor must repay his debt in strict accordance with
the terms of his loan. If he fails to do so, the lender can retain the property
taken as security. In many cases this rigid adherence to the terms of the
borrower's bargain could lead to hardship and injustice that equity is not
prepared to tolerate. Equity allows a borrower to redeem the mortgage and
recover his property even after the date for repayment has passed. This right
to demand redemption in equity means that the borrower retains an
important interest in the property despite what appeared from the mortgage
deed to be an outright transfer of the property to the lender. In the light of
equity's protection of the borrower's interests, a mortgage is an interest in
property granted by way of security and nothing more. This development
is central to the law of mortgages (see Chapter 17).
1.6.4
I
I
Difference between Legal and Equitable Interests
The essential difference between legal and equitable interests lies in their
enforcement. At first, equity enforced a trust only against the trustees. The
right of the beneficiary was thus a personal right or, to use the Latin
expression, a right in personam against the trustees. But of course the
trustees might die or give or sell the property to someone else, in which
case a personal action against the trustee was of little use. Gradually the
courts of equity extended the persons against whom they would order
enforcement of the trust. Anyone who took with notice of the trust was
bound, then anyone who inherited the trust property, then anyone who was
given the trust property. Finally, equity would compel the enforcement of
the trust against all persons who acquired the property except a bona fid~
e~£c:.J:1:a~~f_O_i!h_e
legal estatei-;~·;alue wilb:°-l!.t_g.9tice
of the trust~Equity sa,y
no reason why a volunteer who had giymng_yc1l11.~Jortb.
__
~__
gr_g_g~_rfy
__
s_l)9uld
t~l<.__~_tlle_pr()p_etty:_f~tctcfrom
the J2fi()r interest of the benefj_c!:iry, nor did_
~quity feel tlla_t__.<!:___person
who kn.~-Y.,2.r ~li°-l!.l<:l:liay~
Jsn.9.~n__
g.f_t_li~_!_r:.i:!_St
should be able toignore that trust even if he had giyE:11yal11_e.But equity
drew the line at a·purchaserwhohad
given value and had no notice of the
trust., Legal interests, on the other hand, __<:()uld
be enforced against_~veryone
because they were rights in the property itself or, in the Latin expression,
. rights inrem:·fhe fa~i.
that equitable intere~tsmay be enforced against such
a wide circle of people means that they have effectively lost their personal
character. They are rights in the property itself.
We now turn to a closer examination of the purchaser for value without
notice doctrine that distinguishes legal and equitable interests.
I
i
30
Priority: the Doctrine of Notice
2.1
Introduction
The multiplicity of interests that can e_xistin a lot of land gives rise to the
question of their relationship to each other. One of the most important
elements of that relationship is the extent to which one interest is subject
to or is bound by another. For instance, if A, the owner of a lot of land, first
leases that land to B and then mortgages the land to C, does C's mortgage
take subject to B's lease or can C claim that his interest is not bound by the
lease? Clearly the answer is very important to both parties. B's continued
possession of the land will depend on whether C is bound by his lease, and
the value of C's security will depend on whether he has a mortgage over
property subject to a lease or with vacant possession. It is these questions
of the priority of one interest in land over another to which we now turn.
2.2
Doctrine of Notice
Under the general law, the priority of an interest will depend primarily upon
whether the interest is legal or equitable. The rules may be simply stated
as follows.
• Legal estates and interests bind the whole world.·
• Equitable estates and interests bind everybody except the bona fide
purchaser for value of the legal estate without notice of the equitable
estate or interest.
For instance, if A grants a legal lease of his flat to B and then mortgages his
flat to C, C is bound by the lease in favour of B.
Fig 2.1
A
Legal Mortgage
Legal Lease
B
C
C is bound by B's lease
31
HONG KONG I.AND I.AW
BUT if A creates only an equitable lease of his flat to B, then C is only bound
by the lease if he has notice of it.
Fig2.2
A
Equitable Lease
Legal Mortgage
B
C
C only bound by B's lease if he has
notice of it
A legal interest is an interest in property that is r~cognised bo_!!!J!,Liawand
in equity, and will thus bind anyone who acquires a subsequent interest
in that property regardless of notice, An eg:t!,itiJ>J~jnterestis,not recogni~~d
at law and will not bind everyone who subsequently acquires an interest
in the land. However, equity will not allow a purchaser even of the le al
estate to ignore a prior
e has knowledge, for
to: ..o .~'2~<:?~.,-...
_t::~S~};!a.,~e;gµ,i!X;s underlyigg noti2p.s P..•.~~~i}d
conscience. \ Furthermore, a volunteer will not be allowed to benefit at the
~pense'of a prior equitable interest because he has given no value for his
interest, nor will equity allow a later equitable interest to override an earlier
equitable interest. The only person whom equity will allow to take free of
a prior equitable interest is a bona fide purchaser of the legal estate for value
without notice. Such a person is accordingly sometimes known as 'equity's
darling'. An example of this rule is found in the case of:
Pilcher v Rawlins (1872) Ch App 259
FACTS
Rawlins mortgaged his property to a trust. Pilcher, the surviving trustee of
the trust, acting in collusion with Rawlins, discharged the mortgage and
reconveyed the property to Rawlins although Rawlins had only repaid part
of the loan. Rawlins was then able, by concealing the first mortgage and
reconveyance, to raise more money by mortgaging the property again. The
money raised was then spent by Pilcher and Rawlins. The beneficiaries of
the trust found out what had happened and claimed priority over the
subsequent mortgage.
JUDGMENT
The subsequent mortgagees were bona fide purchasers of the legal estate
for value without notice of the beneficiaries' interests, and therefore took
the property free of them.
32
PRIORITY: THE DOCTRINE OF NOTICE
Both the beneficiaries and the subsequent mortgagees in Pilcher v
Rawlins were innocent parties, one of whom had to suffer for the fraud of
Rawlins and Pilcher. As the interests of the beneficiaries were only
equitable, it was they who were the unlucky ones. They had a claim against
Pilcher as their trustee but success in this claim would merely result in a
claim for damages, which was of little value if Pilcher was insolvent.
2.3
Bona Fide Purchaser of Legal Estate for Value Without Notice
The cmcial question in determining the priority of an equitable interest is:
WflO will qualify as a bqna fid~urchaser
forvahie of the legal estate withilllt
11,otic~]
2.3.l
Bona Fide
'Bona fide' has traditionally been associated with an absence of notice, but
the rule contains a separate requirement of lack-ofnotice.Does bona fide
thus mean anything more in this context? The expression is said to require
more than just a lack of notice 1 and to insist that the lack of notice is honest.
But the development of the concept of constructive notice 2 would appear
to have largely superseded a separate requirement that a purchaser be bona
fide. After all, a purchaser's good faith or honesty is unlikely to be affected
__t,y_3cgjntt:_re1,tof_~hi_s:hheknows 11otlJJng,_
Nevertheless, bona fide does
continue to be recognised as a element of the doctrine of notice. As such
it reflects egu(ty's underlying concern not to <!1>§i_s_t
tpps~ taipt~Q i;)yfraud,
:c;lishoJ1t,esty,
_Qr g_tl1gLfilQr.ally_reprehensibleb~l;i:ciyiQlJf.
2.3.2
Purchaser for Value
The term 'purchaser' is not limited to the colloquial expression of someone
who buys property. It refers to any person who receives an interest in
property other than by operation of law, such as a mortgagee or lessee. By
contrast, a trustee in bankruptcy receives a bankrupt's property as a result
of the operation of the Bankruptcy Ordinance, 3 and a deceased's next of
kin is entitled to the deceased's estate by operation of the Intestates' Estates
Ordinance. 4 Thus neither qualifies as a purchaser.
A purchaser, to defeat a prior equitable interest, must give value for the
property he acquires, whether that be money or some other property; but
he does not have to give full consideration, for the court will not enquire
into the adequacy of the consideration. 5 A volunteer, although he is a
purchaser, will thus not qualify.
See Midland Bank Trust Co Ltd v Green (1981] AC 513.
See Chapter 2.4.
Cap 6
Cap 73
Midland Bank Trust Co Ltd v Green (1981] AC 513
33
HONG KONG LAND LAW
2.3.3
Tbe Legal Estate
The purchaser must take a legal estate in order to defeat a prior equitable
interest, although it does not have to be the same legal estate as the vendor.
For instance, if A, the lessee under a Crown lease, creates an equitable
mortgage in favour of B and then sells his legal estate in that Crown lease to
C, C is clearly a purchaser of the legal estate. C would also be a purchaser of
the legal estate if A instead granted a legal sublease or legal mortgage to C.
Fig2.3
A
Equitable Mortgage
B
Assignment or
Legal Lease or
Legal Mortgage
C
In each case, C would take free of B's mortgage provided the other
requirements of the rule were satisfied. If A failed to create a legal lease or
mortgage in favour of C and only created an equitable lease or mortgage,
C would be bound by B's equitable mortgage.
2.3.4
Equitable Interests
It is convenient at this point to look at the rule where the legal estate is
lacking and the competition for priority is between two or more equitable
interests. This rule is:
• Where th<:.__eguities
are equal, the first in time prevails.
As between the holders of equitable interests, priority is given to the
earlier interest if all other relevant factors are equal. Factors that may affect
the relative merits of an equitable interest include the nature of the equitable
interests, the circumstances an:d manner of their acquisition, and the
conduct of the parties. For instance, if the holder of the prior equity has been
fraudulent or negligent in the protection of his interest, he may lose the
priority that he might otherwise have enjoyed. An example is found in:6
6
34
See also The Commercial Bank of Hong Kong Ltd v Wellstead Textile Co Ltd &
another (1993) HCt MP 3785 of 1991 and Wong Lai Suk Chun v Wong Chiu Ming
[19931 1 HKC 522 and Chu Kit Yuk & another v Countrywide Industrial Ltd [19951 1
HKC 363. Although it is difficult to understand why the last case was not decided on
the principles laid down in the Land Registration Ordinance as the instruments in
question, i.e. sale and purchase agreements, were clearly registrable.
PRIORITY: THE DOCTRINE OF NOTICE
-
-
Rice v Rice (1884) 2 Drew 73 V.C.
FACTS
The defendant purchased some property from several vendors but he only
paid one of the vendors his share of the purchase price. The assignment to
the defendant, however, contained a receipt for the whole purchase price.
The defendant equitably mortgaged the property and then disappeared
without paying the balance of the purchase price or the mortgage.
JUDGMENT
The subsequent equitable mortgagee had priority over the unpaid vendors'
equitable liens, for he had the better equity. Although the nature of the
equities were equal, the unpaid vendors, by releasing the title deeds and
agreeing to the receipt on the assignment, had been negligent, leading the
subsequent mortgagee to think he was the first mortgagee.
2.3.5
Mere Equities
The first in time rule may also be displaced where the natures of the equities
are not equal. For instance, if a person has a right to go to court to seek an
equitable remedy he is said to hold a mere equity. His interest is potential,
for it has not crystallised until the grant of the equitable remedy. A right to
set aside or rectify a conveyance for fraud, mistake, or undue influence are
examples of mere equities.
The precise dividing line between mere equities and equitable interests
is unclear. For instance, a purchaser who has entered into a contract for the
sale of an interest in land is said to hold an equitable interest and not a mere
equity in the land, even though his interest springs from his right to go to
court to seek the equitable remedy of specific performance of the contract.
It has been suggested that the difference lies in the fact that mere equities are
essentially ancillary rights that are dependent upon some interest in land.7 In
a competition for priority with a prior mere equity, an equitable interest will
succeed where the holder of the equitable interest has no knowledge of the
mere equity. A case which considered the priority of mere equities is:
Latec Investments Ltd v Hotel Terrigal Pty Ltd 0965) 113 CLR 265
FACTS
Laree, in exercise of their power of sale as mortgagees, sold the mortgaged
land to a subsidiary company for an undervalue. The mortgagor was thus
Megarry & Wade 5th ed London, Stevens and Sons Ltd (1984) p 146
35
HONG KONG LAND LAW
entitled to have the sale set aside. However, the property was mortgaged by
way of equitable mortgage before the mortgagor acted to set aside the sale.
JUDGMENT
The sale would not be set aside. The mortgagor was guilty of delay in
commencing proceedings, but even if he had not been, the equitable
mortgagee was not bound by his mere equity of which he had no notice.
2.3.6
Without Notice
Even when a purchaser takes a legal estate and has given consideration,
equity will not allow him to take free of a prior equitable interest if he has
noticeofthat interest. A bona fid~p~rchaser of the legal estate must take
without notice in order to t~ke fre~ ofapriore9u'itaSI~~!.~re~-~- For instance,
ifA grarits an equitable mortgage over his property to B and then sells the
property to C, C will only take free of B's mortgage ifhe has no notice. Once
Chas defeated B's prior equitable estate, he holds and is able to deal with
the property free from B's interest. B's interest, although it still binds A, does
not bind C or anyone else to whom C may transfer his interest. Thus, if C
later sells the property to D, D will also take the property free from B's
mortgage even if D has notice of B's interest.
~~~-
•
II.
•
Fig 2.4
A
Equitable
Mortgage
Legal estate
not bound
where no notice
B
C
not bound
regardless
of notice
Legal estate
D
The following case illustrates how a subsequent
advantage of his vendor's lack of notice.
purchaser can take
FACTS
Spooner was a tenant of different landlords of two shops. The lease of the first
shop prohibited any use except that of a pork butcher, whilst at the second
36
...
PRIORITY: THE DOCTRINE OF NOTICE
shop he carried on business as a general butcher. Spooner transferred his
lease of the second shop to Wilkes, and he agreed with Wilkes not to carry
on business as a general butcher at the first shop. Spooner surrendered his
lease of the first shop to his landlord, who had no notice of the agreement he
had made with Wilkes not to carry on business as a general butcher. Spooner
then obtained a new lease of the first shop and set up business as a general
butcher. Wilkes sought an injunction against Spooner based upon the
agreement they had made when the second shop was transferred.
JUDGMENT
Spooner was not bound by the covenant he had made with Wilkes. His
landlord was a bona fide purchaser of the legal estate in the first shop and
had no notice of the covenant. He was entitled to grant the new lease to
Spooner free from the equitable interest created by covenant.
2.4
Notice
Notice in this context means knowledge. T~ purchaser will oajy_take free
olaprior eguTia1Jle"lfit'erestlflie'has·no knowledge of that interest. Notice
in England is now defined by statute, 8 but in Hong Kong notice continues
to be governed by the general law, which identifies three kinds of notice:
actual, imputed, and constructive.
0
2.4.1
Actual Notice
Notice may be acquired through the actual knowledge of the purchaser,
which may be obtained from any source, although not from vague rumours. 9
2.4.2
Imputed Notice
Most purchasers will employ agents to assist them in the often complex task
of purchasing property. A purchaser of a flat will usually seek the help of
a sales agent to find a suitable property, and will then employ a solicitor to
deal with completion of the legal formalities. Likewise, a bank lending
money on security of a mortgage will usually employ a valuer to make sure
that the value of the property is sufficient to repay the loan, and a solicitor
to draw up and complete the mortgage. In the course of their work these
agents may acquired information concerning the property which will be
imputed to the purchaser as their principal. In contrast to the law in
England, 10 it appears that notice imputed from an agent may extend to
knowledge acquired by the agent in a previous transaction as well as that
9
10
See s 199 of the Law of Property Act 1925,
Reeves v Pope [1914] 2 KB 284
See s 199Cl)ii of the Law of Property Act 1925, which is not enacted in Hong Kong.
37
HONG KONG LAND LAW
acquired in the course of the purchaser's transaction. 11 If an agent acts for
both parties, the agent's knowledge will be imputed to both the parties
unless the agent has conspired with one party to conceal something from
the other, in which case the other party may claim he has no notice. 12
2.4.3
Constructive Notice
The knowledge of the purchaser may be implied. A purchaser and his
agents are deemed to have knowledge of those interests they would have
discovered if they had carrEd out such enquiries as a reasonably prudent
pun;:haser would ~A
purchaser thus cannot avoid notice either by
shutting his eyes and failing to make enquiries or by making inadequate
enquiries. The difficulty in ascertaining what falls within the ambit of
constructive notice is to determine what enquiries a reasonable prudent
purchaser would make.
2.4.3.1
Inspection of the Title Documents
In most cases a deed or written instrument is required in order to create,
transfer, or dispose of an interest in land. 13 An inspection of these deeds and
documents should thus reveal almost all interests that may affect the land.
A vendor will prove his title by allowing the purchaser to inspect the title
documents relating to the land. As a result, a purchaser will have
constructive notice of all interests and matters he would have discovered
from an inspection of the title deeds. In Hong Kong, a purchaser can only
require a vendor to produce all his title deeds for the statutory title period,
which is not less than 15 years. 14 However, it is not clear whether a purchaser
will have notice of those interests which are only evident from documents
he cannot require the vendor to provide, but are nevertheless available for
inspection at the Land Office. 15
Possession of the title deeds is an important incident of ownership.
Failure to be able to produce the title deeds will in itself give rise to suspicion
which no prudent purchaser would accept without a satisfactory explanation.
2.4.3.2
Inspection of Land
There are exceptions to the need for writing to create an interest in land,
and thus the title documents may not tell the whole story. For instance, a
lease of not more than three years may be created orally; an interest may
be created by part performance; and there are circumstances where equity
will impose a constructive or resulting trust. 16 A purchaser is thus also
g£~c:ted to ha:'.e inspected the land. Ifhe finds someone in occupa~~o
11
12
13
14
15
16
38
Re Cousins (1886) 31 Ch D 671
Cave v Cave (1880) 15 Ch D 639
See Chapter 5.
Sees 13 of the Conveyancing and Property Ordinance Cap 219.
See further Nield, Tbe Hong Kong Conveyancing & Property Ordinance Singapore.
Butterworth (1988) at p 40.
See Chapter 6.4.
PRIORITY: THE DOCTRINE OF NOTICE
is.not the legal owner and whose presence is inconsisJ~n.t.wn~.the..ti,tl@,Bf
t~legal .<5W!Ier,. rlren-fre~lt'fusLc:nqui~eby ~i.gJ}t~J:i~~ Pt:'.Esori)stli_e_re.
'if he fails-to make an inspection or make reasonable enquiries of such
persons, he is deemed to have constructive notice of their rights.
2.4.3.3
Tenants
A purchaser will have constructive notice of the rights of a tenant who is
in occupation of the land even though the tenant may be holding under an
oral tenancy.
Hunt v Luck [1902] 1 Ch 428
FACTS
Dr Hunt was persuaded by the use of fraud to transfer to his agent some of
his properties that were tenanted. The agent then mortgaged the properties
for his own benefit. After Dr Hunt's death, his wife, as his personal
representative, sought to recover the properties by setting the transfer aside.
She claimed that the mortgagees, who were opposed to her application, had
constructive notice of Dr Hunt's interest for they should have made enquiries
of the tenants to confirm they paid their rental to the owner of the properties.
JUDGMENT
Enquiries should be made to ascertain why the tenants were in occupation
of the land, but it was unreasonable to expect a purchaser to make the
enquiries as to their landlord's title or rights. The mortgagees thus did not
have constructive notice of the right of Dr Hunt's estate to have the transfer
set aside.
2.4.3.4
Spouses
Greater difficulties arise in determining whether a purchaser will have
constructive notice of a person who is in occupation of the property with
the legal owner, in particular where the occupier is the spouse of the legal
owner.
A wife's right of occupation of the matrimonial home is generally
regarded as a personal right, as are the rights of occupation of the other
family members, and will therefore not bind third parties.17 But where the
wife or other members of the family have made a contribution to the
purchase price of the home, they may have an equitable interest in the home
arising under the principles of resulting or constructive trusts. 18 Does a
17
18
National Provincial Bank v Ainsworth [1965] AC 1175
See Chapter 6.4.
39
HONG KONG LAND LAW
purchaser have notice of a spouse's equitable interest arising by virtue of
their financial contributions to the acquisition of the home? This is a
question that has occupied the English courts and has arisen in Hong Kong.
The traditional view has been that the occupation by a spouse was
consistent with the title of the legal owner. The presumption was that
spouses were living in the property not because they might hold an interest
in the property but because they were married to the legal owner. Thus a
purchaser was not bou~d to enquire into their rights. 19
c"'a"unce·v Gaunce
[1969i'
1WLR 286
FACTS
The Caunces acquired their home using some of Mrs Caunce's money and
funds raised by a mortgage from a building society. Despite an agreement
between them that the house should be in their joint names, Mr Caunce had
the house transferred to his sole name. Without the knowledge of his wife,
Mr Caunce entered into a second mortgage in favour of a bank to secure
three further loans. Mr Caunce paid the mortgage instalments on the
building society mortgage until he went bankrupt, but thereafter they were
paid by his wife. Mrs Caunce claimed the bank had constructive notice of
her equitable interest in the home.
JUDGMENT
The bank did not have constructive notice of Mrs Caunce's interest and took
free of her interest as a bona fide purchaser for value of the legal estate
without notice.
In Gaunce v Gaunce, Stamp J was reluctant to extend the doctrine of
constructive notice and was not persuaded by arguments that the wife's
occupation was independent of that of her husband. Stamp J's views have
been strongly disapproved of in England. The first attacks came in the
context ofland registered under the Land Registration Act 1925, which does
not apply to Hong Kong. 20
Under this Act a purchaser will take subject to the proprietary rights of
persons in occupation. Such occupants hold what is known as an overriding
interest. The enquiry in the context of registered land is thus slightly different
from that under the doctrine of notice, but nevertheless in considering who
qualifies as an occupier the courts have had to consider whether or not a
spouse who is in occupation of the property with the legal owner is capable
of separate occupation. The House of Lords considered this question in:
!9
20
40
See also Bird v Syme Thomson [1979] 1 WLR 440.
Hodgson v Marks [1971] Ch 892
...............
PRIORITY: THE DOCTRINE OF NOTICE
William & Glyn's Bank Ltd v Boland [1981] AC 487
FACTS
Mr and Mrs Boland acquired a home which was registered under the Land
Registration Act 1925 in Mr Boland's sole name, .although his wife made
substantial contributions to the purchase price and thus held an equitable
interest in the property under a resulting trust. Mr Boland subsequently
raised loans from the plaintiff bank, which were secured by a mortgage over
the property. He defaulted in repayment of these loans and the bank sought
possession of the home.
JUDGMENT
The plaintiff bank took subject to Mrs Boland's interest as she held an
overriding interest by virtue of her occupation.
Lord Wilberforce disapproved of the view suggested in Gaunce v
Gaunce 21 that occupation by the legal owner excluded the possibility of
occupation by others. 22 He also disapproved of Stamp J's suggestion that a
wife's occupation was fully explained by her relationship with her husband,
and the characterisation of a wife's occupation as a mere shadow of her
husband's he described as 'heavily obsolete'. 23 A wife's occupation could
equally be explained by the fact that she held an equitable interest in the
property and he did not see why, just because she was the spouse of the
legal owner, she should be denied the protection that occupation would
have afforded another equitable owner.
Lord Wilberforce's comments have received endorsement in the context
of land in England, which is not subject to the Land Registration Act 1925,
where priority continues to be governed in part by the doctrine of notice.
-----------
Kingsnorlh Finance Co Ltd v Tizard [1986] 1 WLR 783
FACTS
Mrs Tizard made substantial contributions to the acquisition of the Tizards'
home, which was legally held in her husband's sole name. The marriage
broke down and the Tizards agreed that the matrimonial home should be
sold and the proceeds shared equally. It was thus clear that the Tizards
owned the property equally in equity. In the meantime, Mrs Tizard spent
a part of each day at the house in order to look after the children but did
21
22
23
[1969] 1 WLR 286
[1981] AC 487 at 504
[1981] AC 487 at 505G
41
HONG KONG LAND LAW
not normally sleep there. Mr Tizard mortgaged the home to the plaintiff
before leaving the country without repaying the loan. In his mortgage
application MrTizard had described himself as single although,the plaintiffs
inspection of the property revealed the fact he had ~Q~ children. The
plaintiff's agent had inspected the house on a Sunday morning at a time
prearranged with Mr Tizard when it appeared Mrs Tizard was not at home
and Mr Tizard had made efforts to conceal his wife's presence. The plaintiffs
sought possession.
JUDGMENT
In the circumstances, Mrs Tizard was in separate occupation of the property.
The plaintiff and their agents had failed to make reasonable enquiries which
would have established her interest and thus they took subject to it. The
plaintiffs suspicions should have been aroused by the fact that their
inspection had clearly revealed that Mr Tizard had children although in his
mortgage application he had described himself as single. This discrepancy
should have prompted further enquiries.
The Hong Kong courts have also considered the question of whether a
purchaser is bound to enquire into the interests of the legal owner's spouse
who is in occupation of the property, and have followed the Boland line
rather than Gaunce v Gaunce. 24
-■
■
-
--
-
-■
Wong Chim-ying v Cheng Kam-wing [1990] 2 HKLR 111
FACTS
Mr Cheng was a minibus driver who worked long hours. When he and his
wife decided to buy a flat to live in, Mr Cheng provided the money but left
his wife to deal with the purchase, with the result that the flat was purchased
in her sole name. Without the knowledge of Mr Cheng, his wife arranged
to sell the flat to the plaintiff, who inspected the flat and was aware that Mr
Cheng was living there. When the sale was completed the plaintiff paid the
purchase price to Mrs Cheng. She left Hong Kong with the money but
without telling her husband, who remai11ed jn, occupation, much to the
disappointment of the plaintiff who sought possession.
JUDGMENT
The plaintiff took subject to Mr Cheng's equitable interest of which she l:tad
constructive notice by reason of his occupation.
24
42
The Court of Appeal has approved this decision. See (1991) Civ App No 75 of 1990.
PRIORITY: THEDOCTRINE OF NOTICE
2.4.3.5
Other Occupiers
All these cases have concerned notice of a spouse's rights. Interestingly, in
Hong Kong it was the husband's rights rather than the wife's! The same
principles can be applied to the rights of other occupiers who have contributed
to the acquisition of the property and may thus enjoy an equitable interest,
for instance other relatives or unmarried couples. This possibility did not
escape the House of Lords in William and Glynn's Bank Ltd v Boland. 25 In
Hong Kong, the extended family is still very much alive: it is not uncommon
for grandparents to live with their children or adult children to live with their
parents, and for such relatives to contribute to the acquisition of the family flat.
Thus enquiries should not only be confined to spouses but extended to any
occupiers who may have contributed to the acquisition of the property.
2.4.3.6
Occupation
What amounts to occupation can cause difficulties. Essentially, occupation
is a matter of fact, which may depend on the nature of the property and the
purpose for which it is claimed to be occupied. What constitutes occupation
of a flat differs from occupation of a shop or a garage. In the case of
residential occupation, it appears that occupation is wider than residence
in its usual sense. We have already seen in Kingsnorth that Mrs Tizard did
not sleep at the property and her presence there during the day was by no
means continuous. In the case· of Lloyds Bank PLC v Rasset,26 the English
Court of Appeal was prepared to accept that a wife was in occupation of
a semi-derelict house that was being renovated. Her occupation stemmed
both from the presence of the builders that she and her husband had
employed and allowed into the property to carry out the renovation work,
and her own presence at the property during the day to supervise the
builders' work. The question of what constitutes occupation has also been
considered by the House of Lords in:
Abbey National Building Society v Cann [1990] 2 WLR 832
FACTS
The defendant was in financial difficulties. In an attempt to overcome these
difficulties he arranged to sell a house, which he and his mother beneficially
owned and in which his mother lived, and to buy a smaller house for his
mother. In fact, the net proceeds of sale of the old house were not sufficient
to fund the total purchase price of the new house, and thus the defendant
raised a mortgage from the plaintiffs. On the day of completion of the
purchase the defendant, helped by his mother's husband, assisted in
• moving his mother's possessions into the new house at about 11.45 am. His
25
26
[1981] AC 487 at 508F
[1989] Ch 350
43
HONG KONG LAND LAW
mother was away on holiday. The legal formalities for the purchase and the
plaintiffs mortgage were not completed until a little later, at 12.20 pm.
Subsequently the defendant failed to repay the mortgage and the plaintiffs
sought possession of the house.
JUDGMENT
The defendant's mother was not in occupation of the house at the time the
mortgage was completed and thus any equitable interest she might hold did
not bind the plaintiffs.
The House of Lords accepted that occupation did not necessarily require
personal occupation but could be claimed through an agent, such as a
caretaker, but they did feel that occupation required 'some degree of
permanence and continuity which would rule out mere fleeting presence'. 27
The period that the defendant had spent moving in his mother's possessions
did not qualify, as it was merely preparatory in character.
2.4.3.7
Time of Occupation
T~~~!-9~~.?+,!£.~.~-~~ta~J.~J!:i!~~~~S.~~.:t
-~~ ~~~~:~£,:t,tf~~:1SS~!:?1~~;;;YJlyn
that",C?.!JlPJ::ti.rrg,JJJJ;,t::u;~J;.J.S.~dIn a1f tne cases cited here where the
occupier has succeeded in claiming priority, the mortgage or other
competing interest was entered into some time after the property was
acquired and the prior equitable interest arose. But in the common situation
where a purchaser is acquiring property with the aid of a mortgage, rather
than raising a mortgage on property that he already owns, it is unlikely that
his spouse or other person intending to occupy will be able to claim that
any equitable interest they enjoy takes in priority to the mortgage, simply
because they will not be in occupation when the mortgage is created. The
mortgage will be completed and the funds released to enable the purchaser
to pay the purchase price and obtain possession.
In Hong Kong, completion of a purchase or a mortgage is usually
effected by undertaking, whereby the purchaser will forward the purchase
price to the vendor upon the vendor's immediate release of the keys and
their undertaking to return the title deeds and the deed transferring
ownership to the buyer within a certain time period. This procedure may
lead to a gap between the purchaser obtaining occupation and the
finalisation of the legal formalities including the dating and registration of
the transfer deed and any mortgage created to secure money lent to fund
the purchase. A time gap is more likely where the property is a new
development when there is also a need to await the completion and
registration of the deed of mutual covenant.
Where the purchaser, his spouse, or another occupier take up occupation
with the agreement of the vendor before the completion of the purchase with
27
44
[1990] 2 WLR 832
PRIORITY: THE DOCTRINE OF NOTICE
the aid of a mortgage, the position is rather more complicated. It will depend
essentially upon the time that the spouse or other occupier's equitable interest
arises. In Lloyds Bank Ltd v Rosset,28 the Court of Appeal suggested that the
wife's interest in this situation arose before completion and was protected
when she took up occupation, so that her interest was capable of taking in
priority to the mortgage effected on completion. However, in Abbey National
Building Society v Cann 29 the House of Lords disagreed. They decided that
an occupier could not claim an equitable interest in the property until after the
property had been acquired. Their interest was dependent upon that of the
legal owner, which was only acquired with the assistance of and subject to the
mortgage. Occupation before the completion of the legal transfer of title will
thus not avail a beneficial owner.
2.4.3.8
Circumstances of the Transaction
It would be a mistake to assume that purchasers need only inspect the title
deeds and the property. The transaction must be considered as a whole and
purchasers will be deemed to have constructive notice of any matters which
from the circumstances surrounding the transaction suggest an adverse
prior equity may exist. For instance, in Kingsnorth Finance Co Ltd v Tizard 30
the mortgagee should have been put on enquiry by Mr Tizard's statement
in his application form that he was single although an inspection of the
property revealed he had children. These circumstances should have
suggested the existence of a wife or partner. However, in Gaunce v
Gaunce 31 the court did not feel that the bank needed to extend their
enquiries to the bank account that the wife kept at their branch, an
inspection of which would have revealed comparatively large withdrawals
at the time of the purchase. The wife had maintained that these withdrawals
should have put the bank on enquiry that she had contributed to the cost
of the house purchase.
2.5
Deficiencies
of the Doctrine of Notice
Occupiers· and their rights illustrate very clearly the deficiencies of the
doctrine of notice, both from the point of view of the holder of an equitable
interest and that of the purchaser of the legal estate.
2.5.1
Problems of the Equitable Owner
The problem for the equitable owner is how to protect his equitable interest
when that interest is not evident from the title deeds. His interest will be
28
29
3o
31
[1989] Ch 350
[1990] 2 WLR 832 approved in Chiap Hua Flashlights Ltd. v Marlefaith Investments Ltd
[1990] 2 WLR 145 and [1990] 2 HKLR 84
[1986] 1 WLR 783
[1969] 1 WLR 286
45
HONG KONG LAND LAW
protected if he is in occupation provided that, in the circumstances of the
case, his occupation is inconsistent with that of the legal owner. The owner
of an unwrittenequity who is not in occupation has no means of protecting
his interest unless he happens to know of the proposed dealing with the
property and can bring his interest to the notice of the purchaser.
Even an owner of an unwritten equity who is in occupation may have
difficulties in bringing his occupation to the attention of the purchaser. As
we have seen, occupation is very much a question of fact. In Kingsnorth,
for instance, Mrs Tizard was only in occupation of the property for part of
the day and there was evidence that her husband had attempted to ensure
that her presence was not obvious to the inspecting mortgagee. Indeed, it
was the fact that Mr Tizard had described himself as single in his mortgage
application form, but was clearly a father from an inspection of the house,
that the court felt should have alerted the mortgagee to the interest of his
wife.
2.5.2
Problems for the Purchaser
The extent of the doctrine of constructive notice depends on what enquiries
are deemed reasonable. What may be reasonable may vary from case to case.
Much has been made in all the cases of the difficulty for the purchaser,
or rather his conveyancing lawyer, in making enquiries of all persons
occupying the property. It is time-consuming to find out who is in
occupation, and as Kingsnorth has shown, an inspection of the property can
be inconclusive. It may be all too easy for the legal owner to conceal
fraudulently the equitable owner's occupation. Even if an inspection or
other enquiries do reveal occupiers other than the legal owner, it may be
difficult to establish whether or not they enjoy an equitable interest in the
property. The occupiers themselves may be unaware that they may claim
a right in the property, or even if they feel they have such a claim, they may
be unable to articulate its nature. The occupiers may also find enquiries into
their relationship with the legal owner and their financial arrangements an
invasion of privacy and be reluctant to assist. It is often easier to take the
cautious view and assume that all occupiers who may have contributed to
the acquisition of the property enjoy some sort of proprietory interest.
Where occupiers who have a potential equitable interest are found to
exist, then one way a subsequent purchaser or mortgagee can ensure that
he takes free of their interest is to ask them to become a party to the sale.
Alternatively, they may be asked to consent to the transaction. Clearly it is
prudent for a purchaser or mortgagee to obtain the express consent of any
occupier from whom he expects to take free, but he will have to take care
that any consents obtained are freely given and not subject to attack by virtue
of duress, undue influence, 32 misrepresentation, 33 or even non est factum.
The problem of obtaining an untainted consent which is not at risk of being
32
33
46
National Westminster Bank PLC v Morgan (1985] AC 686
Kingsnorth Trust Ltd v Bell [1986] 1 WLR 119
PRIORITY: THE DOCTRINE OF NOTICE
set aside has recently been highlighted by a number of English decisions. 34
In Gaunce v Gaunce, Stamp J considered the enquiries a purchaser
would have to make in respect of occupiers 'unworkable and undesirable' ,35 but more recently the House of Lords have not shrunk from
imposing on purchasers and in particular commercial lenders a duty to
make enquiries both of occupiers and the freedom with which they are
called upon to participate in transactions. In William & Glyns Bank v
Boland 36 Lord Wilberforce indicated that such precautions were the price
to be paid for the development of shared interest of ownership, while Lord
Browne Wilkinson in Barclays Bank v O'Brien 37 placed heavy emphasis on
the policy considerations that arose from the balance that must be
established between the use of the matrimonial home as a source of
business finance and residential security for the family.
There has developed, however, a willingness by the courts to define
narrowly the circumstances under which an occupier will be protected,
particularly when the occupier has derived some benefit or advantage from
the mortgage.
For instance, even if express consent is not obtained, an equitable
owner may be estopped from setting up his equitable interest against a
subsequent purchaser where he knew, or from the circumstances of the
transaction must have known, of the legal owner's intention to mortgage
or otherwise deal with the property. For instance, in Abbey National
Building Society v Cann 38 the House of Lords were of the opinion that Mrs
Cann authorised her son to mortgage the property, since she was aware of
her son's financial difficulties and thus must have known he required a
mortgage to complete the purchase. 39
The problems that surround the doctrine of notice have led to statutory
intervention in most common law jurisdictions in order to govern priorities
which take the form of some type of registration. Hong Kong is no
exception in this respect, and it is to the Hong Kong system of registration
that we now turn.
34
35
36
37
38
39
See Chapter 17.3.4.
[19691 1 WLR 286 at 294 C
[19811 AC 487 at 508G
[19931 1 AC 180
[19901 2 WLR 832
See also Bristol & West Building Society v Henning [19851 1 WLR 778, and
Equity & Law Home Loans Ltd v Prestidge [199211 WLR 137.
47
Priority: Land Registration Ordinance
3.1
Introduction
Tl~e_LandRegis_trationOrdinance I was originally enacted in 1844, soon
after the establishment of the colony, and has survived with only relatively
minor amendment. It is called a 'Land Registration' ordinance, but it is more
accurately a 'Documents Registration' ordinance for it establishes a system
of registration of documents affecting land. This system contrasts with-the
title registration systems established in England under the Land Registration
Act 1925 and the 'Torrens system' in Australia, which have found favour in
many other common law jurisdictions. It also differs from the registration
of charges that operates in England under the Land Charges Act 1972.
Although the Land Registration Ordinance 2 differs from the current
English system, it has its origins in the deeds registration system that existed
in England under the Middlesex and Yorkshire Deeds Registries, which was
also transported to many other overseas dependencies. The ordinance
owes its immediate models to the legislation that established deed registries
in Van Diemen's Land (now Tasmania), Western Australia, and Ireland. 3
Many of the deeds registries in other countries have been replaced by title
registration and Hong Kong plans to follow suit. A Land Titles Bill has been
published and has been the subject of extensive discussion and debate but
it has not yet reached the statute book. We will be looking at the main
features of the proposed Land Titles Bill in Chapter 4.
3.2
Concepts of Registration
3.2.1
Title Registration
The effect of title registration is to provide a record of the holders of estates
and interests subsisting in a lot of land, the accuracy of which is supported
by a goverriment guarantee. The intention is for the register to reveal all
es_tatesand interests affecting tne land rather than relying on notice gleaned
from an inspection of the title documents and the Ianµ. A purchaser of a lot
of land should thus merely have to examine the register to discover the
interests in the land to which he will take subject.
A further important feature of title registration is that it is the act of
registration of the instrument that vests title in the purchaser, and not the
instrument itself. Once the title of the purchaser is registered, the intention
is that his ownership cannot be challenged except in a number of very
limited circumstances: it is said to be absolute or indefeasible.
Cap 128, reference to sections in this chapter are to sections in the Land Registration
Ordinance.
Ibid.
See Thomson 'The Land Registration Ordinance of Hong Kong: Historical and Legal
Aspects' (1974) 4 HKLJ 242.
48
PRIORITY: LAND REGISTRATION ORDINANCE
3.2.2
Charges Registration
Registration of charges under the Land Charges Act 1972 operates in
England where the land is not subject to registration of title. It provides a
record of certain encumbrances affecting an owner of a lot of land, whether
those encumbrances have been created by instrument or some other means.
Interests that require registration as land charges are mostly equitable in
character and thus will only affect a purchaser of the legal estate if the
purchaser has notice. This registration of an interest as a land charge
supersedes constructive notice, for registration is deemed to provide actual
notice. Conversely, a failure to register renders the interest void against a
purchaser, even if that purchaser has notice of the interest. 4 Thus, while a
purchaser must still inspect the vendor's title deeds and the land, he can rely
upon the land charges register to provide details of those interests affecting
both the vendor and any previous.owner and which require registration. A
disadvantage for the purchaser lies in the fact that interests are registered
against the name of the owner of the land and not the land itself. Thus a
purchaser must search against the names of all previous owners of the land.
By the same token, the holder of an interest that qualifies as a land charge
must register his interest in order to be able to enforce it against a
subsequent purchaser. The commercial nature of most land charges should
mean that it is more likely that the holder will be aware of the need to protect
their interest by registration. As we shall see when we come on to consider
formalities, it is often in the family situation, where interest can arise
informally, that ignorance of registration requirements abounds.
3.2.3
Deeds Registration
A registration of deeds system merely provides a record of the instruments
affecting a particular lot of land. Registration alone does not provide
evidence of the vendor's title. It is still necessary for a purchaser to examine
the documents that make up evidence of the vendor's title to the land.
R~gistration does not confer title either. It does not endorse or guarantee
the validity of an instrument, nor does lack of registration deprive an
instrument of its validity between the parties. A failure to register, however,
may affect the priority of the instrument against third parties. Thus the only
comfort that a purchaser can gain from the register is that he should not be
affected by any interests created by an unregistered instrument.
3.3
Mechanics of Registration
3.3.1
Tbe Registration Process 5
In Hong Kong, a document that is submitted for registration must be
accompanied by a memorial, which is verified, usually by a solicitor. A
Midland Bank Trust Company Ltd v Green [1981] AC 513
See Land Registration Regulations Cap 128.
49
HONG KONG LAND LAW
memorial in the early days of registration was a summary of the document
that was prepared specifically for registration, but now a copy of the
document is merely attached to the memorial to provide details of the
instrument. In the Central Land Office a microfilm copy of the doi;:ument is
taken by the Land Office during the registration process. In the District Land
Offices the applicant must supply the copy of the document to be attached
to the memorial.
When a memorial of a document is submitted for registration, it is given
a memorial number and entered initially in the memorial day book, which
records brief details of all instruments submitted for registration on any given
day. The memorial and instrument are then checked. If an error is found, the
memorial and instrument are returned to the applicant for correction. Details
of the memorial and instrument are then entered in the register relating to
the lot of land affected. On the completion of the registration process,
the original instrument is returned to the purchaser or other party entitled to
retain it,·while a copy with the memorial is retained at the Land Office.
There are three types of registers. The Crown lease register records
instruments affecting the whole of a Crown lease lot. If the Crown lease has
not been issued and the lot is still held under .conditions that have not yet
been complied with, the register is known as the 'temporary register'. Where
the Crown lease lot has been divided up into smaller sections of land,
section registers are opened to record instruments dealing with each section
of the lot. Finally, where the land has been split into undivided shares, a
subdivision register will record all instruments affecting those shares.
Each register is divided into two parts to provide, first, details of the
'registered owner' and the land; and, second, the encumbrances affecting
the lot, section, or undivided share. The use of the expression 'registered
owner' is somewhat misleading since the title of the registered owner is not
in any way guaranteed or underwritten by the government. His title
continues to depend on an examination of the title documents and an
inspection of the land in the traditional manner.
3.3.2
Time of Registration
Before applying the rules of the ordinance to determine the priority of an
instrument, it is necessary to know the dates of registration of the relevant
instruments. The time of registration differs for charging orders and pending
court actions, known as 'lis pendens', and all other instruments.
3.3.3
Charging Orders and Lis Pendens
A creditor who has obtained a judgment for a debt owed to him may enforce
that judgment by application to court for a charging order over the debtor's
land. A charging order will secure repayment of the judgment debt on the
debtor's interest in land, and will entitle the chargee to realise the charge
by obtaining a court order for the sale of the land. The grant of a charging
order is made in two stages. First, an order nisi is made, whichis then made
absolute if the debtor fails to establish reasons for its discharge. It is clear
50
PRIORITY: LAND REGISTRATION ORDINANCE
that it is the date of registration of the order nisi that is important for the
purposes of determining priority. 6 Either party to court proceedings which
affect land may register a !is pendens to warn potential purchasers of a
dispute affecting the land.
The date of the registration of a charging order and a !is pendens is
governed by s SA, which provides that the date of registration •for the
purposes of the ordinance is the day after the order or !is pendens is
submitted for registration.
3.3.4
Other Instruments
The date of registration of other instruments is governed by s 5, which
provides:
All deeds, conveyances, and other instruments in writing ... which are
registered within one month after the time of execution thereof
respectively, ... shall severally be in like manner entitled to priority,
and shall take effect respectively by relation to the date thereof only
in same manner as if this Ordinance had not been passed.
An instrument that is submitted for registration within one calendar
month of its date of execution is deemed registered as at its date of
execution. If the instrument is submitted for registration after one month,
then its date of registration is the determining date. For instance, if A grants
a mortgage of his property to B on 1 January, then B has until 1 February
to register the mortgage in order to have priority assured from 1 January.
If he registers any later his priority will date from the date of registration and
not the date of the instrument. This b_:ick-dating mechanism is very
convenient for the purchaser, mortgagee, or other person taking the benefit
of the instrument. They have a month in which to submit their instrument
for registration without affecting their priority.
It is less convenient for those wishing to search the register to ascertain
their priority position, for it is impossible for the register to give an accurate
up-to-date picture. There is always the possibility that an instrument may
be submitted for registration, which can claim priority up to one month
before the date of the search. 7 This situation represents one of the major
defects of the ordinance, although the consequences, in practice, are less
disastrous than they might at first appear because possession and inspection
of the title deeds still play a vital role in the proof of title. A purchaser is
unlikely to enter into any transaction without first inspecting the original title
deeds, which are usually kept within the firm control of the vendor. Thus
it is unlikely that an instrument will be registered without the knowledge
of the vendor. Charging orders and !is pen dens are notable exceptions, but
these instruments are governed by different rules.
Wong Kam-wing v Cyril Murkin (HK) Ltd (1989) HCT MP No 1722 of 1988
See for example Aie Company Ltd v Kay Kam Yu (1994) HCt No A48 of 1991.
51
HONG KONG LAND LAW
Nevertheless, the situation could be resolved by instituting a priority
notice system similar to that found in England, whereby a person intending
to register can take out a priority notice that enables him to maintain his
priority to the date of the transaction, provided he registers within the
priority period specified by the notice. The priority notice is immediately
entered on the register, giving notice to subsequent searchers that the
registration of an instrument able to take in priority is imminent.
3.4
What is Registrable?
Section 2 provides that:
The Land Office shall be a public office for the registration of deeds,
conveyances, and other instruments in writing, and wills and
judgments; and all deeds, conveyances, and other instruments in
writing, and wills and all judgments, by which deeds, conveyances,
and other instruments in writing, and wills and judgments, any parcels
of ground, tenements or premises in Hong Kong may be affected, may
be entered and registered in the said office in the prescribed manner.
3.4.l
'All Deeds, Conveyances, and Other Instruments in Writing'
Only instruments may be registered. Any interest in land which can be
created or transferred otherwise than by instrument falls outside the ambit
of the ordinance. For the formalities required to grant or deal with an interest
in land, see Chapters 5 and 6. Generally some form of writing is required,
but there are exceptions.
3.4.2
Unwritten Equities
Unwritten equities cannot be registered under the ordinance. The most
~~on
unwritten equities include equitable interests arising under a
resulting or constructive trust, 8 or created by part performance or proprietary
estoppel.9 An unwritten equitable mortgage may also be created by the
mere deposit of the title deeds to the property with the lender. 10 Where an
unwritten equity arises its priority continues to be governed by the doctrine·
of notice.11
10
Tsang Chuen v Li Po-kwai (1932] AC 715 and Chu Yam-on v Li Tam Toi-bing (1954) 38
HKLR 114 (CA) and 0956) 40 HKLR 250 (PC)
Citibank NA v Lai Tat-chee (1986] 2 HKLR 885
Re Burkes Case (1881] 9 LR Ir 24
11
See Chapter 2.
8
9
52
------------
PRIORITY: LAND REGISTRATION ORDINANCE
Financial and Investment Services for Asia Ltd v Baik Wha International
Trading Co Ltd
[1985] HKLR 103 ('the FISA case')
FACTS
A company owned property that was mortgaged to a bank. The plaintiff,
with a view to becoming first mortgagee, advanced money to the company
on 23 February 1982 to enable it to redeem the mortgage to the bank. The
reassignment of the bank's mortgage and the plaintiff's mortgage were
completed on 13 March 1982, and registered on 17 March 1982 and 8 April
1982 respectively. In the meantime, on 2 March 1982 the defendant
registered a charging order against the property to secure a judgment debt
obtained against the company.
JUDGMENT
By advancing money to discharge the bank's existing mortgage, the plaintiff
was entitled in equity to a transfer of that mortgage. This equitable transfer
was unwritten and unregistrable. The ordinance did not apply and priority
should be governed by the doctrine of notice. The defendant was not a
purchaser for valuable consideration and therefore could not take free of
the plaintiffs prior equity.
The court avoided deciding the case on the basis of the order of
registration of the charging order, reassignment, and mortgage by relying
instead upon the unwritten equitable transfer of an existing registered
mortgage. This existing mortgage, which was transferred to the plaintiff,
was not extinguished by merger with the subsequent mortgage that the
plaintiff had intended to take, because this subsequent mortgage was
ineffective to give the priority the parties had intended.
What happens where an equity that has arisen by conduct is later
reduced to writing, or there is written evidence of its grant? It now seems
clear that an unwritten equity will be superseded if subsequently it. is
recorded in a writing. The unwritten equity does not continue to have an
independent existence. Its priority will instead be determined according to
the registration of the instrument in which it is recorded. In Chu Yamon v Li Tam Tai-bing 12 both the Court of Appeal and the Privy Council
rejected arguments that a resulting trust survived the reduction of its terms to
writing. A deposit of title deeds is more than likely to be accompanied by
some form of documentary evidence which can be registered. For instance,
in Fullerton v National Bank oflreland 13 it was decided that letters evidencing
an agreement by a borrower to deposit the title deeds of his property as
security for a loan were registrable. The point has been considered in Hong
Kong in:
12
13
[1954] 38 HKLR 114 and [1956] 40 HKLR 250
[1903] AC 309
53
HONG KONG LAND LAW
Citibank N.A. v Lai Tat-chee [1986] 2 HKLR 885 ('the Citibank case')
FACTS
The first defendant allowed the second defendant to build a house on his
land upon the promise that the second defendant would be entitled to live
in the house he built for 50 years. Several months afterwards the two parties
entered into an undated document incorporating the terms of their
agreement. This document was not registered. Three years later the first
defendant mortgaged that land and house to the plaintiff. He defaulted
under the mortgage and the plaintiff claimed possession.
JUDGMENT
The plaintiff took in priority to the second defendant's unregistered lease
which superseded rather than merely provided evidence of his equity by
estoppel.
It seems, however, that following the reasoning in the Pisa case 14 merger
of the unwritten equity with its subsequent written form may not take place
where a registered instrument intervenes between the unwritten equity and
its written form. The unwritten equity in these circumstances may survive
to preserve the priority that the parties originally intended.
3.4.3
Leases Not Exceeding Tbree Year.s
Leases not exceeding three years may escape a need for registration under
two heads. First, a lease for under three years may be created orally if it takes
effect in possession and is granted simply for a market rental. 15 An oral lease
will escape a need for registration because it is not created by instrument.
Its priority instead is governed by the doctrine of notice and, as a legal
interest, it will bind the whole world. Second, a lease for a term not exceeding
three years which is created by instrument need not be registered under the
ordinance, for s 3(2) provides that: ' ... nothing herein contained shall extend
to bona fide leases at a rack rent for a term not exceeding three years'.
It is not entirely clear, but the implication appears to be that the priority
of leases not exceeding three years is to continue to be governed by the
doctrine of notice. Accordingly, provided the lease takes effect in possession
and is for a market rental without any premium being paid, the lease will
qualify as a legal estate and bind all subsequent interests.
54
14
[1985] HKLR 103
15
See Chapter 5.4
PRIORITY: LAND REGISTRATION ORDINANCE
3.4.4
Other Interests Created in Leases Under Three Years
Care must be taken to protect by registration other interests that may be
created within a lease of under three years but which do not fall within the
exemption. Both in England 16 and now in Hong Kong the issue has been
raised in the context of a covenant contained in the lease which grants an
option for the tenant to renew the leasehold term.
Chiap Hua Flashlights Ltd v Marlefaith Investments Ltd [1990] 2 WLR 1451
[1990] 2 HKLR 84
('the Markfaith case')
FACTS
The defendant agreed to purchase certain premises from the plaintiff. The
premises were to be sold subject to tenancies, details of which had been
disclosed by the plaintiff. The defendant alleged that the plaintiff had not
adequately disclosed details of certain options to renew that the tenants
enjoyed, and refused to complete the purchase on the terms agreed. The
plaintiff claimed he was entitled to terminate the agreement.
JUDGMENT
The plaintiff was entitled to terminate the agreement. He was under no
obligation to disclose the options since the tenants had failed to register their
options, which were thus void against the defendant. The fact that the options
were contained in leases which did not have to be registered was irrelevant.
. An option is an interest which may exist independently of the lease and
thus must be registered separatelyfo bind a purchaser. It is irrelevant that
a purchaser may have agreed to take the property subject to the lease
including the option. The purchaser is entitled to take advantage of their
legal rights under the ordinance unless it is clear that they agreed to be
bound regardless of the fact that option was unregistered. 17
But what about the other covenants contained in the lease? They too may
qualify as distinct interests in the land and as such may be enforced against
those who are not parties to the lease .18 But as distinct interests do they also
need to be registered separately? At first sight it is difficult to distinguish a
covenant granting an option from any other covenants that may be found
in a lease to control, for instance, use, repair or disposal,as all fall within the
scope of privity of estate. 19 A vital distinction does, however, exist. The
16
17
18
19
Beesly v Hallwood Estates Ltd [1960] 1 WLR 549; Phillips v Mobil Oil Co Ltd [1990] 1 WLR 276
Wellmake Investments Ltd v Chan Yiu Tong 0996) CA Civ App No 247 of 1995. See
further Chapter 3.5.4.
See Chapter 15.3.
See Chapter 14.3.
55
HONG KONG LAND LAW
performance of the option will give rise to a new term. It is, in effect, an
irrevocable offer to lease by the landlord which cannot be withdrawn,
pending acceptance by the tenant's exercise of the option. The remaining
covenants, by contrast, are inextricably bound up with the lease. They are
taken to govern the existing leasehold relationship, and will cease upon the
expiry of the term upon which they are dependent. Accordingly, they
should be protected by the registration of the lease itself and need not be
separately registered.
3.4.5
Floating Charges
Floating charges, prior to crystallisation, have been excluded from registration
under the ordinance. 20 They have also been excluded from classification as
an interest in land prior to crystallisation. 21 Upon crystallisation, a floating
charge becomes a fixed charge upon the assets of the company to which the
charge relates. If those assets include land, the instrument creating the charge
becomes registrable from the date of the certificate affecting crystallisation.22
3.4.6
Judgments and Lis Pendens
Judgments affecting land may be registered in the same way as any other
instrument affecting land. Also bys 14 of the ordinance, an action affecting
land which is pending in court, known as a lis pendens, can also be
registered in the same way as a judgment. A lis pendens is defined in s lA
of the ordinance as 'any action or proceeding in a court or tribunal that
relates to land or any interest in or charge on land'. The meaning of this
definition was considered by the High Court in:
'
,.
•••
11!11
Chow Chiu-Tai v Chan Tak-Ming [1994] 1 HKLR 274
FACTS
The plaintiff had brought an action against the defendant in nuisance with
alternative claims based on Rylands v Fletcher, negligence and breach of
deed of mutual covenant. The defendant gave an undertaking to cease the
nuisance and the action proceeded in respect of the plaintiffs damages
alone. The action was registered as a lis pendens of which the defendant
sought the vacation when he tried to sell his premises.
JUDGMENT
The registration should be vacated as it did not relate to the defendant's land.
20
21
22
56
See s 2A of the Land Registration Ordinance Cap 128.
See s 56A of the Conveyancing and Property Ordinance Cap 219.
Section 2A(2) of the Land Registration Ordinance Cap 128
PRIORITY: LAND REGISTRATION ORDINANCE
Not every action which relates to land can be registered; it must affect
the land as such. So that if the action is not protected by registration, it may
lose priority to some other interest in land which is duly registered. Clearly
an action which makes a claim to a proprietary interest in the land, eg an
easement, will be registrable. But where the action will not, whatever the
outcome, affect a subsequent purchaser of the land then the action is not
registrable. The vital question to ask is thus, will a subsequent purchaser
take free of the action if it is not registered? 23 For instance, a lis pendens
relating to an action for a nuisance emanating from land is not registrable 24
nor is a lis pendens relating to a share in a corporate registered owner of
land. 25
The registration of a lis pendens will warn a subsequent purchaser that
there is a claim affecting the land that may affect their title. Generally, a
purchaser will thus take subject to the judgment that results. 26 A failure to
register a lis pendens will, under s 16 of the ordinance, enable a purchaser
or mortgagee to take free of the action and the resulting judgment unless
the purchaser or mortgagee has actual notice of the proceedings. 27 The court
has power to order the vacation of a lis pendens either if it has been
improperly registered 28 or if some bona fide or other good cause is shown
during the course of the proceedings or on their determination. 29
3.4.7
Wills
The ordinance provides that wills are registrable, but as the will itself cannot
pass title to the deceased's property, it is difficult to see why a will should
be registered. Indeed, in practice wills are not registered. It is the grant of
representation that passes the title of the deceased's property to his personal
representatives, and any subsequent assent to the beneficiary entitled, that
should be registered.
3.4.8
'Any parcel of ground . .. in Hong Kong may be affected'
The instrument must be capable of affecting land. Instruments creating,
transferring, or disposing of the interests in land clearly qualify, eg leases,
easements, covenants, and mortgages. In Re Hongkong and Shanghai
Banking C01poration 30 the assignment of the proceeds of sale of land was
23
24
25
26
27
28
29
3o
See Thians Plastics Co Ltd v Tins Chemical Co Ltd (No 2) [1971] HKLR 249; and
Yu Jing-Jenn v Wong Pe-wun (1986) HCt No P2 of 1986.
Chow Chiu-tai v Chan Tak Ming [1994] 1 HKLR 274
Health First Technology Ltd v Chan Chi-cheung [19931 2 HKLR 473
But exceptions may arise. See for instance Kwok v Kwok and Smith (1910) 5 HKLR
247.
Ho Sei-shing v Wan Ying-him [19591 HKLR 483; although this decision has been
criticised, see Bramwell: Conveyancing in Hong Kong London, Butterworth (1981)
at 220.
Thians Plastics Co Ltd v Tins Chemical Co Ltd (No 2) [1971] HKLR 249
See ss 19-21 of the Land Registration Ordinance Cap 128.
(1993) MP No 4049 of 1992
57
HONG KONG LAND LAW
not registrable, the proceeds were affected but not the land itself.31There
are, needless to say, a number of less clear-cut cases, such as a licence the
exact nature of which lies on the border between personal rights and
interests· in land.
The courts have looked for guidance in deciding whether or not an
interest may affect land by looking to the remedies available to the parties,
If breach of the instrument would give rise only to a right to damages it does
not qualify. Redress against the land itself must be available. 32
& anou.1er v Longo Construction
[1986] HKC 362; [1987] 3 HKC34
FACTS
The plaintiff had a right to use a septic tank on the second defendant's land
by virtue of a deed of grant. It had been decided. in related litigation that
the deed of grant only gave rise to aright to damages. The defendant applied
to have its registration and that of subsequent documents related to
associated litigation vacated.
JUDGMENT
The registration of the deed of grant and related documents should be
vacated as their terms gave no right to any action against the land.
The test of whether redress may be available against the land must be
applied at the time the instrument is submitted for registration. It is thus
difficult to see the justification in a deeds registration system of sanctioning,
as the court did, the vacation· of an instrument which clearly did affect the
land when it was first registered, but which has subsequently ceased to be
enforceable against the land.
3.5
Effect of Registration
3.5.l
Purchases
Section 3(2) of the ordinance states: 'All such deeds, conveyances, and other
instruments in writing . . . which are not registered shall, as against any
subsequent bona fide purchaser or mortgagee for valuable consideration of
the same parcels of ground, tenements or premises, be absolutely null and
void to all intents and purposes.'
31
58
32
See also City of London Building Society v Flegg [1988] AC 54 where the interests of
co-owners under a trust for sale were held to exist only in the proceeds
sale and
not with reference to the land and thus were not capable of protection at the Land
Registry once the trust had been exercised by payment of capital monies to the. two
trustees.
•
See also Ansalt Nybro v Hong Kong Resort Co Ltd [1980] HKLR 76.
W
PRIORITY: LAND REGISTRATION ORDINANCE
•An unregistered instrument is void and of no effect against a bona fide
purchaser or mortgagee for valuable consideration. Although the ordinance
does not operate to pass or to certify title !J:may, as a result of s 3(2), ~ff.ect
the nature of a purchaser's .ownership. For instance, if A transfers to C his
lanct,wnichiss~b}ect to an unregisi:~red lease of over three years .in favour
of B, C will take free of B's lease.
Fig3.1
A
Unregistered lease
for more than .
three years
Sale ot Mortgage
B
C
C takes free of B's-lease
This•results even though A is, strictly speaking, unable to transfer any
more than he holds, ie his reversion in the land subject to B's lease. The
ordinance does not operate to transfer ownership of A's property to C: the
assignment instrument between A and C does that, but it does stop B from
enforcing his interest against C. Therefore B no longer holds an interest that
is enforceable against the land. His only remedy is against A, which is a
merely personal right. In this negative fashion C has acquired a greater title
to the land than A was capable of transferring to him. He holds the land free
of B's lease, rather than merely A's interest in the land which was subject
to B's lease. The Privy Council have upheld this operation of the ordinance
in Mark/ aith Investments Ltd v Chiap Hua Flashlights,33 where they rejected
arguments that the vendor was only capable of assigning to the purchaser
the Crown head lease, subject to the tenancy. agreement including the
option. In the words of Lord Templeman: 'the term granted by the head
lease vests in the purchaser by force of the assignment subject to the tenancy
agreement so far as the tenancy agreement is subsisting and capable of
being enforced against the purchaser.' 34
The reasoning of Lord Templeman has been applied by the High Court
in the case of:
Fast
v 1nc,unc~:,vun:u Co
[1990) 2 HKC 494 and (1991) Civ App Nos 180 of
1990 and 3 of 1991
FACTS
The defendant bought several floors in an industrial building together with
the exclusive right to use the 'surface of the main roof'. Their assignment
33
34
[1990] 2 WLR 1451 at 1458, [1990] 2 HKLR 84 at 91
Ibid.
59
HONG KONG LANDLAW
was registered at the Land Office, but as the memorial accompanying the
assignment did not specifically refer to the defendant's rights over the roof,
nothing was recorded on the register for the main roof. Subsequently the
plaintiff also bought the main roof from the vendor, but his assignment was
recorded in the register for the main roof. The question then arose as to who
was entitled to the main roof.
JUDGMENT
The plaintiff was entitled to the main roof. The defendant's assignment was
of no effect against the plaintiff by the operation of s 3(2). It was 11ot
registered against the main roof. The fact that the vendor did not have an
unfettered right to deal with the main roof was irrelevant to the rights of the
plaintiff, although the defendant was entitled to seek damages against the
vendor.
3.5.2
Purchasers or Mortgagees
OQly purchasers or mortgagees for valuable consideration may claim that
an unregistered deed does not bind them under s 3(2). Purchasers, defined
as including anyone who acquires property other than by operation of law,
have been examined here in the context of the doctrine of notice. 35 The
reference to mortgagees is puzzling. Strictly speaking it is superfluous, as
a mortgagee already falls within the definition of a purchaser. The intention
may be to include only purchasers who take an assignment of the whole
interest of the vendor or who are mortgagees. Such a construction would
exclude other purchasers in particular lessees. For instance, if A, who owns
property that is subject to a lease for over three years in favour of B, then
leases it again to C for more than three years rather than assigning his whole
interest, does C qualify as a purchaser for the purposes of s 3(2)? If C does
qualify as a purchaser, he takes free of B's lease. If he does not, then priority
will depend upon the order of registration under s 30) 36which, although not
entirely free from doubt, is likely to lead to priority being afforded to B.37
A
Fig3.2
Unregistered
lease of over
three years
Lease
B
C
C will take free of B's lease if he
is a purchaser
35
36
37
60
See Chapter 2.3.2.
This is assuming either B or C registers. If neither registers, which is unlikely, priority
will depend on the doctrine of notice.
See 3.5.8.
PRIORITY: LAND REGISTRATION ORDINANCE
The parties to an unregistered instrument continue to be bound. For
instance, if B's unregistered lease from A is defeated by A's assignment of
the property to C, B's lease is only unenforceable against C. It continues to
bind A, who may be sued upon his implied covenant for quiet possession
if B is dispossessed by C. It is thus in the interests of a vendor or mortgagor
to ensure that an instrument is registered, for otherwise he may find himself
personally sued by a purchaser or mortgagee whose interest in the land is
defeated for lack of registration. 38 •
3.5.3
Valuable Consideration
A purchaser must give valuable consideration, although the court will not
enquire into its adequacy. A volunteer, who has acquired the property for
no consideration, will thus be unable to claim priority under s 3(2). It is clear
that a judgment creditor who obtains a charging order to secure his
judgment debt is not a purchaser or mortgagee for the purposes of s 3(2). 39
3.5.4
Bona Fide
The purchaser or mortgagee must be bona fide. But bona fide has
meaning in the context of the ordinance from its meaning in the
the doctrine of notice. 40 The requirement for bona fide does not
the purchaser must be without notice, for s 4 of the ordinance
a different
context of
mean that
provides:
No notice whatsoever, either actual or constructive, of any prior
unregistered deed, conveyance, or other instrument in writing ...
shall affect the priority of any such instrument as aforesaid as is duly
registered.
A purchaser may thus take free of an unregistered instrument even though
he has notice of that instrument. Notice thus has no application _in
determining the priority of instruments, but it is still relevant in determining
the priority of unwritten equities.
-
Kwok Siu-lau v Kan Yang-chee 0919) 8 HKLR 52
FACTS
The defendant took a lease of premises for five years but he failed to register
the lease. The plaintiff agreed to buy the property and registered his contract
for sale. The plaintiff had no notice of the defendant's lease at the time of
38
39
40
See Fast Fonuard Ltd v Magicsound Co Ltd [1990] 2 HKC 494 and (1991) Civ App Nos
180 of 1990 and 3 of 1991.
Consolidated Sales Ltd v Turner C Lynn [1970] HKLR 222; and Financial and
Investment Services for Asia Ltd v Baik Wha International Trading Co Ltd [1985] HKLR
103.
See Chapter 2.3.1.
61
~
I
HONG KONG LAND LAW
i
his purchase, although he had notice at the time his contract was registered.
The purchase was completed, and when the lessee refused to agree to a rent
increase the plaintiff sought possession.
JUDGMENT
The plaintiff took free of the defendant's lease even though he had notice
of it.
The reference to 'bona fide' does not reimpose the doctrine of notice
which s 4 so clearly excludes. Interestingly, s 4 does not appear in the
statutes establishing deeds registries in England or in a number of other
common law jurisdictions. Indeed, in these jurisdictions it has been held that
notice continues to be relevant. 41
If bona fide does not mean 'without notice' what does it mean? In
Kwok Siu-::./au42 the court indicated that it required an absence of 'actual
fraud'. While in Mak Him v ChanHung-pak, 43 a case which also concerned
the priority of an unregistered lease, the court quoted with approval the
following definition of actual fraud found in Battison v Hobson: 44 '"Actual
fraud" I understand to mean fraud in the ordinary popular acceptation of
the term, ie fraud carrying with it grave moral blame, and not what has
sometimes been called legal fraud, or constructive fraud, or fraud in the eye
of a court of law or a court of equity'. 45
The comments of Lord Wilberforce in Midland Land Bank Trust Co Ltd
v Green 46 are also useful in so far as they address the meaning of bona fide
beyond a mere absence of notice. His Lordship stated that 'it would be a
mistake to suppose that the requirement of good faith extended only to the
matter of notice .... Equity still retained its interest in and power over the
purchaser's conscience 47 which requires an enquiry into the purchaser's
motives and state of mind'. 48 The difficulty is to identify what motives would
constitute a lack of bona fide, which can be illustrated by the case itself:
··," ~,il-iL, '-~
··•---c•".!!""'!l!I! -
Midland Bank Trust Co Ltd v Green [1981] AC 513
FACTS
Mr Green granted his son an option to purchase a farm. The son failed to
register the option as a land charge and as a result, under the Land Charges
41
42
43
44
45
46
47
48
62
See Le Neve v Le Neve (1748) 2 W&T 175.
(1913) 8 HKLR 52 at 65
[1965) HKLR 87
[1896) 2 Ch 403
Ibid per Stirling J at 412, quoted with approval by Hogan
Hung-pak [1965) HKLR 87 at 93.
[1981) AC 513 at 528
At 528 F
At 530 A
CJin Mak Him v Chan
PRIORITY: LAND REGISTRATIONORDINANCE
Act 1925, a subsequent purchaser would not be bound even if they had notice
of the option. In order to defeat the option, Mr Green sold the farm to his wife
for much less than it was worth. When his son learnt of this he tried to enforce
his. option, a claim that was continued by his executor after his death.
JUDGMENT
The option was defeated because it was not registered, the question of
notice and bona fides was irrelevant to priority under the Land Charges Act
1925. Nevertheless, the Greens did not necessarily lack bona fides because
of their clear intention to defeat their son's option. Their intention may have
sprung from a wish to benefit all their children, rather than from malice
towards their son.
A mere intent to take advantage of the. operation of the ordinance to defeat
an unregistered instrument may thus be insufficient to establish fraud.
Something more reprehensible is required. But the dividing line between
taking advantage of one's strict legal rights and using a statute as an engine
for fraud may be very fine. For instance, the Privy Council in the Markfaith
case 49did suggest that, where a purchaser has in effect agreed with the holder
of the unregistered instrument and not just with the vendor, to take subject
to his interest, he may not be allowed to subsequently deny that interest. 50
The Hong Kong Court of Appeal has considered the issue in:
-Yi~--Tong
fr59cS°~A
Civ App No 247
Wellmake /~vestments Ltd v· cb'""an
of 1995
FACTS
The defendant was a tenant under a tenancy agreement for three years
which contained an option to renew for a further two years. Neither the
tenancy agreement nor the option were registered. The original landlord
sold his reversion to the plaintiffs. The property was described in the sale
and purchase agreement as being subject to the defendant's tenancy
including the option to renew. Wh~n the pliantiffs sought possession the
defendant claimed they should be bound by his option to renew because
they had, under the agreement, bought the premises subject to his tenancy
including the option to renew.
JUDGMENT
The plaintiffs were entitled to possession, they were not bound by the
defendant's unregistered option. It was not enough that the property was
49
50
(1990] 2 WLR 1451 and (1990] 2 HKLR 84
At [1990] 2 WLR 1451 at 1458 and (1990] 2 HKLR 84 at 91. See for instance Security
Trust Co v Royal Bank of Canada [1976] AC 503.
63
HONG KONG LAND LAW
expressed to be sold subject to the defendant's tenancy and option,
something more was required in order to bind a purchaser's conscience; for
instance, an express agreement from the purchaser to give effect to the
option. No doubt such a stipulation might affect the price that the purchaser
would be willing to pay for the property. As it was, the purchaser was merely
taking advantage of their statutory rights.
3.5.5
Interrelationship of Sections 3 and 4
Sections 3(2) and 4 appear deceptively simple when examined separately,
but their interrelationship is fraught with difficulty.
Section 3(2) does not appear to require a subsequent purchaser or
mortgagee to be claiming under a registered deed in order to take free of
a prior unregistered instrument. Thus, if C purchases A's land, which is
subject to a lease of over three years in favour ofB, the subsection suggests
that C may take free of B's lease even if he himself fails to register. 51
However, s 4 appears to exclude the doctrine of notice only if the
subsequent purchaser registers the instrument under which he claims.
In the words of De Sausmarez PJ in Kwok Siu-tau, 'As between two
unregistered deeds equitable doctrines will no doubt apply ... '.52 Thus the
implication is that where the subsequent purchaser is also unregistered,
notice continues to be relevant and C may be bound by B's lease if he has
notice of it.53 In other words, bona fide may have different meanings
according to whether the subsequent purchaser is claiming under a
registered or unregistered deed.
This line of enquiry is somewhat academic, for there is unlikely to be a
competition between two unregistered deeds: one or both of them will no
doubt be registered. As De Sausmarez PJ noted in Kwok Siu-tau, 'It is said
that the legislature cannot have intended to postpone a prior to a
subsequent unregistered deed. That is an argument which would be of
weight could not the priority of unregistered deeds inter se immediately be
altered or confirmed by the registration of one of them. The penalty is severe
but the escape is easy'. 54
If C, as a purchaser from A of land which is subject to an unregistered
lease to B, is the first person to register their assignment, then s 3(2) will
operate to ensure his priority over B's lease. It seems that the fact that C may
have notice of B's lease at the time of the registration or even of his
assignment is irrelevant. For instance, in Kwok Siu-tau the purchaser had
notice at the time of registration; in the Citibank case 55 the bank had
constructive notice at the time of their mortgage. If B, as a lessee under a
I
I
51
52
53
54
64
55
Rees Davies CJappears to support this view in Kwok Siu-tau v Kan Yang-che (1903) 8
HKLR 52.
(1913) 8 HKLR 52 at 65. He went on to say 'But I do not desire to go further' and who
can blame him!
The implication may even be that the priority of unregistered deeds is to continue to
be governed by the doctrine of notice.
(1913) 8 HKLR 52 at 65
(1986) 2 HKLR 885
PRIORITY: LAND REGISTRATION ORDINANCE
lease of land which is sold by A to C, is the first person to register, can he
claim priority as the first person to register? 56 De Sausmarez suggests that
he can. The purpose of the ordinance 'is to make registration the test of
priority, and by imposing harsh terms on persons failing to register to
compel them to do so'. 57 Perhaps the corollary should be that persons
cannot take advantage of the ordinance if they do not register. The
alternative view is that, following an amendment to the ordinance in 1978 58
s 3(2) is the governing section so that an unregistered instrument that is void
against a subsequent instrument cannot be resurrected by registration. The
subsequent instrument prevails regardless of the registration of. the first
instrument. 59
It is important in any test of priority to remember the operation of s 5,
which stipulates that the date of registration is deemed to be the date of the
instrument where the instrument is registered within one month of its date
of execution.
The following examples illustrate the interrelationship of these sections.
In each example the lease from A to Bis for a term of more than three years.
Example 1
A leases property to B
A sells property to C
B takes in priority to C -
Example 2
A leases property to B
A sells property to C
B takes in priority to Cfirst.
'
57
58
59
1 May
20 May
14May
30 May
his interest is created and registered first.
1 May
4 May
14May
10 May
1 May
4May
3June
10 May
Although created after B's interest, C is deemed
Example 4
A leases property to B
A sells property to C
56
Date
Registration
his interest is created first and is deemed registered
Example 3
A leases property to B
A sells property to C
C takes in priority.
registered first.
Date
Instrument
1 May
4May
Not yet registered
10 May
See s 3(1) of the Land Registration Ordinance Cap 128.
(1913) 8 HKLR 52 at 66
This amendment provides that s 3(1) is 'Subject to this ordinance ....
See Bramwell: Conveyancing in Hong Kong London Butterworth, (1981) at 209.
65
1
HONG KONG LAND LAW
I
i
C takes in priority his interest. Although created after B's interest, C is
registered first.
Example 5
A leases property to B
A sells property to C
lMay
4 May
6June
Not yet registered
Does B take in priority to C? See s 30).
Does C take in priority to B? See s 3(2).
Does C have tobe without notice to take in priority under s 3(2), or can he
merely register to overcome the handicap notice might bring?
Example 6
A leases property to B
A sells property to C
Does
Does
Does
Does
3.5.6
1 May
4 May
Not yet registered
Not yet registered
the first person to register take in priority? See s 3(1).
C take in priority to B? See s 3(2).
C have to be without notice to take in priority under s 3(2)?
doctrine of notice apply rather than the ordinance?
Volunteers
A volunteer is a person who acquires an interest in land without giving
valuable consideration. A donee of a gift of land made either inter vivas or
by will is classified as a volunteer. But perhaps the most common volunteer
participating in the priority game in Hong Kong is the chargee under a
charging order. Typically, where an individual or company runs into
financial difficulties there will be a race by creditors to obtain security for
the repayment of their debts.
One way they can is to obtain a charging order against the debtor's
property. Although a chargee under a charging order has given consideration
for the debt owed to him, he has given no further consideration for the
charging order and accordingly fails to qualify as a purchaser for valuable
consideration. He is a volunteer ..The priority of a volunteer is governed by
s 3(1) of the ordinance, which provides:
Subject to this Ordinance, all such deeds, conveyances and other
instruments in writing ... made, executed, or obtained and registered
in pursuance hereof, shall have priority one over the other according
to the priority of their respective dates of registration.
3.5.7
Prior Volunteers
Priority under s 3(1) is governed by the order of registration. Thus a
volunteer, upon registering the instrument under which he holds his
interest, will take free of the interest of a volunteer under a prior
unregistered instrument. For instance, if B obtains a charging order against
66
PRIORITY: LAND REGISTRATION ORDINANCE
A's property which he fails to register before C registers a gift of the property
from A, then C will take free of B's charging order because he registers first.
Another example is found in:
--------
Wong Kam-wing v Cyril Murkin (HK) Ltd [1989] 2 HKC 603
FACTS
The plaintiff was entitled to a share in a flat that was mortgaged to a bank.
On 5 May 1988 the first defendant obtained a charging order against the
plaintiff's flat which he registered on 3 June 1988. Meanwhile, on 19 May
1988 the second defendant also obtained a charging order against the
plaintiffs flat, which he registered on 26 May 1988. The first defendant
subsequently assigned the benefit of his charging order to the third
defendant. A dispute arose between the third and second defendant
regarding their entitlement to the balance of the sale proceeds of the flat
after the bank's mortgage was paid off.
JUDGMENT
The second defendant's charging order took priority over the charging
order of the third defendant since it was registered first.
The first in time rule laid down in s 3(1) will thus operate to protect the
priority of a volunteer against a prior unregistered volunteer, but will it also
protect the priority of a volunteer against a prior unregistered purchaser?
3.5.8
Prior Purchasers
A literal construction of s 30) would suggest that a volunteer under an
instrument which is duly registered can defeat any prior unregistered
instrument regardless of whether the person claiming under that instrument
is a purchaser or a volunteer. But a literal construction uncovers a conflict
between s 3(1) and s 3(2), which can lead to some strange results as is
illustrated by: 60
Consolidated Sales Ltd v Turner C Lynn [1970] HKLR 222
FACTS
The defendant's partner was the owner of a flat. On 10 January 1970 she
sold the flat for valuable consideration, but the assignment was not
registered until 3 March 1970. In the meantime the plaintiff obtained a
charging order against the flat, which was registered on 24 February 1970.
60
See also Kai Sun Investments Ltd v Dah Sing Bank Ltd [1983] 2 HKC 554.
67
HONG KONG LAND LAW
JUDGMENT
The plaintiff's charging order took in priority to the assignment since the
clear terms of s 3(1) dictated that the charging order as the first to register
took in priority to the subsequently registered assignment.
Strangely enough, if the purchaser had not registered his assignment at
all it would not have been defeated by the charging order. The chargee
could not claim the unregistered assignment was null and void against him
under s 3(2), for he was not a purchaser. He could only rely on the order
of registration between his registered charging order and the registered
assignment under s 3(1). This literal approach has been sharply criticised,
in particular by Hunter Jin the Pisa case. 61 He quite rightly pointed out that
the ordinance establishes a register of deeds and not of title. The purpose
of the ordinance is 'to facilitate in the tracing of title not to give title itself .62
Thus he maintained it is still necessary to consider the validity of instruments
that are registered. The charging order in the Consolidated Sales case was
only capable of charging the interest that the judgment debtor held at the
time of the order; As the land had been already sold, the judgment debtor
had no interest in the land and had nothing to charge.
Certainly registration is not a test of ownership and the validity of the
instruments must be established. But validity, as Hunter J uses the word,
imports the effect of an instrument and not just its legal validity. As we have
already seen in the context of s 3(2), the effect of an instrument and its
priority are certainly not separate issues, but are closely interrelated. If a
purchaser can claim priority over an unregistered lease, his interest is
different from that of his vendor who is bound by the lease. Similarly, if a
mortgagee can claim priority over a prior unregistered mortgage, then his
interest enjoys the distinct advantage of being a first mortgage rather than
a second mortgage. This is an advantage which his mortgagor could not
alone have granted to him.
Adapting slightly the test laid down by the Privy Council in the Markfaith
case 63 a volunteer may claim the interest conveyed by his donor subject only
to such interests_.asare enforceable against him. Hunter J looked only to the
question of the interest conveyed, and suggested that if a sale or mortgage
of the property had not been registered, a volunteer under a charging order
would still be bound by the unregistered instrument because the charge
only attaches to the property beneficially owned by the debtor.
Hunter J's comments in the Pisa case are dicta because he decided the
case on other grounds. 64 But his views have been cited with approval and
applied in Ng Kam-ha v Vincent Sina Traders (HK) Ltd.65Hunter Jin the Pisa
case, however, ignored the question of what interests were enforceable
68
61
62
63
Ibid. at 112
64
See Chapter 3.4.2.
65
[1987] 2 HKC 517
[1985] HKLR 103
[1990] 2 WLR 1451 and [1990] HKLR 84
PRIORITY: LAND REGISTRATION ORDINANCE
against the chargee or volunteer. The answer to this question is unclear.
We have already seen in the CyrilMurkin case 66 that a volunteer under a
prior unregistered instrument will be defeated by a subsequent volunteer
claiming under a registered instrument. But will a purchaser under a prior
unregistered instrument also be defeated by a volunteer under a registered
instrument? The subsection does not itself draw any distinction between
volunteers and purchasers, but one is left wit!\}a basic inconsistency in subs 3(2) unless a distinction is drawn.
There is after all little point in sub-s 3(2) providing that an unregistered
instrument is void only against a bona fide purchaser or mortgagee if a
volunteer can also claim the instrument is void against him under s 3(1).
The inconsistency may be resolved in favour of the s 3(2) limitation by
noting that s 3(1) is expressed to be 'Subject to this ordinance'. It is
accordingly submitted that a volunteer should not be able to take in
priority to the rights of a purchaser under a prior unregistered instrument.
A number of examples illustrate the operation of the ordinance in
relation to volunteers.
Date
Date
of instrument of registration
Example 1
A gives property to B
1 May
C obtains charging order against A's property 10 May
24May
20May
B takes in priority to C because he is deemed registered first
Example 2
A gives property to B
1 May
C obtains charging order against A's property 10 May .
4June
20May
C takes in priority to to B because he has registered first
Example 3
B obtains charging order against A's property 1 May
C obtains charging order against A's property 4 May
6 May
SMay
B takes in priority to C because he is· deemed registered first
Example 4
B obtains charging order against A's property 1 May
C obtains charging order against A's property 4 May
10 May
8 May
C takes in priority to B because he is deemed registered first
66
(1989) HCt MP No 1722 of 1988
69
HONG KONG LAND LAW
Example 5
A mortgages property to B
1 May
C obtains charging order against A's property 4 May
20May
8May
B takes in priority to C because he is deemed registered first
Example 6
A mortgages property to B
1 May
C obtains charging order against A's property 4 May
4June
8 May
Does B take in priority to C under s 3(2)? or
Does C take in priority to B under s 30)?
The crucial first question in determining the priority of interests in land
in Hong Kong is no longer whether the interest is legal or equitable. It is
whether the grant of the interest is in writing. If the interest is written, then
the Land Registration Ordinance 67 applies, and if it is unwritten then the
doctrine of notice will continue to apply.
The steps that have been examined in order to determine priority under
the ordinance and under the doctrine of notice are summarised in the flow
chart of priority on pages 72 to 73.
3.5.9
Statutory Charges
A number of ordinances in Hong Kong provid~e for the creation of a charge
over land to secure sums due to government. This charge arises automatically
on the defined event and will be capable of protection by registration of a
memorial at the Land Office. For instance, a charge may arise to secure the 68
estate duty due on the death of a donor of land if he dies within three years
of the gift and the Building Authority are entitled to a charge over land to
secure sums that they have incurred in carrying out remedial work pursuant
to their powers under the Buildings Ordinance. 69 Both these charges are
capable of registration at the Land Office in order to bind a subsequent
purchaser. But what happens if no charge is registered?
-
Ample Treasure Ltd v Eight Gain Investment Ltd [1992] 1' HKC 457
FACTS
A purchaser of property raised an objection to their vendor's title because
it was based upon a gift of the property, which would have given rise to
a charge to estate duty if the donor had died within three years of the gift.
Section 18 Estate Duty Ordinance provided, first, that a bona fide purchaser
67
68
69
70
Cap 128
Sections 3Cl)c, 5 and 18(1) Estate Duty Ordinance Cap 128
Cap 123
PRIORITY: LAND REGISTRATION ORDINANCE
for valuable consideration from the donee without notice of the charge
could take free of the charge, and second, that the charge was capable of
protection by registration of a notice of the charge at the Land Office. There
was no evidence as to whether or not the donor had in fact died within this
time period, nor had notice of a charge been registered at the Land Office.
JUDGMENT
A charge that was not protected by registration at the Land Office would by
virtue of s 3(2) be null and void against a subsequent purchaser. The judge
also suggested obiter that even if the purchaser had notice of the donor's
death within three years of the gift so as to give rise to a charge they could
take free of the charge if it was not protected by registration at the Land
Office.
By contrast, the case of Lee Siu Man v Chu Chi Wing 70 decided that
where the sale took place within three years of the gift there was a latent
defect in title to which a purchaser could object. If the donor did die within
three years a charge would automatically affect the property acquired and
be binding on the purchaser. Interestingly it seems that, following the Ample
Treasure case, if the donor did in fact die within the three-year period so
as to give rise to a charge, a subsequent purchaser could escape liability if
no notice of the charge had been registered at the Land Office. The only
point of difficulty would be whether the purchaser could claim to be
sufficiently bona fide to claim the protection of s 3(2); comments of the
judge in the Ample Treasure case suggest that a purchaser would be.
A slightly different regime for the creation of a statutory charge subsists
under the Buildings Ordinance. 71 The Building Authority under the
ordinance has power to order remedial work to be carried out to property.
These orders may be registered at the Land Office. If the orders are not
complied with by the owner of the land the Building Authority may enter
the land and carry out the work themselves; the cost is then recoverable
against the owner. Under s 33 of the ordinance, the Building Authority may
register a certificate of the costs expended at the Land Office and upon such
registration a charge is created. The charge only arises on registration, not
upon an earlier event, eg the compl½tion of the works. The charge is
expressed to affect the present owner and any subsequent owner unless
they are bona fide. Bona fide will be difficult to establish if an order has been
registered requiring the work to be carried out and the owner or purchaser
are aware that the Building Authority has carried out the work, for the
creation of the charge then becomes an inevitability unless payment is
made. 72
70
71
72
[1992] 1 HKC 266
Cap 123
See Wah Ying Properties Ltd v Sound Cash Ltd [1994] 1 HKC 786.
71
HONG KONG LAND LAW
PRIORITY FLOWCHART BETWEEN A & B
Where A's mterest ts granted before B's mterest?
DOCTRINE OF NOTICE
Priority to
A
~
Is A's interest
legal?'
Is A's interest
~ granted/evidenced
by writing?
No
Priority to
A
~
Is B a purchaser
for value?
Yes
Priority to ____'@§_
A
Does B have
notice?
~
Is B's interest
legal?
INo
No
Priority to B2
Priority to
A3
~
Does B have
notice?
jNo
~
Is A's interest a
mere equity?
No
Priority to B2
Priority to A
N ates
1~
e.g. an oral lease not exceeding three years.
See para 4.4
2
3
72
Has A been
negligent in
protection of his
interest?
B must also be bona fide but if he has no
notice he is unlikely to lack bona fide. See
para 2.3.1
A m_ereequity may be so unlikely to re_ceive
equitable protection as a proprietary right
that equity will not enforce it even against a
purchaser with notice. See para 2.3.5
Yes
Priority to B
Yes
PRIORITY:LAND REGISTRATIONORDINANCE
REGISTRATION
Is A's interest a
lease not
exceeding 3 years
at a market rent?
Notes
Yes
Priority to
A
1.
It is the deemed date of registration under
s 5 that is important - see para 3.3.2
2.
Even if B registers he cannot as a volunteer
avoid A's interest under s 3(2) and it is
doubtful thats 3( 1) will assist - see para
3.5.8
3.
There are at least three possibilities:
(i)
Priority to B by operation of s 3(2)
provided he has no notice of A's
interest
(ii) Priority to B even if he has notice if he
registers first by operation of s 3(2)
and 4
(iii) Priority to A if he registers first by
operation of s 3(1 ).
No
l
Is A's interest
registered before ~
interest B is
granted?'
Priority to
A
No
Is A a purchaser
for value?
Yes
Is B a purchaser
~
for value?
)No
No
Priority to A'
Is B's interest
registered?
___'('IT__Priority to
B
!No
73
Is B's interest
registered?
I
lI
No
~
Priority to B
i
'
Is B a purchaser
~
for value?
Priority to first to
register
i
l
•
Yes
?3
73
Land Titles Bill
4.1
Introduction
The most significant development affecting land law in Hong Kong is the
proposed introduction of a system of title registration. Although the proposed
legislation has not yet reached the statute book 1 it is of such importance that
an appreciation of what is proposed is desirable for any student of land law.
Many common law jurisdictions have moved from deeds registration to
title registration; indeed, title registration is now more the rule, and
registration of deeds or other interests the exception. The first moves towards
making the conversion in Hong Kong were initiated by the Registrar General
in the early 1990s with the establishment of a working party to consider first,
the advantages of moving to a system of title registration, and second, the
proposed legislation. to implement the necessary changes. The working
party's deliberations have resulted in a bill, known as the Land Titles Bill,
which was published at the end of 1994. Not surprisingly for such a significant
piece of legislation, the bill has provoked considerable comment, but it still
remains unclear if and when it is likely to be enacted. The bill has also been
subject to criticism of a technical nature and it is probable that it will undergo
some amendment before being enacted. However, the basic foundations and
framework of the proposed legislation are settled and the stage is set should
the legislature decide that the time has come for Hong Kong to embrace title
registration.
4.2
History of Title Registration
Title registration first attracted the attention oflegislators in the 19th century.
In Australia, Sir Robert Torrens introduced a system into South Australia
which looked to the principles which regulated the transfer of merchant
ships. The Torrens system, as it has become known, has spread throughout
Australia, New Zealand and many other former colonies. In England the
move towards title registration has been somewhat more cautious. A system
of voluntary registration was first established by the Land Transfer Acts of
1862 and 1875. An element of compulsion was introduced by the Land
Transfer Actof 1897 but it was not until the Land Registration Act 1925that
title registration was finally embraced as the way forward. Even so, its
introduction has been slow and it was not until 1990 that it became
compulsory to register all dealings with land. There still remain a considerable number of titles that are unregistered and it will be some time yet
before England can boast a unified title registration system.
Latest reports suggest that the bill, in amended form, is being re-introduced to the
Legislative Council so that enactment may not be far away.
74
LAND TITLES BILL
The English system of title registration developed independently of the
Torrens system but the differences that have emerged are differences of
detail rather than substance, and indeed over the years the systems have
drawn closer together rather than diverged. We must now look at the salient
features of title registration.
4.3
Principles of Title Registration
The precise details of title registration differ from jurisdiction to jurisdiction.
They all have their various unique features necessitated by local conditions
and the factors influencing their development. However, their basic
principles differ little.
The basic principle at the root of title registration is that the register is
all. The register should determine both the ownership of the land and the
interests that subsist in the land and it is the register that should govern the
transfer of ownership and the priority of the interests in the land. This basic
principle gives rise to the following characteristics.
4.3. l
The Mirror Principle
The register is sometimes likened to a mirror which reflects the ownership
of a piece ofland and the interests that subsist in the land; Rather than having
to examine the title deeds and make enquiries of persons in occupation of
the land, a purchaser should only have to examine the register in order to
learn the nature of the estates and interests which they wish to acquire and
by which they will be bound. The idea is that what is not on the register can
be ignored by a purchaser, although not necessarily by the owner. The title
deeds are thus replaced by the register. The owner.of the land can obtain
a copy of the register as evidence of their ownership. In England this
certificate is automatically issued by the registry but in Hong Kong the
proposal is only to issue the certificate should the owner so request.
The mirror is, however, often flawed by a number of exceptions which
will bind a purchaser although they are not recorded on the register. In
Hong Kong these interests are to be known as 'overriding interests'.
Overriding interests erode the certainty that is the aim of every registration
of title system, but they prevent the register becoming cluttered with
interests that commonly affect all land or which can easily be discovered
from other sources, for instance an inspection of the land.
In other jurisdictions the courts have used the opportunity that overriding interests present to mitigate against the unfairness that can result when
people fail to appreciate that they should record their arrangements relating
to land on the land register. We will see when we examine the rules
governing the creation of interests in land that the law has sought to strike
a balance between certainty and fairness. Commercial concerns demand
certainty in land transactions, which is promoted by the strict rules and
written records represented in all registration systems. But commercial
efficiency is not the sole concern of the law in relation to land transactions.
75
HONG KONG LAND LAW
Land is a vital resource - it provides residential security and is essential for
any economically productive undertaking. Particularly in the domestic
context, arrangements relating to the ownership and occupation of land
may be made which do not comply with the legal rules but which it would
be contrary to social justice to ignore. Walking this tightrope between
certainty and fairness should be the object of any modern system of title
registration.
The power of the Land Registrar and the courts to require the
rectification of the register provides another exception to the perfect
reflection that the register is intended to provide. However, the occasions
when rectification can be required are limited and clearly defined by the
propose'd legislation.
4.3.2
Tbe Finality Principle
Not only does the register take over the role of the title deeds, it also
supersedes the role of the assignment. The owner must enter into a
document dealing with his interest in the land and that document must be
registered in order to complete the effective creation or disposal of the
interest. If the register is to act as the final arbiter of the legal state of the
land it must be the determining factor in the creation and disposal of estates
and interests which affect the land. Prior to registration, the assignment,
charge or other document effecting a disposition may continue to be
effective between the parties but it must be registered to complete the
transfer oflegal title, mortgage or other dealing. Title registration thus makes
radical changes to the way in which dealings with land must be conducted.
The register is continuously updated after every dealing. Under the
Torrens system in Australia, the register will show a historical record of past
dealings with the land as well as the current state of the title, but Hong Kong
intends to follow the English model to provide only details of the current
state of the title. If an owner chooses to obtain a title certificate from the Land
Registry it will thus only show the title at the time the certificate was
obtained; it will not have continuing validity, A new search of the register
will have to be made to check the state of the title at any given time. As with
the current deeds registration system, the register will be public so that
anyone can search the register in order to see who is the owner of the land
and what registrable interests affect the land. However, only an owner will
be able to obtain a state of title certificate.
When dealing with land, the registered owner will be required to prove
title to produce a copy of the current land registry entries, including copies
of any instrument referred to in a current entry, and evidence of any
overriding interests. Under the existing registration of deeds system a
vendor must produce to their purchaser the title deeds, and afford the
purchaser an opportunity to inspect the land.
76
,-·~
I'
LAND TITLES BILL
I
It
I'
I
!'
I
4.3.3
Tbe Curtain Principle
Certain equitable interests, in particular trust interests, are kept off the
register. The register is thus said in this respect to act as a curtain. The
principle i~ that the purchaser should only have to deal with the registered
owner and be concerned with registered matters. The purchaser should not
be concerned with equities that lie behind the registered title unless of
course they are protected by an entry on the register or qualify as overriding
interests.
The principle of conversion, whereby a beneficiary's interest under a
trust for sale is vested in the proceeds of sale rather than in the land itself,
dovetails with this curtain principle. The beneficiary is protected only to the
extent that they can look to the proceeds of sale held by the trustees. They
cannot look to the land, both because their interests are in the proceeds of
sale and because the purchaser of the registered title will not be aware of
or bound by their interests which will not be apparent from the register.
The register also acts as a curtain in that it can draw a veil over defects
in the registered owner's title. Once the purchaser is registered as owner his
title cannot be impeached unless there are grounds upon which a person
claiming an adverse interest can lodge a caution or there are grounds to
insist upon rectification of the register. Over the past few years there has
been a significant number of cases brought before the courts in Hong Kong
where a purchaser has queried a vendor's title because of an apparently
technical defect. 2 Sometimes this challenge has been made not necessarily
because the purchaser is concerned that this defect will disturb their
ownership, but because they wish to escape from an imprudent bargain.
Upon registration of a vendor's title these technical defects will be 'cured',
in the sense that unless they are apparent from the register a purchaser will
not know or be concerned by them. In an attempt to ensure that dealings
with registered titles should not be plagued by similar technical objections,
solicitors, the Land Registrar or other public officer will be required to verify
each application for registration. This verification will confirm that the
instrument has been prepared by a solicitor and, to the best of their
knowledge, information and belief has been duly executed and is effective
at law.
! !
4.3.4
Tbe Guarantee Principle
The accuracy and integrity of most registration of title systems are
guaranteed by the State. 3 Thus if a registered owner is deprived of their
title through a successful bid to rectify the register they may be entitled
to an indemnity payable from public funds. This principle is felt to be
important to maintain public confidence in the register, although it is not
Common technical title defects have included different signatures, incomplete
nominations and difficulties over complying with statutory presumptions affecting
powers of attorney.
There are some registration of title systems that are not based upon a government
guarantee, eg Fiji and Malaysia.
I
I
77
HONG KONG LAND LAW
popular with governments who do not wish to commit themselves to an
open-ended financial liability. However, experience in other jurisdictions
has shown that the level of indemnity claims is very low, both because the
circumstances in which compensation is payable are strictly defined and
because once established, registration of title systems appear to work very
smoothly.
We will now move on to look at how the Land Titles Billproposes to introduce
these basic principles into a registration of titles regime for Hong Kong.
4.4
The Land Registry
The bill first proposes the establishment of a Land Registry comprising a
Central Land Registry to administer the land records of the urban areas of
Hong Kong Island and Kowloon and District Land Registries to administer
the land records of the New Territories and Outlying Islands. 4 The Land
Registry will be overseen by the Land Registrar, a public officer, who will
be responsible for the smooth operation of the system and to this end will
be given a number of discretionary powers and responsibilities under the
provisions of the new bill.
4.4.1
The Land Registers
At the Land Registry a Land Register will be kept for each lot of land that
is held under a Crown lease,5 (to be called 'a Government lease'). Crown
land which has not yet been granted by Government will not be recorded.
A Land Register will only be opened for a lot of land once it has been
auctioned or otherwise granted by Government. Likewise, a Government
lease that has expired will cease to be subject to the title registration system
proposed by the bill.
It is proposed that the Land Register will record the following matters: 6
(a)
(b)
(c)
(d)
(e)
(f)
(g)
the title number of the lot;
the lot number of the lot;
the undivided shares, if any;
the location or address, if any;
the date of commencement of the Government lease;
the name of the owner of the land;
the capacity in which the land is owned, for instance whether it
is owned by the registered owner as beneficial owner or in some
limited capacity such as a trustee or as a personal representative;
Eight District Land Registries are specified; they will be Tsuen Wan, Tuen Mun, Yuen
Long, North, Tai Po, Shatin, Sai Kung and Islands which correspond to the existing
District Land Offices.
Short term tenancies for terms not exceeding seven years are excluded from the
definition of a Government lease for the purposes of the bill.
See clause 10.
78
LAND TITLES BILL
(h)
(i)
(j)
(k)
all instruments which support a current entry in the register, for
instance a deed of grant, a deed of mutual covenant or legal charge;
the date of registration of such instruments;
any other entries required by the bill to be contained in the Land
Register; and
such other entries as the Land Registrar is of the opinion should
be contained in the register.
Upon the grant of a Government lease made after the bill comes into
force there will thus be a need to open a new register for that lot. However,
in respect of Crown lease lots already granted at the time of enactment the
existing land records will be converted to form the basis of the new system.
There are proposals to deal with the possibility of combining existing
registers, should adjoining lots be amalgamated under the ownership of a
single registered owner, and likewise for the division of existing registers,
should the ownership of a lot be divided between more than one registered
owner either through the sectioning of the lot or its division into undivided
shares. 7
4.4.2
Conversion of the Existing System
We have already seen that for all lots of land that have been granted by
Government there is held at the existing Land Office e 9tablished under the
Land Registration Ordinance a record of: the grant from the Crown under
which the land is held; the registered owner; whether the land has been
divided by sectioning or division into undivided shares; and any encumbrances registered against the land. The details are recorded in a Crown
Lease or Temporary Register and if the land has been divided into either
sections or undivided shares a Sections or Undivided Shares Register.
The intention is that upon a day appointed under the ordinance when
enacted, these existing land records will be automatically converted into the
Land Registers that are to be kept under the Land Titles legislation. 8 In this
way it is hoped that Hong Kong will avoid the inordinately long time that
it has taken in some other jurisdictions, notably England and Scotland, to
convert to a system of title registration.
This transition will be accomplished by the recognition as registered
owners of those who are presently registered holders of the Crown lease
on the existing Crown lease or Temporary Registers or in a Section or
Undivided Shares Register maintained under the present Land Registration
Ordinance. Instruments creating encumbrances that have been or will be
registered under the Land Registration Ordinance prior to enactment of the
bill, for instance legal charges, covenants, leases of over three years, will
have their priority protected in accordance with the Land Registration
Ordinance.9 Instruments giving the right to claim an interest in the land, for
9
See clause 18.
See clause 11.
See clause 11(2).
79
HONG KONG LAND LAW
instance agreements for sale and purchase or nominations or equitable
charges, that have been or wlJl be registered prior to the enactment of the
bill, will be treated as if a consent caution (in the case of a sale and purchase
or charge agreement, nomination or an equitable charge) or a non-consent
caution (in the case of a lis pendens or bankruptcy petition) has been
lodged. 10
Nevertheless, all may not be plain sailing. The existing land records do
not contain details of all the lots held under a Crown lease; there are some
old lots for which no registers have been established because there have
been no dealings with them. Efforts are being made to ensure that these
missing records are completed before the bill comes into force. The existing
land records also may not contain all the information that the bill dictates
should be included in the Land Register; in particular the details of the
registered owner under the existing deeds registration system may not
include details of the capacity in which they hold the property.
Furthermore, the existing deeds registration system works very differently from the proposed title registration system. A deeds registration
system, as we have seen, only seeks to deal with the priority of written
instruments. It does not guarantee legal title, as the proposed bill seeks to
do. A purchaser is only protected against interests arising under instruments
that have not been registered. Under the present system, a purchaser must
thus inspect the registered documents which constitute evidence of the
seller's title, and will take subject to any defects that are evident from those
title documents. But under the new bill, an owner who is registered as such
on the Land Register maintained under the Land Registration Ordinance
will automatically be recognised as the absolute owner subject only to any
registered matters, overriding interests and the risk of rectification of the
register. The bill would thus have the effect of curing any defects in the
owner's title by a wave of the statutory wand.
A further significant difference is that unwritten equities fall outside
deeds registration and continue to be governed by the doctrine of notice.
However, a title registration system seeks to record all interests that may
affect a purchaser whether they be created by instrument or not. Notice is
to play no part, unless notice is imparted by entry on the register. 11 Thus
there will be a need to bring these interests onto the title or otherwise slot
them into the new title registration system that is proposed. The bill will
require the holder of an unwritten equity to register a consent or nonconsent caution, as appropriate, in order to bring the interest onto the
register and to qualify for protection against a subsequent purchaser. 12
There have been suggestions that there should be a run-in time after the bill
is enacted, but before it comes into full force, to enable unwritten equities
to seek protection by registration.
10
11
12
80
See clause 11(3).
See Clause 22.
In England unwritten interests may qualify as overriding interests provided the holder
of the interest is in occupation - see s70(1)g of the I,and Registration Act 1925.
LAND TITLES BILL
However, it must be questionable whether it is realistic to expect
unwritten equities to be registered, unless a massive publicity campaign
emphasises the need for registration. Perhaps the most common instances
of unwritten equities arise in just those personal and family situations where
the parties are unlikely to be aware of the need for written and procedural
formalities to record their respective interests in the land. 13 In courts across
the common law world there has been a growing recognition that in the
family context the parties should not be unduly penalised for their
ignorance of the legal formalities of transfer and registration. 14 Unwritten
equities, in particular implied trusts and estoppel, have played a fundamental role in these developments. Where the legal title to the family home is
vested in one spouse or partner, the courts have been prepared to impose
an implied trust upon that party where there has been a common intention,
either express between the parties or inferred from contributions made
towards the acquisition costs of the home, which has been relied upon by
the other spouse or partner to their detriment. These developments have
been coupled with a growing appreciation that the residential security
provided by the family home deserves some protection over the administrative convenience of streamline conveyancing procedures, particularly
where the beneficial claimant is in occupation or the purchaser should be
aware of their likely rights in the land. 15
The strict requirement that unwritten equities be brought onto the
register flies in the face of these developments. It places conveyancing
convenience and commercial demands over the protection of residential
security. To do so may be unrealistic in the context of the growth of owner
occupation in Hong Kong and the large number of family units in which
more than one family member contributes directly to the family finances.
Courts in other jurisdictions have shown themselves inventive in tipt-oeing
through the apparently bald requirements of registration of title legislation
to achieve the delicate balance between the interests of conveyancing
certainty and residential security. It will be interesting to see how the Hong
Kong courts will react if faced with the same dilemma. It will also be
interesting to see how groups, who place the welfare of the family on a par
with the commercial interests of financial institutions, react to the bill's
proposal to place in jeopardy the proprietary nature of occupational
interests in the family home.
13
14
15
Although unwritten equities occur across the whole spectrum of legal relations. As
Financial Investment Services for Asia v Bak Wah Trading Co Ltd has demonstrated,
the Hong Kong style of completion becomes a risky business without resort to the
protection that unwritten equities can afford.
See for instance Gissing v Gissing [1971] AC 886.
See for instance Williams & Glyns Bank v Boland [1981] AC 487and Barclays Bank Pie
v O'Brien [1994] AC 180.
81
HONG KONG LAND IA W
4.5
The Effect of Registration
4.5.1
Registered as Owner
What will be the effect of being registered as the owner of land should the
Land Titles Bill be enacted?
The answer is found in clause 19 of the bill. This clause provides that
upon a person being registered as owner there shall be vested in them the
'absolute ownership of the Government lease of the land ... and all rights
attaching to the land which may be exercised by virtue of such ownership
of the Government lease 16 ... free from all other interests and claims.' Where
the ownership of the Crown lease has been sub-divided into undivided
shares the absolute ownership with attendant rights to be conferred by the
bill is defined by reference to the undivided s.hare or shares.
The concept of absolute ownership is new and is defined by the bill.
First, sub-clause 19(2) provides that absolute ownership is subject to:
(a)
(b)
(c)
any covenants, exceptions, reservations, stipulations, provisos or
declarations contained in the Government lease of the land;
any registered matter affecting the land;
any overriding interest affecting the land.
In the case of a person who is registered as owner under the Land
Registration Ordinance at the time of enactment of the bill but who did not
acquire the land in good faith or for valuable consideration, their absolute
ownership will also be subject to any interest which is in existence
immediately before enactment and capable ofregistration under the Land
Registration Ordinance. 17
Second, sub-clause 19(3) provides that the owner of the land is not by
virtue of his absolute ownership relieved from a duty to which he is subject
as trustee. Finally, absolute ownership will be subject to the power to rectify
the register conferred upon the Land Registrar by clause 73 and upon the
court by clause 74 of the bill.
The fundamental principles that we have examined earlier are evident
in clause 19. Absolute ownership will be conferred only upon actual
registration. Prior to registration, equity may give effect to the parties'
intention whether demonstrated by their entry into a written assignment,
charge or other disposition or by some other conduct recognised in equity
as sufficient to support the creation or disposition of a proprietary interest.
But such 'off the register' dealings will not be recognised at law and will not
bind a purchaser who is registered as owner. They will thus lose their
proprietary nature and take effect only as personal interests enforceable
through remedial action between the parties.
16
17
82
instance an option to renew or an easement
Only purchasers for valuable consideration and who are in good faith in the sense of
lacking actual fraud rather than lack of notice will take free of an unregistered instrument under the Land Registration Ordinance. It appears that this further restriction is
seeking to replicate this limitation; although the protection of unwritten equities that
prevails under the Land Registration Ordinance is not similarly·preserved.
For
LAND TITLES BILL
r
I;,;
''
The absolute ownership will be limited only by those matters defined
by the bill. The terms of the Government lease and registered matters should
be reflected by the mirror the register provides. Only overriding interests
and the risk of rectification of the register will have to be separately
investigated by a purchaser. The primacy of the register will however place
beyond investigation any defects in the owner's title that either will not be
evident from the register or will not support an overriding interest or a claim
to rectify the register.
Volunteers
4.5.2
: t
It is proposed that the limitations on absolute ownership will be extended
where the person to be registered as owner has acquired, or will be
acquiring, their title by way of gift. Clause 20 provides that the owner of
registered land or a registered charge who is a volunteer will also hold the
land or charge subject to:
(a)
(b)
(c)
(d)
any unregistered interests subject to which the immediately
preceding transferor held the land or charge;
the provisions of the Bankruptcy Ordinance (Cap 6);
Part V of the Companies Ordinance (Cap 32);
section 33(9) of the Buildings Ordinance (Cap 123).
A personal representative and a trustee in bankruptcy who have
received their titles by operation of law rather than consideration will be
treated in a similar way to donees. They will be bound by such unregistered
interests as bound the deceased or bankrupt, as appropriate. 18 Also, a
squatter who acquires title by adverse possession under the Limitation
Ordinance1 9 will be treated in the same way as a volunteer. 20
4.5.2.1
Unregistered Interests
A donee who receives their gift from a donor who is registered as an owner
will continue to be affected by the interests that bind the donor whether
those interests are protected by registration or not. 21 Thus, where a donor's
ownership is subject to an implied trust, for instance because their spouse
has contributed to the acquisition of the property, a donee will be bound
by that trust even though it is not protected by the registration of a consent
or non-consent caution. A purchaser from that donee, however, will not be
concerned with the implied trust unless it is protected on the register.
Where the land is held by a donee at the time of first registration (for
instance when the existing registers under the Land Registration Ordinance
are automatically converted to Land Registers under the Land Titles
legislation) the provisions of clause 20 will dictate that the donee will hold
18
See clauses 58(1) and 59(2).
19
Cap 347
20
See clause 20(3).
See cla use 20.
21
83
HONG KONG LAND LAW
the land subject to those interests that bound their donor. The priority of
their donor's interest in the land will have been governed by the Land
Registration Ordinance, which we examined in the last chapter. 22 A donee
will, of course, continue to be bound by those interests they themselves
have created, whether or not they are registered.
4.5.2.2
Bankruptcy Ordinance
Certain transactions may be set aside against a donee under the provisions
of the Bankruptcy Ordinance-, 23 these include, under s 49(1), fraudulent
preferences made to a creditor where the debtor is made bankrupt within
six months of the preference and, under s 47(1), a gift or settlement made
by the bankrupt within two years of the date of the gift or settlement or
within ten years of the gift or settlement, unless it is possible to prove that
the bankrupt was able to pay their debts at the time of the gift or settlement
without recourse to the gift or settlement.
4.5.2.3
,Part V Companies Ordinance-
4
As with a bankrupt, a fraudulent preference made to a creditor by a
company within six months of its winding up may be set aside.
4.5.2.4
Section 33(9) Buildings Ordinance-
5
The Building Authority are empowered under s 33 of the Buildings
Ordinance to recover the cost of remedial works that they have carried out
pursuant to their powers under the ordinance. A certificate as to these costs
may be issued and registered. If it is not registered it will be void against
a subsequent bona fide purchaser for valuable consideration but a donee
will be bound by the certificate and in particular liable to pay the costs it
certifies whether or not it is registered.
We will now look in a little more detail at the matters by which an
owner's absolute title will be limited.
4.6
Overriding Interests
It is proposed that a person registered as an owner will take subject to
overriding interests even though they do not appear on the register. As
already noted, overriding interests will constitute a crack in the mirror which
it is intended the register will provide.
The bill sets out in clause 21 the overriding interests that are to limit a
registered owner's title. It must be noted that, although the bill adopts the
name used by the Land Registration Act 1925, these interests are defined
22
23
24
25
84
See Chapter 3.5.6.
Cap 6
Cap 32
Cap 123
LAND TITLES BILL
in a much more limited fashion than in England. 26 They will include the
following rights.
4.6.1
Chinese Customary Rights 27
Land to which Part II of the New TerritoriesOrdinance 28 applies may be subject
to Chinese customary rights which will continue to be recognised without
registration under the new title registration regime. We look in Chapter 9 at
the Tong and Tsowhich provide examples of such customary rights.
4.6.2
Public Rights-9
Public rights of way and other public rights will also qualify as overriding interests.
4.6.3
Easements 30
Certain easements qualify as overriding interests, including rights of way,
rights to water and easements in existence at the time of enactment of the
bill and which have been protected by registration under the Land
Registration Ordinance. There are also proposals to include as overriding
interests easements that would pass on the division of land under the rule
in Wheeldon v Burrows.31
4.6.4
Covenants32
Covenants in existence at the time of enactment of the bill will also qualify
as overriding interests provided that the covenants run with the land.
In order to run with the land, the covenant must satisfy the requirements
of s 41 of the Conveyancing and Property Ordinance3 3 which we will
examine in Chapter 17. But as interests in land which are generally created
by instrument, covenants must also be registered under the Land Registration Ordinance in order to bind a purchaser. They should thus already be
protected by registration which will be preserved upon conversion of the
register.
Perhaps the most common form of land covenant in Hong Kong exists
in Deeds of Mutual Covenant that govern the rights of co-owners of multistorey developments and provide a mechanism for the management of such
developments. We will be looking at the workings of deeds of mutual
covenant in Chapter 16, but it should be noted that not all the terms of a
deed of mutual covenant will necessarily qualify as land covenants.
26
27
28
29
30
31
32
33
In particular in England the Land Registration Act 1925 preserves the protection
afforded to the interests of those in occupation of the land - see s 70(1)g.
See clause 21(1)(a)
Cap 97
See clause 21(l)(b).
See clause 21(1)(c).
See Chapter 13.3.6.
See clause 21(1)(c).
Cap 219
85
HONG KONG LAND LAW
4.6.5
Government Rights 34
The rights reserved to the Crown or indeed any another person under a
Crown lease will qualify as overriding interests. Such rights would include
the exception and reservation of the Government's right to minerals found
in all Crown leases and the Government's right to re-enter for breach of the
Crown lease covenants.
Various statutory rights that are vested in government are also classified
as overriding interests, for instance the Government's right of resumption
under the Crown Lands Resumption Ordinance3 5 or to enter and inspect
and require the repair, alteration, removal, demolition etc, of a building
under the Buildings Ordinance. 36
4.6.6
Statutory Charges37
Certain statutory charges will qualify as overriding interests. Perhaps the
most significant of these is the first charge imposed to secure the payment
of estate duty under s 18(1) of the Estate Duty Ordinance. 38
4.6.7
Leases Not Exceeding Three years
39
Leases for a period not exceeding three years taking effect in possession for
the best rent without taking a premium are exempt from registration under
the Land Registration Ordinance and will not require registration under the
Land Titles Bill when it is enacted. They will qualify as overriding interests.
However, other rights, eg an option granted by the lease, will require
protection as a separate interest by the lodging of a caution. 40
4.6.8
Rights Acquired by Adverse Possession41
The bill identifies a title acquired by the operation of the Limitation
Ordinanaf' 2 as an overriding interest. Thus a title that has been acquired
by the extinguishment of the previous owner's title through a successful
claim to adverse possession for the requisite limitation period will be
protected although it has not been registered. There is no particular
provision in the bill dealing with the right of a squatter to apply for
registration as an owner upon proof of the extinguishment of the previous
owner's title. However, the Land Registrar would be able to consider such
an application either where the squatter's rights are recognised by a court
order under clause 4(c) or within his discretionary power conferred under
clause 4(d) of the bill.
34
35
36
37
38
39
40
41
42
86
See clause 21(1)(d).
Cap 124
Cap 123
See clause 21(1)(e).
Cap 111
See clause 21(1)(f).
See Markfaith Investment Ltd v Chiap Hua Flash Lights Ltd [1990] HKLR 84.
See clause 21(1)(g).
Cap 347
LAND TITLES BILL
What is not so clear from the bill is the status of a squatter who is in
adverse possession but cannot yet claim to have extinguished the registered
owner's title because they cannot prove adverse possession for the full
period required by the Limitation Ordinance. 43 It may be argued that a
squatter has no interest in the land prior to extinguishment of the owner's
title and thus there is nothing to record or protect either by entry on the
register or as an overriding interest. Furthermore, there is nothing in the bill
to prevent a squatter exercising his right to accrue periods of adverse
possession against successive registered owners. 44
4.6.9
Statutory Rights to Seroices'5
The service companies have by statute the right to enter land for the
erection, construction and laying of electricity supply lines, telephone and
telegraph lines and poles, wires, pipelines, canals, dams and aqueducts etc.
These statutory rights will qualify as overriding interests.
The bill includes a power for the court to order the registration. of an
overriding interest and for the registrar to give effect to that order. 46 Upon
such registration the overriding interest would presumably cease to be
overriding and would be protected under the provisions of the bill
depending upon whether it was recorded as a registered interest or caution.
4. 7
Registrable Matters
The essence of the mirror principle is that, save for overriding interests and
the powers under the bill to rectify the register, all interests in the land and
any dealings with those interests should be reflected on the register. This
record of land interests may be achieved in a number of ways. The interest
may be regarded as a registered interest which is capable of supporting a
substantive entry on the register or the interest may be protected by the
entry of a caution, inhibition or restriction.
4. 7 .1
Registrable Interests
It has already been noted that the Land Register will be concerned only with
land held under a Government lease. The Government lessee will be
registered as the owner and dealings with the Government lease that may
support a substantive entry on the register include:
• the assignment of the Government lease when the assignee will be
recorded as the new owner; 47
43
44
45
46
47
The
and
See
See
See
See
relevant periods are 20 years where the right of action accrued before 1 July 1991
12 years where the right of action accrued after 1 July 1991.
Chapter 7.3.2.
clause 21(1)(h).
clause 21( 4) &(5).
clause 37.
87
HONG KONG LAND LAW
• the creation, transfer, charge and discharge or partial discharge of a
mortgage by way of charge, although not a floating charge prior to
crystallisation; 48
• the creation, transfer, surrender or other termination, eg forfeiture, of
leasea of over three years; 49
• the creation, modification, release or extinguishment of an easement; 50
• the creation, release, modification or extinguishment of a covenant,
including deeds of mutual covenant;51 and
• charging orders and lis pendens but the effect of their registration is
limited to five years. Thereafter their registration must be renewed. 52
4.7.2
Cautions
Cautions are of two types: consent cautions which may only be entered with
the consent of the registered owner, and non-consent cautions which may
be entered without the consent of the registered owner, although the
registered owner must be informed of the entry of the non-consent caution
so that they can decide whether to apply for its removal.
Consent cautions are intended to protect any consensual dealing with
the land which is not capable of substantive registration nor qualifies as an
overridinginterest. 53 Perhaps the most obvious example arises under a sale
and purchase agreement entered into by the registered owner and a
purchaser. As the dealing is agreed to by the registered owner it is to be
expected that they will also agree to the entry of a consent caution. Of
course, if they do not do so the purchaser may always register a non-consent
caution.
Non-consent cautions are intended to protect those dealings with the
land which are not consensual or are based upon an implied intention. 54
In these circumstances it is not expected that the registered owner will
consent to the entry of the caution, either because the dealing is not
voluntary or because they wish to deny the implied intention. The
registration of a non-consent caution will be necessary where a bankruptcy
or winding-up petition is presented against the registered owner. 55 An
application for the registration of a non-consent caution may also be
successful where an interest is claimed under a trust, whether express or
implied, or on the grounds of estoppel.
A caution, whether a consent or a non-consent caution, is not intended
to freeze the register but to protect the priority of the interest that is the
subject matter of the caution. 56 It is proposed that the priority of dealings
4s
49
50
51
52
53
54
55
56
88
See
See
See
See
See
See
See
See
See
clauses 32-37.
clause 42 and 45.
clauses 43, 46 and 47.
clauses 44, 46 and 47.
clause 31.
clause 63(1).
clause 63(2).
clause 63(2)(b).
clause 64.
LAND TITLES BILL
will be governed by the time of their entry on the register. 57 Thus, the entry
of a caution will prima facie protect the interest to which it relates over a
registration of a subsequent dealing. There are, however, three caveats to
this general rule.
First, it is proposed that the priority of an interest protected by a consent
caution may always be varied with the consent of the cautioner. 58
Second, it is proposed that where a consent caution is intended to
protect a subsequent dealing the priority of that subsequent dealing will
relate back to the entry of the caution. 59 For instance, where a sale and
purchase agreement is protected by a consent caution the priority of the
assignment completed in pursuance of that agreement will relate back to
the entry of the consent caution. Upon the registration of the subsequent
dealing the consent caution will then be removed by the Land Registrar,
since the interest it was protecting will have in effect merged with the
subsequent dealing. 60
Third, it is proposed that the priority of an interest protected by a nonconsent caution which is subsequently established as justifying the registration of a substantive interest will date back to the registration of the nonconsent caution. For instance, if a claim to an interest supported by estoppel
is subsequently upheld by the court or by the agreement of the parties so
as to lead to the registration of an interest such as a charge, lease or
easement, then the priority of that interest will be governed by the date of
registration of the non-consent caution. 61
It will be possible to remove a caution either by application of the
cautioner or the registered owner or by order of the court. 62 The registered
owner, in the case of a consent caution, will have to obtain the consent of
the cautioner, and in the case of a non-consent caution, will have to satisfy
the Land Registrar first that the cautioner received a copy of the application
to remove the caution at least seven days prior to the application for removal
and second, that the caution was wrongfully registered 63 or the ground on
which the caution was registered no longer exists.
4.7.3
lnhibition1'
4
It is proposed that the court may inhibit the registration of any dealing either
generally or for a particular period or until a particular event. The inhibition
order would itself be registered and when registered would prevent the
registration of any dealing inconsistent with the order.
57
58
59
60
61
62
63
64
See clause 30.
See clause 64(1)(b)(ii). It is not clear why the bill does not also propose that the
priority of a non-consent caution may be varied by the consent of the cautioner.
See clause 64(1)(b)(i).
See clause 65( 4).
See clause 30(3)(b).
See clause 65.
It is proposed that a person who wrongfully registers a caution may be liable in
damages.
See clauses 67-69.
89
HONG KONG LAND LAW
4.7.4
C
RestrictionS' 5
It is proposed that the Land Registrar may, for the purpose of preventing
fraud or improper dealings or other sufficient cause, make an order
prohibiting all dealings or such dealings which do not comply with certain
specified conditions. Such an order would be made either upon an
application of a person interested in the land or upon the Land Registrar's
own initiative. An example of when a restriction might be appropriate is
where the land is held on trust for sale and it is important that the capital
monies on any dealing be paid to the trustees or where the land is to be sold
under the terms of the trust only with the consent of a particular person(s).
It is proposed that a restriction will, like an inhibition, be registered for
a limited time, until the occurrence of a certain event or generally, and will
preventany dealing with the land which is inconsistent with the restriction.
The intention is that a restriction can be removed or varied by the Land
Registrar either on his own initiative or upon the order of the court. The
owner or other interested person may also apply for the removal or variation
of a restriction, which the Land Registrar may grant or refuse upon giving
the persons affected by the restriction an opportunity to be heard.
4.7.5
Trusts
The curtain principle dictates that trusts are kept off the register. Clause 62
provides that whilst a registered owner who holds the land on trust may be
described as such on the register, details of the terms of the trust itself are
not to be entered on the register. 66 We need, however, to look at how the
bill would affect the position of trustee and beneficiary.
Although the terms of the trust are not evident from the register, the
trustee remains subject to the terms of the trust. 67 It is, after all, the essence
of the trust that the trustee is obligated to perform the terms of the trust and
in the performance of those obligations is subject to strict fiduciary duties.
The fact that the terms of the trust will be unregistered is irrelevant to the
enforcement of the trustee's obligations to the beneficiaries. These are
personal obligations which are unaffected by the provisions of the bill.
The published version of the bill proposes that a person dealing with a
registered owner who is described as a trustee will be deemed to have an
unrestricted power of sale. This is a radical proposal. As we shall see, at
present a trustee's power of sale must be expressly granted and may be
subject to all manner of restrictions or conditions, including for instance the
consent of a third person. It is understood that this radical proposal is
unlikely to be enacted. A less controversial proposal would be to provide
protection to a person dealing with a trustee by entitling them to presume,
in the absence of evidence to the contrary, that the trustee is not acting in
breach of trust.
·1
1
I
I
'
See clauses 70-72.
66 See clause 62(3).
67 See clause 62(2) and also clause 19(3).
65
90
0
LAND TITLES BILL
A beneficiary's rights against a trustee are protected but can they protect
their interests in the land against a third party? Of course a beneficiary under
a trust for sale has no interest in the land. The doctrine of conversion ensures
that their interests are in the proceeds of sale or notional proceeds of sale,
although the registrar can seek to protect against the risk of wrongful
appropriation of the purchase money by registering a restriction requiring
the payment of any capital monies to at least two trustees. Where the
beneficiary's interest under the trust does exist in the land itself then a
beneficiary may be able to protect that interest against a person dealing with
the land by the registration of a caution.
4.8
Dealings with and Transmissions
of Registered Land
The principle of finality dictates that the register governs any dealings in the
land. Even transmissions of title which take place by operation of law must
be recorded on the register.
4.8. l
Dealings
Clause 26(1) of the bill proposes that no interest in registered land is capable
of being disposed of except in accordance with the bill and that any
disposition is ineffectual to pass title or any interest in the land unless it is
registered. The clause is intended to prohibit dealings off the register.
However, under clause 26(2) of the bill an unregistered dealing is capable
of operating as a contract which will bind the parties to the dealing. Thus,
for instance, if the registered owner enters into a lease of over three years
which the lessee fails to register, the lease will be ineffectual to create a legal
lease over the land but may operate as a contract between the parties so as
to enable the registered owner as landlord to sue for rent and upon the
tenant's covenants and for the tenant to hold the registered owner liable
under any of the landlord's covenants, including the covenant for quiet
enjoyment. However, the unregistered lease will not bind a third party both
because the principles of privity of contract exclude third party liability, and
because the unregistered lease does not create any interest in the land.
It is understood that there are suggestions that the bill should go further
and prohibit the possibility of equitable interference either through the
doctrine of Walsh v Lonsdale, or part performance, whereby the agreement
between the parties could support the creation of an equitable interest
through the award of specific performance of the agreement. 68
There is, however, still the possibility that equity might also intervene
through the doctrine of estoppel or constructive trusts so as to hold a third
party bound by an unregistered dealing. For instance, where a third party
has either expressly, or through their conduct impliedly, agreed to take
subject to the unregistered interest it would be open to the courts to estop
them from denying that agreement and to impose upon their registered
6s
See Chapter 6.2 and 6.3.
91
HONG KONG LAND LAW
ownership a constructive trust g1vmg recogmt1on to the unregistered
dealing. 69 A constructive trust might also be imposed where a purchaser
takes property from a registered owner in the knowledge that the registered
owner is acting in breach of a trust subject to which they hold the land,
whether that trust be express or implied. 70
Registration will not only govern validity but also priority. Clause 30 of
the bill proposes that the priority of interests in land should be governed
by the date of the application for their registration and not the date of any
instrument support:ing the application. There are no proposals for any
priority notice system as is found under the English land registration
legislation, whereby a purchaser can freeze the register for a limited time
to ensure that the priority of their application to register is preserved,
provided they register within the time limit granted by the priority notice.
A purchaser or other person taking an interest in the land will thus have to
register as soon as possible after the completion of the documentation
required to support their application for registration. 71 Although where a
dealing is preceded by an agreement which is the subject matter of a consent
caution we have already seen that priority may be claimed from the
registration of the consent caution. Likewise, a matter that is protected by
a non-consent caution can maintain its priority from the date of the nonconsent caution though it is later recorded by a substantive entry in the
register.
4.8.2
Transmissions by Operation of Law
The title to land may pass by operation of law in several situations. On the
death of a joint tenant the operation of survivorship will vest the title in the
surviving joint tenant, while on the death of an owner or tenant in common
the title to their property will pass to their personal representative. The title
to a bankrupt's property will pass automatically on their bankruptcy to their
trustee in bankruptcy. The bill provides for whom may apply to be
registered as owner in each of these circumstances.
4.8.2.1
Death of a Joint Tenant
Upon the death of a joint tenant their name will be removed from the register
upon the presentation of satisfactory evidence of their death. 72
69
70
71
72
92
See for instance the principles enumerated in Binions v Evans [19721Ch 359 as
approved in Ashburn Ansalt v Arnold [1989] 1 Ch 1 which have been applied in Lyus
v Prowsa Development Ltd [1982] 1 WLR 1044 and in Hong Kong approved in Fast
Forward Ltd v Magicsound Co Ltd [1990] HKC494 and Wellmake Investments Ltd v
Chan Yiu Tong (1996) CA Civ App No 247 of 1995.
See for example Peffer v Rigg [1977] 1 WLR 285.
It is understood that in Australia where a similar system prevails many transactions are
completed at the Land Registry to ensure that registration is achieved at the earliest
possible opportunity.
See clause 55.
LAND TITLES BILL
4.8.2.2
Death of a Sole Owner or Tenant in Common
73
The personal representatives of a sole owner or tenant in common will be
entitled to be registered as owners upon presentation of the grant of
representation. Alternatively, the personal representatives of a sole owner
or tenant in common may require the registrar to register a disposition
entered into by them provided they prove their title by presentation of the
grant. Thus, if personal representatives in the course of their administration
should sell the deceased's land they will be able either to establish title by
being registered as owners or by producing the grant to enable the
purchaser to be entered on the register as the new o,wner.
4.8.2.3
Death of a Trustee 74
Trustees hold as joint tenants and thus upon proof of the death of a trustee
their name will be removed from the register and the registered land will
be vested in the remaining trustees. Where a sole surviving trustee dies, their
personal representative will be entitled to be registered as owner unless
express power to appoint a new trustee is granted by the trust instrument.
4.8.2.4
Insolvency
75
A trustee in bankruptcy will be entitled on presentation of the adjudication
order to be registered as owner of the bankrupt's land. A liquidator's
appointment upon presentation of the winding-up resolution or order
should be entered on the register and thereafter the company will be unable
to deal with the land unless the instrument effecting the dealing is
acknowledged by the liquidator in accordance with the bill. The title of the
land registered in the company's name does not pass to the liquidator; only
the power to deal with it passes to the liquidator.
4.9
Rectification and Indemnity
An exception to the principle of finality of the register is provided in the
power of the registrar or the court to rectify the register in the case of error
or fraud. It is important that the integrity of the register be maintained by
providing a fair and efficient mechanism to deal with error and fraud. Where
a person obtains registration as a result of fraud then it would clearly be
wrong for them to be able to use the statute to retain the advantage of
registration. Thus arises the need for rectification. But the equity of the
situation is perhaps not so clear should the registered title pass to a bona
fide purchaser. In such a situation one of two innocent parties will have to
bear the loss caused by the error or fraud, although the loser may be able
to claim an indemnity from government to ease the resulting injustice.
73
74
75
See clause 56.
See clause 57.
See clauses 59 & 60.
93
HONG KONG LAND LAW
4.9.l
Rectification
It is proposed that rectification may be effected by either the Land Registrar
or by the court.
The Land Registrar will be able to rectify the register to correct clerical
errors in the register where the interests of the registered owner are not
materially affected or where all interested parties consent. 76
The court will be able to order rectification of the register where it is
satisfied that an entry has been made or not made as a result of the fraud,
mistake or omission of any person. However, this right to seek rectification
of the register will be lost where the land becomes registered in the name
of an owner who has given valuable consideration and is in possession of
the land unless that owner did themselves cause or contribute to the fraud,
mistake or omission by their act, neglect or default or if that owner had
knowledge of the fraud, mistake or omission which gave rise to the
rectification application.-77
4.9.2
Indemnity
The guarantee principle has been the cornerstone of public confidence in
many, but not all, registration of title systems. The bill intends to adopt the
guarantee principle but on,ly in limited and defined circumstances.
The basic principle proposed is that a person who suffers a loss by
reason of an entry made or omitted from the Land Registry will be entitled
to an indemnity by the government where such entry is made or omitted
by reason of fraud on the part of any person or any mistake or omission on
the part of the registrar or his staff.78 The right to indemnity will, however,
be lost where the person claiming the indemnity has caused or substantially
contributed to the loss or has derived title, otherwise than for value and in
good faith, from a person who caused or substantially contributed to the
loss. Furthermore, in the case of loss arising through fraud the person
claiming the indemnity must have taken all reasonable steps, including legal
proceedings, to recover damages from the person whose fraud has resulted
in the loss and have failed to recover all or part of such damages. 79 Where
the government has paid any indemnity they too may take proceedings
against the person who has caused the loss. 80
Applications for an indemnity must be made to the High Court within
six years of the time when the claimant knew or might, but for his default,
have known of the existence of the claim. 81 Any indemnity awarded will be
limited to the value of the claimant's interest in the land immediately before
discovery of the fraud, mistake or omission. There is also power for the
government to fix a ceiling to the amount of any indemnity that the court
can award in the case of fraud. 82
76
77
78
79
80
81
94
82
See
See
See
See
See
See
See
clause
clause
clause
clause
clause
clause
clause
73.
74.
75(1).
75(2).
79.
78.
76.
Formalities at Law
5.1
Introduction
The social and economic value of land has led to a need to regulate its means
of disposal. In medieval times, freehold land could only be transferred by
the ceremony known as feoffment of livery seisin, which required the
parties publically to enter the land and perform some act, such as passing
a piece of earth or a twig over the land, that symbolised the physical transfer
of possession. Such a public ceremony was convenient for the lord of the
land for it helped him keep track of his tenants, but it was inconvenient for
the tenant and his purchaser. They might have to travel long distancesto
attend the ceremony. Furthermore, they would often prefer to keep their
land dealings private. Thus documentary methods of transfer were
developed. 1 The lease played an important role in the development of these
documentary methods for conveying freehold land because leases fell
outside the feudal structure and their transfer did not require such formality.
While documentary methods of transfer of freehold land were convenient,
initially they were not essential. Not even feoffment of livery seisin required
documentary evidence, although a deed or charter would usually be
employed to record the event. It was not until the Statute of Frauds was
passed in 1677 that documentary evidence became necessary for dealings
in both freehold and leasehold land. The Statute of Frauds 1677 has been
incorporated into Hong Kong law, and its provisions relating to the grant
and transfer of interests in land are now found in an updated form in the
Conveyancing and Property Ordinance. 2
The documentary forms of conveyance that were developed in England
employing the lease were somewhat cumbersome, and so in 1845 the Real
Property Act rationalised the conveyance oflegal estates in land by adopting
a simple deed. This requirement for a deed to convey a legal estate in land
was incorporated into Hong Kong law in 1984 by the Conveyancing and
Property Ordinance. 3
There have emerged three levels of formality for the acquisition and
disposal of interests in land:
~
i) Deeds;
ii) Documents in writing; and
iii) Oral agreements.
5.2
Deeds -
Section 4
Section 4(1) states: 'A legal estate in land may be created, extinguished or
disposed gLonl-y bycleecE'
-- ··- •~--·•·
1
2
3
•
See Megarry & Wade (5th Ed) 1169.
·See ss 3, 5, 6, and 7.
Sees 4.
95
HONG KONG LAND LAW
All legal estates must be created, extinguished, or disposed of by deed.
There are a number of exceptions to this rule set out in sub-s 4(2) but these
need not concern us for the moment. 4
5.2.1
Legal Estate in Land
Section 2 of the Conveyancing and Property Ordinance defines 'a legal
estate' to include leases, easements, and mortgages which must thus all be
dealt with by deed. The requirement for a deed extends not only to the grant
of a legal estate but also its transfer and its extinguishment. Thus if A creates
a mortgage for, say, five years in favour of B, B then transfers the mortgage
to C, and finally C discharges the mortgage to A, all three transactions must
be effected using a deed.
Fig5.1
A
Discharge of
legal mortgage
Creation of
legal mortgage
By deed
B-----------------C
Transfer of mortgage
5.2.2
Tbe Nature of a Deed
A deed is a document that is signed, sealed, and delivered. At a time when
few people could write or sign their names they would use an imprint in
wax of their personal emblem, known as a seal, or, if they had no seal, their
thumb print. The chop in China is similar to the seal. However, with the
development of education, a person's signature became much more
important as an indication that they intended to be bound by a document.
The process of sealing, as a result, has become little more than a formality
represented merely by a small red wafer or paper spot stuck onto the deed.
This development is reflected in s 19 of the Conveyancing and Property,
Ordinance, which provides:
s 19 (1) A deed by an individual shall be signed by him.
(2) A document shall be presumed to have been sealed by an
individual if the document signed by him
(a) describes itself as a deed; or
(b) states that it has been sealed; or
(c) bears any mark, impression or addition intended to be or
to represent a seal or the position of a seal.
The section introduces a requirement that did not exist at common law,
namely thaJ; a deed be signed. The section does not abolish the need for
An important exception is leases not exceeding three years. See 5.4.
96
FORMALITIES AT LAW
sealing but reduces its significance by providing that a document is
presumed to be sealed if it is described as a deed, if it states that it has been
sealed, or if there is an impression of a seal or something representing an
impression of a seal.
A deed must also be delivered. Delivery is some act or statement by the
person executing the deed that shows that he intends irrevocably to be
bound by it. At one time delivery would be effected by the use of formal
words such as 'I deliver this as my act and deed', but delivery is now usually
effected by the act of the handing over the deed to the other party or his
agent. If a deed is delivered subject to a condition, it as known as a deed
executed in escrow. For instance, many lenders will not actually loan the
borrower any money until the borrower has executed the mo~tgage that is
to provide security for the loan. Yet the borrower certainly does not want
to mortgage his property unless he receives the loan. Thus the borrower will
execute the mortgage in escrow on condition that he receives the loan.
5.3
Documents
5.3.1
in Writing -
Sections
3 and 5
Declaration ofTrnsts in Land
Section 5(1)(b) states: 'A declaration of trust respecting land or any interest
therein shall be manifested and proved in writing signed by the person who
is able to declare such trust or by his will.'
5.3.1.1
Manifested and Proved in Writing
An express declaration of trust of an interest in land must either be made
in writing or there must be written evidence of an oral declaration which
is signed by the settlor. 5 For instance, if A says to B that he is holding his
flat on trust for C, there is no effective declaration of trust; but if A writes
a letter to B to so inform him, or if A writes a letter to B and confirms or refers
to his oral declaration of trust, either of these letters is sufficient written
evidence to support the oral declaration.
There are two ways in which a trust is usually declared. A may declare
himself a trustee to hold his flat on trust for B.
Fig5.2
A
s 5(1)(b) writing
B
But if A does not wish to be a trustee he may find someone else in whom
he has confidence to be a trustee in his stead. If he chooses this course the
Trusts may be implied. See Chepter 6.4.
97
HONG KONG IAND IA W
creation of the trust will be in two stages: first, A will have to transfer his flat
to the chosen trustee; and second, the trust in favour of B must be declared.
Fig5.3
A
s4-
by deed
T
s 5(l)(b) -
writing
B
The first stage comprising the transfer to the trustee must comply with the
necessary formalities, and so must be by deed if A's flat is held under a legal
lease. It is the second stage, comprising the declaration of trust in favour of
B, that need only be in writing.
5.3.1.2
Land or Any Interest Therein
The requirement for writing to declare a trust of land applies not only to
legal estates in land but also to equitable interests. Thus if B wished to
declare a trust of his interest in the flat in favour of C, either by declaring
himself a trustee or by transferring his equitable interest to a trustee, he must
do so in writing.
Fig 5.4
s 4- by deed
A------Tl
s 5(l)(b) -
in writing
s 5(l)(b) -
in writing
B
C
or
s 4- by deed
A-----~Tl
s 5(l)(b) -
in writing
s 5(1)(a) B~~~-T2
in writing
s 5(l)(b) C
98
in writing
\ I
FORMALITIES AT LAW
5.3.1.3
Signed by the Person Able to Declare such Trust
The declaration must be signed by the person declaring the trust. Signature
by an agent is insufficient.
5.3.2
Equitable Interests
Section 5(1)(a) states: 'no equitable interest in land can be created or
disposed of except by writing signed by the person creating or disposing
of the same, or by his agent thereunto lawfully authorised in writing or by
will, or by operation of law.'
Equitable interests in land must be created or disposed of by writing
signed by the grantor or person effecting the disposal, as the case may be,
or by their agent who must also be authorised in writing.
5.3.2.1
Equitable Interest in Land
Equitable interests are defined for the purposes of the section in a negative .
fashion, as 'any estate, interests or charge in or over land which is not a legal
estate'. 6 The most common types of equitable interests are a beneficiary's
interest under a trust, the interest of a purchaser under a sale and purchase
agreement - sometimes known as an estate contract - covenants relating
to land, and a mortgagor's equity of redemption. The three types of legal
estate, ie leases, easements, and legal mortgages may also exist in equitable
form. 7
For instance, if A grants an equitable mortgage of his property to B, who
then transfers that equitable mortgage to C, who reassigns the mortgage to
A, each of these three transactions must be in writing.
Fig5.5
A
Creation of
equitable
mortgage
In writing
Reassignment
of equitable
mortgage
B------------
C
Transfer of equitable mortgage
Likewise, if A holds property on trust for B for life with remainder to C,
then B and C enjoy equitable interests that can only be transferred to D in
writing.
See s 2 of the Conveyancing and Property Ordinance.
See Chapter 6.3.
99
HONG KONG LAND LAW
Fig 5.6
A on trust for
B
for life
C
in remainder
writing is required
D
for the disposition of an
equitable interest to be in writing extends only to equitable interests in land.
An equitable interest in moveable property in Hong Kong may be created
or disposed of orally. This contrasts with the position in England where
writing is required for the disposition of an equitable interest in both land
and pure personalty. 8
D
It should be noted that the requirement
5.3.2.2
In Writing
The disposition of an equitable interest in land must be in writing. In
contrast to a declaration of a trust in land, written evidence of the disposition
is insufficient.
5.3.2.3
Signed by the Person Disposing of it or his Agent Authorised in
Writing
The disposition of an equitable interest in land must not only be in writing:
it must also be signed. But, in contrast to the requirements for a written
declaration of a trust in land, a disposition of an equitable interest may be
signed by an agent provided the agent is authorised to do so in writing.
5.3.3
Contracts for the Sale of Land
Section 3(1) states: ' ... no action shall be brought upon any contract for the
sale or other disposition of land unless the agreement upon which such
action is brought, or some memorandum or note thereof, is in writing andsigned by the party to be charged or by some other person lawfully
authorised by him for that purpose.'
To be enforceable, a contract for the sale of land must be in writing or
it must be evidenced in writing by a memorandum that is signed by the party
against whom enforcement is sought or by his agent. This requirement dates
back to the Statute of Frauds 1677 and, as might be expected with such a
long-standing provision on such an important topic as the sale of land, it
has been the source of much litigation and has acquired a highly technical
meaning.
See s 53(1)(c) of the Law of Property Act 1925.
100
FORMAUTIES AT LAW
5.3.3.1
No Action Shall Be Brought
An oral contract for the sale of land is not void, but it is unenforceable at
law. 9 Thus if one party should fail to perform his obligations under the
contract the innocent party cannot go to court to enforce the contract or to
obtain damages for its breach. But redress that can be exercised without
having to resort to court action may still be taken. So, if B orally agrees to
buy A's flat for HK$1,000,000 and pays A a deposit of HK$100,000 but then
fails to pay the balance of the purchase price, A cannot sue B for
performance of the contract to recover the outstanding HK$900,000, for the
contract is unenforceable, but A can keep the deposit of HK$100,000 as well
as retaining the flat. 10
The Privy Council considered the issue of enforceability in:
FACTS
The Liu's sold their flat to the appellants with a lease back for one year
subject to one month's notice by the landlord. The parties agreed that the
Lui's would stay in the premises until the landlord could find another tenant.
On 9 November 1990 the parties orally agreed to a surrender of the
premises: on 30 November the landlord thought they had a prospective
tenant but they withdrew and on 15 November the landlord requested the
Liu's to stay on. However, the Liu's signed a lease for another apartment on
29 November and vacated the premises on 10 December. They claimed back
their deposit less the outstanding rental but the landlord refused to accept their
surrender of the tenancy and counterclaimed for rent until they re-entered on
11 February. The landlord claimed there had been no effective surrender
which complied with s 3 of the Conveyancing and Property Ordinance.
JUDGMENT
The Liu's could not rely on the surrender by way of defence to the landlord's
counterclaim for outstanding rental as it did not comply with s 3 of the
Conveyancing and Property Ordinance. However, they might have a
defence by way of part performance of the oral agreement or estoppel and
the case would be remitted to the lower courts to consider these issues.
Their lordships would not accept the unqualified proposition that an oral
agreement might be used by way of defence regardless of s 3 of the
ordinance. The essential question was whether the party was seeking to
9
10
In England s 2 of the Law of Property Miscellaneous Provisions Act 1989 requires all
contracts for the sale of land to be in writing, to contain all material terms and to be
signed by both parties. Oral contracts are thus void.
Monnickendam v Leanse (1923) 29 TLR 445
101
HONG KONG LAND LAW
enforce the oral agreement, whether that was byway of a claim or a defence.
The Liu's in their defence were in effect seeking to enforce the terms of
agreement both to recover their deposit and to meet the landlord's claim for
rental beyond the date of their leaving the flat. This they could not do, for
the agreement was oral.
5.3.3.2
For the Sale or Other Disposition of Land
The section applies not only to the sale of a flat or piece of land where the
owner is disposing of his wholeinterest under the Crown lease, but also to
an agreement to create or transfer or extinguish any other interest in land,
for instance a lease, mortgage, covenant, or easement. The section also
applies to land in the New Territories; it was held Wu Koon Tai and another
v Wu Yau Loi 11 that Chinese customary law did not override the provisions
of the section.
5.3.4
Unless the agreement or some memorandum or note thereof, is in
writing signed by the party to be charged or by some other person
lawfully authorised by him for that purpose.
The parties' agreement for the disposition of an interest in land must satisfy
the usual requirements of any valid contract. There must be a concluded
contract based upon a11 offer and acceptance that is supported by
. consideration and an intent to create legal relations. The parties m\Ji.t also
enjoy the capacity to enter into the contract. For this reason, an i~arit in
Hong Kong will have difficulty in purchasing property, although there is no
legislative prohibition upon his doing so. 12
The parties' agreement must be in writing or there must be adequate
written evidence of the oral agreement. Many agreements for sale of land
are themselves in writing but often, particularly. in the early stages of a
transaction, the parties will not have put their agreement in formal written
terms but will just have entered into some preliminary correspondence or
other documentation. For instance, if A orally agrees to sell his flat to B, B
may then write to A along the following lines:
Dear A
In connection with our agreement for the sale of your flat in Knowles
Court for HK$1,000,000, I would be grateful if you could send me a
receipt for the deposit I have paid.
Best wishes,
B
The requirements of the section would be satisfied, for although the
agreement itself is not in writing there is adequate written evidence of the
terms of the agreement. But what sort of written evidence is sufficient?
11
~
l
12
102
[1995] 2 HKC 732
In England an infant cannot hold a legal estate in land. Sees 1(6) of the Law of
Property Act 1925.
FORMALITIES AT LAW
5.3.4.1
Certainty of Terms
The memorandum must provide evidence of the material terms of the
parties' agreement. In particular, the parties must be named or otherwise
identifiable, 13 the property must be sufficiently identified, 14 not only as to
its physical location but also the legal nature of the interests to be disposed
of - for instance, the term. and its commencement date if the disposal in
question is a lease, 15 the price or a formula for ascertaining the price must
be stated, 16 and any other particular terms must also be mentioned unless
either the party in whose favour the term is made is prepared to waive it
or the party required to perform the term is still prepared to do so. A Hong
Kong case that illustrates several of these features rather well is:
■
••
--~
·•····••■■ •11-
Dr Franklin Li & Others v Crocus Properties Inc (1982)
CA Civ App No 137 of 1981
FACTS
The plaintiffs had agreed to buy two units on a floor in World Wide House,
a development erected above the MTR station in Central. The agreement
was evidenced in writing by a document called a Confirmation of
Instructions, which contained the details of the parties, details of the
property including its area, which was subject to final calculation by the
architect, and the price calculated according to a price per square foot. The
total price was subject to adjustment should the area differ following final
calculation by the architect. The Confirmation of Instructions detailed a
number of other terms, including a term that the plaintiffs would pay the
costs of preparing a sub-deed of mutual covenant'to govem their rights and
liabilities regarding the use of the common areas and facilities on the floor
in question. The vendor subsequently tried to insist upon a further term
relating to the use of the property which the plaintiffs refused to accept. The
plaintiffs sued for specific performance of their agreement as evidenced by
the Confirmation of Instructions. The vendor argued that there was no
sufficient memorandum on the grounds that (1) the property could not be
ascertained by the architect, (2) the price could not thus be ascertained, and
(3) the terms of the sub-deed of mutual covenant were material and had not
been settled with sufficient certainty.
JUDGMENT
The Confirmation of Instructions was a sufficient memorandum and thus
enforceable. The property could be sufficiently identified from oral
evidence and thus the price was ascertainable. The existence of a sub-deed
13
14
15
16
See Rossiter v Miller (1878) 3 App Cas 1124; Potter v Duffield [1874] LR 18 Eq 14.
See Cowley v Watts (1853) 17 Jur 172.
See Dolling v Evans (1867) 36 LF Ch 474.
King's Motors (Oxford) Ltd v Lax [1970] 1 WLR 426; Brown v Gould [1972] Ch 53;
Sudbrooke Trading Estate v Eggleton [1983] 1 AC 444; Score International Enterprises
Ltd v Continental Cement & Gypsum Co Ltd (1995) CA Civ App No 2:;rnof 1994
103
HONG KONG LAND LAW
of mutual covenant was not essential to the parties' agreement or to the
completion of the transaction.
5.3.4.2
Signed by the Party to be Charged
The memorandum must be signed by the party who is to be sued since a
memorandum will not be enforced against someone unless it is evident that
he acknowledges by his signature that there is an agreement. If we go back
to B's letter:17it is signed by B, and it is thus an adequate memorandum if
A should wish to sue B. But it is not a sufficient memorandum upon which
B can rely should he wish to sue A.
'Signed' has been given a wide meaning. It not only includes a full
signature but any personal acknowledgement of the agreement, for
instance initials 18 or a personalised rubber stamp. 19 It is also sufficient if the
party to be sued has been merely named in the document provided that he
is named in such a way that it is clear he recognises the document as an
expression of the contract. 20
Signature by a duly authorised agent is sufficient even if that authority
is given orally or is implied by the nature of the agency. For instance, an
auctioneer has implied authority at the time of the auction to sign a sale
memorandum on behalf of both the vendor and purchaser, 21 but a sales
agent or solicitor does not have implied authority to sign a contract. 22 They
must be expressly authorised either to sign a contract 23 or the document that
is relied on as the memorandum. 24
5.3.4.3
Acknowledgement of the Agreement
The memorandum need not be in any particular form but it should contain
some express or implied recognition of the oral contract. 25 A very common
device, therefore, to avoid correspondence constituting an enforceable
memorandum is to mark it 'subject to contract' as an indication that the
parties have not yet come to a final agreement.
Solicitors and sales agents often will label their correspondence 'subject
to contract' until the parties have come to full agreement on all the detailed
terms of the transaction and these have been embodied in a formal written
agreement signed by the parties. As this practice does afford the parties an
opportunity to withdraw from their initial oral agreement, it has been the
17
18
19
20
21
22
23
24
25
104
See 5.3.4.
See Hill v Hill (1947] Ch 231.
See Goodman v J Eban Ltd [1954] 1 QB 550.
See Leeman v Stocks (1951] Ch 941.
See Chaney v Maclow [1929] 1 Ch 461.
See Tbirkell v Cambi (1919] 2 KB 590.
See North v Loomes (1919] 1 Ch 378.
It is irrelevant whether or not the document was intended to be a memorandum. See
Daniels v Trefusis (1914] 1 Ch 788 and So Amy & Others v Au Leslie (1995] 2 HKC 113.
Law vjones [1974] Ch 112 threw doubt on the need for the memorandum to acknowledge the agreement, but these views were criticised and not followed in Tiverton
Estates Ltd v Wearwell (1975] 1 Ch 146.
'1
FORMALITIESAT LAW
'
source of much litigation. For instance, a purchaser may decide to withdraw
if the bargain is no longer so lucrative, or a vendor may wish to sell the
property to someone else who has offered a higher price.
There have been a number of attacks on the use of 'subject to contract'.
But it has survived subject to a number of exceptions. For instance, the effect
of the stipulation may be ignored if it is meaningless in the particular
situation, 26 or if there are very strong and exceptional circumstances
showing that the parties do not intend to be bound by the stipulation. 27
Furthermore, there have been attempts to use the principles of waiver 28 and
estoppel2 9 to circumvent a 'subject to contract' stipulation, but again such
an attempt is only likely to be successful in exceptional circumstances.
5.3.4.4
Form of Memorandum
The memorandum need not be in an particular form. There have been some
unusual examples, for instance a defence in legal proceedings,3° a letter, 31
and an entry in a diary. 32
A mer_norandum will usually be made after the oral agreement, but there
is one exception. A written offer that has been subsequently accepted either
orally or in writing can constitute an acceptable memorandum, although it
clearly cannot acknowledge a contract that did not at the time exist. 33
The memorandum may be contained in more than one document
provided that the document signed by the party to be sued contains some
express or implied reference to the other documentation to be relied upon
or to the transaction itself.34 The leading case on joinder of documents is:
Timmins v Moreland Street Property Co Ltd [1957] Ch 110
FACTS
The defendant agreed to buy certain property belonging to the plaintiff. He
paid a deposit of £3,900 to the plaintiff's agents. The plaintiffs agents issued
a signed receipt for the deposit which gave details of the property. The
defendant subsequently refused to proceed with his purchase and the
plaintiff sued for specific performance of their agreement evidenced by the
defendant's cheque read with the receipt.
26
27
28
29
30
31
32
33
34
Tbe Hong Kong Housing Authority v Hung Pui (1987) HCt Action No A 403 of 1986
Alpenstow Ltd v Regalian PLC [1985] 1 WLR 721 and Wong Lai Ha v Chung Sau Wah
[1994] HKC 646
See Law vjones [1974] Ch 112 and Cohen v Nessdale Ltd [1981] 3 All Er 118.
See Salvation Army Trustee Co Ltd v West Yorkshire Metropolitan County Council
[1980] 41 P & CR 179; and A-G v Humphreys Estate (Queen's Garden) Ltd [1987] AC
114.
See Yangtsekiang Garment Manufacturing Co Ltd v JM Ronald Denault & Scott Ltd
[1977] HKLR 320.
See Smith Bird v Blower [1939] 2 All ER 406.
See Re Hoyle [1893] 1 Ch 84.
See Tiverton Estates Ltd v Wearwell [1975] Ch 146.
Chan Yat v Fung Keong Rubber Manufactory Ltd [1967] HKLR 365.
105
HONG KONG LAND LAW
JUDGMENT
The cheque and receipt could not be read together. The cheque, which was
signed by the defendant, did not necessarily point to the receipt or indeed
to the particular transaction in question. It gave no indication on its face of
the purpose for which the payment was being made.
It is interesting to note that if it had been the purchaser suing the vendor
in Tiverton Estates Ltd v Wearwell he may well have succeeded, for the
receipt that was signed by him would no doubt have contained an express
reference, or at least a stronger basis for an implied reference, upon which
it would have been possible to join the cheque.
It was not possible simply to lay the documents side by side to see if a
memorandum can be gleaned from them. It is necessary to find some
reference in the document signed by the party to be charged either to the
other document to be joined or to the transaction itself. The reference may
be express or implied: for instance, a letter may be read with the envelope
in which it is sent. 35 It is also now clear that an express or implied reference
to the transaction in the document signed by the party to be charged is
sufficient to justify the joinder of other documents. In Elias v George Sahely
& Co (Barbados) Ltd,36the Privy Council approved the test in Timmins and
found that a receipt signed by the defendant's agents which, although it
contained no reference to the document to be joined, did contain reference
to the sale, was sufficient to justify the consideration of oral evidence to
explain the transaction and identify the document to be joined.
5.4
Oral Agreements -
Sections 4(2) and 6
Section 4(2) states: 'This section does not apply to:
... (d) the grant, disposal or surrender of a lease taking effect in possession
for a term not exceeding 3 years (whether or not the lessee is given power
to extend the term) at the best rent which can be reasonably obtained
without a premium'.
And
Section 6(1) states: 'All interests in land created by parol . . . have . . .
the force and effect of interests at will only. (2) Nothing in section 3 or 5
or in subsection (1) shall affect the creation by parol of leases taking effect
in possession for a term not exceeding 3 years (whether or not the lessee
is given power to extend the term) at the best rent which can be reasonably
obtained without taking a premium.'
An interest in land purported to be created orally does not create any
legal estate in the land: it creates only an interest at will that may be revoked
35
36
106
See Pearce v Gardner [1897] 1 QB 688.
[1983] AC 646
FORMALITIES AT LAW
at any time. But the creation of leases not exceeding three years is a
well-established exception to this rule and the need for written formalities.
An oral or written lease, to qualify within this exception, must comply with
a number of requirements.
, 5.4.1
Not Exceeding Tbree Years
The lease must not exceed three years. A periodic lease, which may well
run for more than three years before it is determined, will still qualify.
Furthermore, a power granted to the tenant to extend the term beyond the
three years initially granted is acceptable.
V
5.4,2
Taking Effect in Possession
The lessee must be entitled to immediate. possession. If the term is to
commence at some future date, then the lease is called 'a reversionary lease'
and must be created by deed to qualify as a legal lease.
5.4.3
(
i
i
Be at the Best Rent Without Taking a Premium
For an oral lease to qualify as a legal lease there must be consideration, and
that consideration or rental must be adequate.
In addition to rental, a landlord may be able to recover payment for the
grant of the lease itself. This is called a 'premium' and is generally 'a once
and for all' payment made to the landlord at the beginning of the lease. A
premium is usually only charged where the lease is for a lengthy term and
the rental is low, but if a premium is charged fora lease not exceeding three
years the lease cannot be created orally.
5.4.4
Grant, Disposal, or Surrender
Section 4(2)(d) not only exempts the grant but also the assignment or
surrender of a lease not exceeding three years from the requirement for a
deed. This differs from the position in England where a deed is still required
for an assignment or an express surrender of a lease not exceeding three
years. 37 But the same exception is not carried through into s 6(2), which only
saves the creation of parol leases not exceeding three years. It would thus
appear that writing, although not a deed, is still necessary for the assignment
or surrender of a lease not exceeding three years.
5.5
The Conveyancing
Perspective
Only one document is necessary for the transfer of an interest in land - a
deed for a legal estate and an instrument in writing for an equitable interest.
But the complexity of many transactions involving land means that it is often
37
See s 54 of the Law of Property Act 1925.
107
HONG KONG LAND LAW
desirable to employ two documents rather than one, the first being an
agreement in which the parties agree to the transaction in question, and the
second being the transfer document itself entered into in performance or
completion of the contract.
In the case of the sale and purchase of a flat, a purchaser will usually satisfy
himself as to the physical suitability of the flat by an inspection. For instance,
he will be able to check that it has sufficient bedrooms, that it is conveniently
located, that the desired services are available, etc. But he, or rather his
solicitor, will also need to be satisfied with the legal nature of the flat - for
instance, what are the terms of the Crown lease; is the vendor able to sell the
flat; are there any easements or covenants that affect the flat? An inspection
of the title deeds, of the property itself, and a search at the Land Office will
be required in order to establish these matters. In addition, enquiries of other
persons or bodies may be necessary in order, for instance, to be satisfied that
the property is not adversely affected by any planning legislation or building
regulations. These enquiries can take some time, yet the parties often wish
to be sure that the sale will only fall through if it is found that the transaction
is adversely affected by any of these matters. An agreement can provide the
certainty the parties seek while the purchaser conducts his investigations into
the vendor's title and the nature of the property.
It is becoming more common for the purchaser to insist that he
substantially complete his investigations before he enters into an agreement
for sale and purchase rather than afterwards, but even in these circumstances it is usual to conduct the transaction in two stages. There may well
be financial matters that need to be settled after the agreement is signed and
before the transaction can be completed by the formal transfer of title. For
instance, the purchaser may need to raise mortgage finance or arrange to
sell other property in order to raise funds to pay the purchase price. The
value of land is such that few people have the funds to pay the purchase
price just sitting in their bank accounts!
The standard form of a sale and purchase transaction will thus usually
comprise the following stages:
• Pre-contract- Upon finding a suitable property the purchaser, or more
likely his solicitors, will conduct an investigation into the legal nature of
the property, including a search at the Land Office and an inspection of
the title deeds and the property. It is not unusual at this stage for the
vendor to insist upon the purchaser entering into a preliminary
agreement supported by a small deposit to show his commitment to buy.
This prelimi~agreement
may be an actionable memorandum under
Ji -~(D CPO, a PI9Y!sigg.a.L.a._gi:ee_J_QentJntended
.to be biill!ig_g_until_a_
Jormal sal_e_andpun:hase 3:greement isentered inl00f3.J'.lagreement to __
38
agree which}~ not bindiri_g_g~_.£~~J:)~tties.
• Agreement for sale and purchase - The agreement is drawn up by the
vendor's solicitors, and upon approval of its terms by the purchaser it
will be signed by both parties. Usually the agreement is prepared in
duplicate with both parties signing both parts. One part is retained by
38
108
Yeung Siu Hong v Chan Siu Mee Sandie [1992] 2 HKC 559
l
FORMALITIES AT LAW
the vendor and the other is kept by the purchaser. The terms of the
agreement are for the parties to settle, but the agreement will usually
provide for the purchaser to pay the purchase price in return for the
vendor's obligation to prove and pass his title to the purchaser. 39 The
purchaser will be expected to support his performance of the agreement by the payment of a proportion, usually 10 per cent, of the
purchase price by way of deposit, which will be forfeited to the vendor
should the purchaser fail to complete his purchase.
• Post-contract - The purchaser under an agreement for the sale and
purchase of land is regarded in equity as the beneficial owner of the
property, at least so long as specific performance is available for equity
assumes that both parties will perform their obligation under the
contract. 40 The vendor becomes a trustee of the legal estate subject to
a lien on the property for the outstanding purchase price. The
purchaser will be entitled to seek specific performance provided he is
in a position to perform his contractual obligations; in particular, if he
has paid or is able and willing to pay the purchase price. But should
the purchaser fail for some reason to complete the agreement, he will
no longer be in a position to seek specific performance. His interest,
ceases to qualify as an interest in land. It is thus sometimes termed a
'defeasible equitable interest'.
After the agreement the parties must prepare to fulfil their contractual
obligations. The vendor must prove title and prepare for the passing of
title on completion. The assignment, as the deed required to pass the
legal title of the property to the purchaser, is prepared by the purchaser
and approved by the vendor. 41 The purchaser must arrange to pay the
purchase price. For instance, if his purchase is dependent on mortgage
finance, he will have to ensure that the mortgage funds are available
on completion.
• Completion - At completion the vendor will hand over to the
purchaser the title deeds and the assignment, which he has executed
under seal, in return for payment of the purchase price. The assignment
must also be executed by the purchaser, in order for the purchaser to
agree to perform the Crown lease covenants. For convenience, the
purchaser usually executes the assignment before completion.
Completion used to take place in person, but it is now more common
for completion to be by way of undertaking, whereby the purchaser
pays over the purchase price upon the vendor's undertaking to send
the documentation to which the purchaser is entitled.
Other transactions may adopt a similar two-stage format. For instance, it
is becoming increasingly common for a mortgage deed to be preceded by
a loan agreement, and a lease by an agreement to lease.
39
For an example of a simple contract see Form
2
Third Schedule of the Conveyancing
and Property Ordinance.
40
41
See Chapter 6.3.
See Form 1 Third Schedule of the Conveyancing and Property Ordinance for an
example of a simple assignment.
109
Formalities: The Intervention .Of Equity
6.1
Introduction
Clear rules lead to certainty, but they can also lead to injustice - particular!,
when people conduct their affairs in ignorance of the rules. Many people
are unaware of the legislative requirements that we have just examined. Few
outside a lawyer's office may appreciate what a deed is, let alone that you
must use a deed to create a legal estate. It is thus not unusual for a lease
of more than three years to be created orally, or a borrower to merely
deposit his title deeds with a lender as security for a loan, or an owner to
give permission verbally or in writing for his next-door neighbour to use a
facility on his property. Injustice would result if such transactions were to
have no legal effect, and thus equity may in certain circumstances step in
to enforce these informal arrangements. We must now look at a number of
circumstances when equity will grant a remedy to enforce a transaction that
fails to satisfy the strict legislative requirements.
6.2
Part Performance
Section 3(2) states: 'This section applies to contracts or other dispositions
whenever made and does not affect the law relating to part
performance ... '. 1
The requirement for written evidence of a contract for the sale of an
interest in land does not affect the doctrine of part performance. Thus it is
not quite true to say that all oral contracts are unenforceable. An oral
agreement may be enforceable in equity if supported by sufficient acts of
part performance.
6.2.1
Basis of Part Peiformance
The Statute of Frauds 1677 was passed to overcome the evidentiary
problems in establishing and enforcing an oral contract for the sale of land,
in particular to combat the temptation to give perjured evidence. For
instance, if A and B made an oral contract for the sale of A's flat to B, it could
be very tempting for A to deny the existence of the contract if he wished
to escape from the sale so he could sell his flat for a higher price to someone
else. But the Statute of Frauds' 1677soon gave rise to its own injustice, for
a party could deny an oral contract that had been acted on by the other
party. For instance, if A and B, having made an oral contract for the sale of
A's flat to B, then carried it into effect by B paying A the purchase price and
A giving B possession of the flat, A would nevertheless be entitled to claim
back possession of the flat if B could not enforce his oral agreement. Clearly
equity could not stand by and allow A to use the statute so unjustly. It soon
See also s 7 CPO.
110
FORMALITIES: THE INTERVENTION OF EQUITY
developed the doctrine of part performance to prevent the statute itself
being made an instrument for fraud.
Equity would enforce the agreement not as a result purely of the oral
contract but as a result of the innocent party's subsequent actions, which
it would be fraudulent for the other party to ignore. The doctrine is based
'upon the equities resulting from acts done in execution of the contract, and
not . . . upon the contract itself'. 2 In our example, by reason of his agreement
with A and the encouragement of A, B has performed certain acts: he has
paid the purchase price and gone into possession. In view of these acts it
would be unjust to allow A to escape from his agreement despite its oral
nature. Equity would thus grant an order for specific performance requiring
A to perform his obligations under the oral contract.
6.2.2
Requirements of Part Performance
6.2.2.1
Contract
There must be a concluded contract between the parties and it must be
possible to ascertain its terms. 3 The acts of part performance themselves may
give no hint of the terms, but once they are accepted as sufficient acts to
establish the existence of the contract, oral evidence may be brought of the
terms of the contract. For instance, in our example B's act of going into
possession does not provide any indication of the price B agreed to pay for
A's flat. But once this act is accepted as sufficient to support B's enforcement
of the contract, oral evidence may be brought of the terms of A and B's
agreement, including the price B agreed to pay.
6.2.2.2
Specific Performance
The contract is only enforceable in equity and is thus dependent on the
contract being capable of specific performance. Originally the court could
only grant specific performance - they could not grant damages, so if for
some reason specific performance could not be granted the purchaser was
without a remedy. Fcir instance, if the vendor had sold the property to an
innocent third party before the purchaser could seek the assistance
of equity, then the .purchaser was without redress. Now s 13A of the
Law Amendment and Reform (Consolidation) Ordinance 4 ·confers upon
the court a power to grant damages in these circumstances.
Part performance as an equitable doctrine cannot be claimed as of right.
The courts may decline to rely upon the doctrine if there has been
unreasonable delay, or if for some other reason they feel the plaintiff is not
entitled to the assistance of equity. 5
Per Earl of Selbourne in Maddison v Alderson (1883) 8 App Cas 467 at 475
In England the doctrine of part performance no longer has any application; by s 2 of
the Law of Property Miscellaneous Provisions Act 1989 all contracts for the sale of land
must be written and signed by the parties in order to be valid. The doctrine of
estoppel however provides an alternative means of enforcing an oral agreement.
Cap 23
Coatsworth vjohnson (1886) 54 LT s 20
111
HONG KONG LAND LAW
Sufficient Acts of Part Peiformance
6.2.3
Since the basis of the doctrine is the fraud done to the plaintiff, the acts must
be done by the plaintiff with the knowledge of the defendant. But what sort
of acts by the plaintiff will be sufficient? The title 'Part Performance' would
suggest that the act must be in performance of the contract. That may often
be the case, but it is not necessarily so. For example, B, following an oral
contract to purchase A's flat, not only pays the purchase price and is let into
possession but also carries out certain renovation and improvement works
to the flat. All these acts may be accepted as acts of part performance, but
while B's payment of the price and going into possession flow from the
contract, his improvements to the flat do not directly do so. He was, however,
only in position to carry out these improvements as a result of the contract.
They are connected with, although not in performance of, the contract.
The exact nature of an acceptable act of part performance and its
connection with the contract is not an easy matter to pin-point, particularly
in the light of what appears to be a relaxation of judicial attitudes in recent
years.
The classic statement of the test is found in:
a
Maddison v Alderson (1883) 8 App Cas 467
FACTS
Mrs Maddison acted as housekeeper for Mr Alderson for many years without
the payment of any wages as a result of an oral promise by Mr Alderson to
leave her a life estate in his house. He made a will to this effect, but it was not
validly executed. Accordingly, when Mr Alderson died he died intestate. Mrs
Maddison alleged that his promise amounted to a contra.ct which, although
oral, should be enforceable as a result of her long service without wages.
JUDGMENT
There was no contract and even if there was, Mrs Maddison's long service
without wages was not an acceptable act of part performance upon which
specific performance could be ordered.
The Lord Chancellor, the Earl of Selboume, explained that the acts done
'must be referred to the actual contract, which is the measure and test of their
legal and equitable character.' 6 That measure was 'that the acts relied upon
as part performance must be unequivocally, and in their own nature,
referable to some such agreement as that alleged.' 7 The plaintiffs acts must
point to the existence of the contract between the parties. Mrs Maddison's
actions did not do so. She could have been working for Alderson without
6
7
112
(1883) 8 App Cas 467 at 475
(1883) 8 App Cas 467 at 479
l
• FORMALITIES: THE INTERVENTION OF EQUITY
wages but in return for accommodation, or perhaps because she had a
particularly close relationship with him!
In not dissimilar circumstances, however, the English Court of Appeal
some 85 years later came to a rather different conclusion.
-------Wakeham v Mackenzie
FACTS
[1968] 1 WLR 1175
Mrs Wakeham was a widow who gave up possession of her council house
(the equivalent of public housing) in order to look after an old widower.
She did not receive any wages from him although she paid for her board
and heating, the understanding being that he would leave his house to her
on his death. This occurred fourteen months later. The widower in fact
failed to do this, and Mrs Wakeham sought specific performance of his oral
arrangement.
JUDGMENT
Mrs Wakeham's acts of paying for her board and heating, giving up her
council house, and going to look after the widower were sufficient acts of
part performance to support a decree of specific performance to transfer the
house to her.
The court avoided reaching the conclusion of the House of Lords in
Maddison v Alderson by relying on the case of Kingswood Estate Co Ltd v
Anderson 8 as 'exploding' the need for the acts to refer to a contract of the
type alleged. It was sufficient that the acts referred to some contract. The
court took the view that the arrangement did clearly indicate some contract.
It is difficult to reconcile these two cases except on the basis of a change
of attitudes by the courts. Indeed, in Wakeham v Mackenzie the court were
at pains to point out the different procedural conditions that prevailed at the
time of the Statute of Frauds 1677 from those now prevailing. The most
authoritative statement of the courts' current attitudes is to be found in the
House of Lord's decision in:
!
I
Steadman v Steadman U976]AC 536
FACTS
The parties' marriage had broken down. After the breakup the husband
continued to live in the matrimonial home in which his wife claimed a half
share. Maintenance orders had been made against the husband for the
[1963] 2 QB 169
113
HONG KONG LAND LAW
support of his wife and the child of the marriage, but they were in arrears.
The husband applied to court for a variation of the maintenance orders.
Outside the court his solicitor met his wife and it was agreed that she would
sell her share in the matrimonial home to her husband for £1,500 and the
maintenance order would be discharged if he paid all but £100 of the arrears
of maintenance. The court was told of the agreement and they discharged
the maintenance order and remitted the arrears, save for £100. The husband
paid the £100 and his solicitors prepared a transfer deed transferring the
house to him. His wife subsequently refused to sign the transfer. Her
husband sought specific performance of the oral agreement on the basis
that the payment of £100 arrears of maintenance and the preparation of the
transfer deed were sufficient acts of part performance.
JUDGMENT
The alleged acts of part performance were sufficient to support a decree of
specific performance of the agreement for the wife to transfer her interest
in the matrimonial home to her husband for £1,500.
Authorative the judgment may be, but clear it certainly is not. All five
judges delivered lengthy judgments. Lord Morris dissented. The other four
judges, although in agreement on the result, gave differing views. Their
decision centred on the issues discussed below:
6.2.3.1
The Burden of Proof
The Earl of Selbourne had laid down that acts should be 'unequivocally
referable' to the contract although he had also suggested that it was
sufficient if 'the alleged contract . . . is reasonably to be inferred from the
res gestae themselves' ,9 which suggests a lower standard. The majority of
the Lords preferred this latter test. Lord Reid, for instance, described the test
as to 'take the whole circumstances, leaving aside the oral contract, to see
whether it is proved that the acts relied on were done in reliance on a
contract: that will be proved if it is shown to be more probable than not.' 10
In other words, the fact that there is an explanation for the plaintiff's conduct
other than the existence of the contract will not be fatal. It is enough that
it is the most likely explanation.
6.2.3.2
What Sort of Contract?
Must the alleged acts of part performance point to a contract relating to land?
The acts do not have to pin-point the particular type of land contract, 11 but
there was some suggestion in Steadman, notably from Lord Reid, that the
acts need not indicate a contract relating to land. It was sufficient if they
9
10
11
114
(1883) 8 app Cas 467 at 476
[1967] AC 536 at 541H-542A
Kingswood Estate Co. Ltd. v Anderson [1963] 2 QB 169
FORMALITIES: THE INTERVENTION OF EQUITY
merely related to any contract. However, subsequently in Re Gonin 12 the
view that the acts relied on must point to a contract relating to land has been
reasserted.
6.2.3.3
Payment of Money
Closely ass~ciated with the previous issue is the question of whether the
payment-of money can ever constitute an act of part performance. In
Maddison v Alderson the Earl of Selboume indicated that the payment of
the purchase money was 'an equivocable act not (in itself), ... indicative
of a contract concerning land' .13 The plaintiff could merely be loaning the
money to the defendant, or making payment for some other obligation.
Furthermore, generally no injustice would be suffered by the plaintiff as he
could be adequately compensated by repayment of the money. But the
majority of the Lords decided that the payment of money could constitute
an acceptable act of part performance when viewed in the light of the
surroun_diqg circumstances. The payment of money by itself will not
therefore constitute part performance, but it is not to be rejected entirely.
Taken with other acts it may swing the decision in the plaintiffs favour.
,.
'
6.2.4
Examples of Part Peiforrnance
Establishing the test of what is a sufficient act of part performance is one
thing-" applying it is quite another. Although the act of part performance
must be viewed in the light of the circumstances of the case, perhaps the
most helpful. guide is a comparison of examples of the most common
acceptable and unacceptable acts of part performance.
6.2.4.1
Possession
The taking of possession 6y the plaintiff with the defendant's consent is
often quoted as the best example of an act of part performance. 14 It is an act
that points clearly to the fact that the plaintiff must have been granted some
right to go onto the land by the defendant, and furthermore is an act in which
the defendant must have played some active part by the granting of
possession to the plaintiff. However, if the plaintiff merely continues in
possession, having already entered into possession under a previous grant,
his possession will not constitute part performance since it is just a
continuance of a right he already enjoys. 15 Thus a lessee who holds over
after the expiry of his lease will not be able to rely on his continued
possession alone to enforce an oral contract for the renewal of his lease:
there must be some further act, such as the payment of a higher rental, to
point to a contract with his landlord to renew his tenancy. 16
12
13
14
15
16
[19791Ch 16
(1883) 8 App Cas 467 at 479
Kingswood Estate Co.,Ltd. v Anderson ante
Kingswood Estate Co. Ltd. v Anderson ante
See Willis v Stradling (1797) 3 res 378
f
URBi>i~L0JN"'~ i'U1'L_;:L;
U}; 7:{1GlESI
115
HONG KONG LAND LAW
6.2.4.2
Alterations
The making of alterations or improvements to the property is another
common example of part performance. But the alterations must be carried
out either by a plaintiff purchaser or by a plaintiff vendor at the request of
the purchaser, 17 for the carrying out of alterations on one's own land does
not by itself point to a contract granting some right in the land. 18 It is merely
an exercise of a right that the vendor already enjoys. The carrying out of
alterations by a tenant holding over after the expiry of his lease or very close
to its expiry may also indicate that the tenant is acting in reliance on a
promise to extend his tenancy. 19
6.2.4.3
Preparatory Acts
An act that is preparatory to the contract itself, as opposed to carried out
in performance of or as a result of the contract, is not sufficient. Instructing
solicitors, inspecting the land, and applying for approval of plans 20 are
examples of acts that have been rejected for this reason. In Steadman v
Steadman, 21 however, instructions to prepare a transfer of the land were
accepted together with other acts as sufficientto constitute part performance.
6.3
The Rule in Walsh v Lonsdale 'An Agreement for a Lease Is As
Good As a Lease Provided Specific Performance Is Available.'
The rule in Walsh v Lonsdale is derived from the maxim that equity looks
on as done that which ought to be done. Thus if there is an agreement that
is capable of enforcement by the award of a decree of specific performance,
equity will view the parties' relationship as if the decree of specific
performance had been granted. Contracts for the sale of an interest in land
are generally regarded as contracts that equity will specifically perform.
Damages are usually said to be an inadequate remedy, for each piece ofland
is unique - so that any loss suffered by the purchaser cannot be
compensated in money terms alone. A purchaser under a specifically
performable contract for a lease will thus be recognised in equity as if the
contract to grant him a lease had been performed and he held under the
lease itself. The recognition does not extend to the actual grant of the legal
lease, as the necessary formalities have not been complied with and it is only
in equity that the contract will be looked upon as if it had been performed.
The lessee can maintain that he holds under an equitable, but not a legal, lease.
There are two situations in which the rule in Walsh v Lonsdale may be
of assistance: namely, where there is an agreement for the grant of an
interest in land, and where inadequate formalities have been employed.
17
18
19
20
21
116
See Rawlinson v Ames (1925] Ch 339.
See Dickinson v Burrow (1904] 2 Ch 339.
See Broughton v Snook (1938] Ch 345.
See New Hart Builders v Brindley [1975] Ch 342.
[1976] AC 536
FORMALITIES: THE INTERVENTION OF EQUITY
Agreement for the Grant of an_Interest
6.3.l
The case of Walsh v Lonsdale itself concerneda
lease:
contract for the grant of a
D9
FACTS
The defendant agreed to grant to the plaintiff a lease of a factory for seven
years. The rent was payable in advance. The plaintiff entered into
possession and paid the rent, but not in advance. The defendant demanded
a year's rent in advance, but the plaintiff did not pay and the defendant
~\distrained. The plaintiff claimed the distress was unlawful, arguing that he
was not claiming under the agreement to lease but as a yearly tenant under
common law by reason of his payment of rent. As a yearly tenant he was
not obliged to pay rent in advance.
>r
JUDGMENT
W(J,:
'\ \) (i~'\lli
iiJ
The distress was lawful since the defendant held under the agreement for
the lease of seven years and not under an implied yearly tenancy.
It should be noted that where a tenant, with the consent of the landlord,
enters into possession and pays rental, a periodic tenancy is implied at law.
But the rules of equity prevail over the rules of law, and thus an implied
periodic tenancy will give way to an equitable lease where the tenant has
entered the land in pursuance of an agreement to grant a lease. The Master
of the Rolls Sir George Jessel clearly summarised the position:
There is only one Court and the equity rules prevail in it. The tenant
holds under an agreement for a lease. He holds, therefore, under the
same terms in equity as if the lease had been granted, it being a case
in which both parties admit that relief is capable of being given by
specific performance. That being so he cannot complain of the
exercise by the landlord of the same rights as the landlord would
have had if a lease had been granted. 22
6.3.2 Impeifect Formalities
The law will readily construe an abortive attempt to grant an interest in
property as an agreement to grant the interest in question. An example is
found in the case of:
22
(1882) 21 Ch D 9 at 14E
117
··HONGKONG LAND LAW
Parker v Taswell (1858) 2 De G&J 559
FACTS
The defendant agreed to renew the plaintiff's lease of a farm for a term of
ten years. The document recording their agreement was only executed
under hand. A dispute arose between the plaintiff and the defendant as to
certain terms of the lease and as a result the plaintiff brought an action for
specific performance of their agreement.
JUDGMENT
Specific performance was granted. A lease not created under seal was not
devoid of all efficacy: it could be enforced as an agreement to create a lease,
the intention of the parties plainly being that there should be a lease.
Thus, if A purports to grant to B a lease for four years but he does so in
writing rather than under seal, the transaction will be construed as an
agreement by A to grant B a lease of four years. As we have seen, B can call
upon A, by a decree of specific performance if necessary, to execute a deed
granting a lease of four years, and in the meantime B holds in equity under
an equitable lease for four years.
6.3.3
Requirements of the Rule
The essential feature of the rule is the availability of specific performance.
But when will specific performance be available?
6.3.3.1
An Agreement For a Lease
There must be an enforceable agreement between the parties. .The
agreement must therefore comply with s 3 of the Conveyancing and
Property Ordinance, 23 being in or evidenced by writing, or if merely oral it
must be supported by part performance. There must also be consideration,
for equity will not assist a volunteer. Thus the doctrine will be of no
assistance where incorrect formalities have been employed to effect a gift
of land.
The doctrine is framed in the context of leases but it is also applicable
to the creation or disposition of other interests in land. Thus if A agrees to
sell B his flat, B will be recognised as the owner in equity once the
agreement is made. 24 Likewise, if A agrees to grant an easement or mortgage
to B, B will be regarded as the holder of an equitable easement or mortgage
as the case may be.
23
24
118
Cap 219
See Lysaght v Edwards (1876) 2 Ch D 499.
FORMALITIES: Tlf,E TNTF;RVENTION OF EQUITY
6.3.3.2
Specific Performance is Available
Specific performance is a discretionary remedy that the courts may refuse
to grant. If, for instance, the court does not consider it equitable to award
the remedy in the circumstances of the case, 25 or if the plaintiff has not come
with 'clean hands' because he is in breach of the agreement, 26 or if the grant
of a decree would cause hardship because it would force the landlord to
breach his own obligations, 27 the court may decline to order specific
performance. Furthermore, the parties to the contract may vary or exclude
the right to specific performance provided a clear intention to do so is
shown. In Hong Kong it is not uncommon for a vendor to try to exclude
the purchaser's right to specific performance should the vendor fail to
complete the agreement, because for instance he has accepted a higher
offer. Such an exclusion of the right to specific performance will only be
effective if clear words are used. There have been many cases brought over
the past few years to determine which wording is effective but only a small
number have succeeded. 28
6.3.4
Effect of the Rule
The rule gives effect to the agreement or abortive grant in equity rather than
at law which the doctrine boasts is 'as good as a lease' or the other grant
in question. Is that strictly true or are there any differences?
6.3.4.1
Priority
Traditionally the primary distinction between legal estates and equitable
interests is the extent to which they bind third parties, but as we have seen
this distinction has largely been eroded by the Land Registration Ordinance. 29
An agreement to create or dispose of an interest in land must be in writing
to be enforceable, unless it is enforceable as a result of acts of part
performance. 30 An equitable interest under the doctrine of Walsh v Lonsdale
will thus usually be supported by an instrument that must be registered
under the ordinance in order to preserve its priority in the same way as a
deed that creates a legal estate must be registered. It is only in the case of
an equitable interest supported by part performance that the interest may
suffer a disability in terms of priority over its legal equivalent.
25
26
27
28
29
30
Chu Kit Yuk & another v Country Wide Industrial Ltd. & others [1995] 1 HKC 363
See Coatsworth v Johnson (1886) 55 LJQB 220.
See Warmington v Miller [1973] QB 877.
Wong Lai Fun v Le Ha [1992] HKLR 125, Lee Tak Kwong v Choi Pui Kei Stephen [1991]
2 HKC 1091, Kentex Investment Ltd v Hui Lap Ping Sam HCt MP No 3447 of 1991 and
Cheong Pik Shan v Lee Bun & another (1994) HCt No A3113 of 1992
Cap 128. See Chapter 3.
See Chapter 5 and 6.2.
119
(I
HONG KONG IAND IA w
l
6.3.4.2 Enforcement of Covenants
There are differences in the extent to which leasehold covenants may be
enforceable between the successors in title to legal and equitable leases. 31
6.3.4.3 Easement
An agreement to create or dispose of an interest in land which operates
under the rule in Walsh v Lonsdale is not effective to pass easements or other
appurtenant rights affecting the land under the operation of s 16 of the
Conveyancing and Property Ordinance, which we shall be examining in
due course.32
6.4
Resulting and Constructive Trusts
6.4.l Introduction
Section 5(2) of the Conveyancing and Property Ordinance3 3 states: 'This
section does not affect the creation or operation of resulting, implied or
constructive trusts.'
Equity will not allow a person to use a piece of legislation in order to
act fraudulently. Thus, despite the requirements for writing set out ins 5(1)
of the ordinance, there are circumstances when equity will imply a trust to
prevent a person denying a declaration of trust or a disposition of an
equitable interest in land that is not recorded in writing. There are essentially
two kinds of implied trust: the resulting trust and the constructive trust. A
detailed examination of these implied trusts lies outside the scope of this
book, but their prominence in the context of the creation of interests in land
that has emerged in recent years merits an examination of their essential
characteristics.
It is easy to confuse resulting trusts and constructive trusts. Indeed, they are
often referred to in the same breath with little or no acknowledgement of
their differing concepts. 34 But there is emerging a recognition by the courts,
at least in England, that it is important not to confuse the two concepts,
particularly as different consequences can flow depending on whether the
implied trust is resulting or constructive. 35 Thus, while they are both classified
as implied trusts, they are distinct types of implied trust and justify separate
examination.
31
32
33
34
35
120
See Chapter 14.
Cap 219 see Chapter 13.
Cap 219
In Hong Kong Courts see for example the comments of deputy Judge Tong QC in Lui
Kam Lau & another v Leung Ming Fai [1994] 3 HKC 477 at 485 where he states that 'it
hardly matters what label one uses'.
See for example Drake v Whipp 0995) The Times 19 December.
FORMALITIES: THE INTERVENTION OF EQUITY
6.4.2
Resulting Trusts
If property is transferred to A but the purchase price is paid by B, equity will
presume that B intended A to hold the property on resulting trust for him so
that A will merely hold the legal estate and the beneficial interest will vest in B.
Fig 6.1
A
I
$B
-At Law
- In Equity
A similar presumption may arise if some but not all of the purchase price
has been supplied by B. A will then hold the property on trust for himself
and B in such shares as reflect the proportion of the purchase price that each
has paid.
Fig 6.2
At Law
tY~
A
!
4
In Equity
The nomination neatly illustrates the concept of the resulting trust. A
person who has entered into an agreement to buy property may nominate
another to take the assignment of the property. If the nominator continues
to provide the purchase money this will give rise to a resulting trust so that
the nominee holds the legal estate on bare trust for the nominator. 36
However, if there is evidence to suggest that the nominee provided the
purchase price 37 or that the nominator intended the nominee to be more
than just a nominee and to take the whole or part of the beneficial interest,
the resulting trust will be rebutted and the nominee take the intended
beneficial interest. 38 In fact, conveyancers sometimes use the nomination as
a means of effecting a sub-purchase, although they are well advised to state
in the assignment that the nominee has provided the full purchase price and
is entitled to the beneficial interest if they qre to avoid the problems that the
cases have illustrated.
6.4.2.1
Presumed Intention
The basis for the implication of a resulting trust in these situations is one
of presumed intention. If a person provides the funds to purchase property,
36
37
38
See Formking Development Ltd v Lee Kwok Hung, Robert [19931 1 HKC 412.
See Lionwill Investment Ltd v Triple Will Ltd [1992] 2 HKC 430 and Easyknit Investment
Co Ltd v Yetonce Ltd 0991) HCt MP No 1454 of 1991.
Fulltrend Co Ltd v Longer Year Development Ltd & another [1990] 1 HKC 542, Kwong
Kai Hing & another v Chan Lik 0995) HCt MP No 1529 of 1995 and Yeung Kit Lam &
another v Lau Yiu Shing 0995) HCt MP No 3392 of 1994
121
HONG KONG LAND IA W
he is presumed to have intended to acquire the beneficial ownership of that
property unless a contrary intention is proved or there exists a counter
presumption. 39 For instance, B may be merely loaning the money to Aor it
may be that B intends to give the property to A as a gift. In certain
circumstances equity will presume that B intended to· give the property to
A - this is known as the 'presumption of advancement' .
6.4.2.2
Presumption of Advancement
Equity will not impose a resulting trust where B is otherwise responsible for
A's welfare and well-being. In such circumstances equity does not recognise
the need to protect B's generosity: it is his duty to provide for A. Traditionally
such responsibility for the welfare and well-being of another has been owed
by a father to his children, whether those children are legitimate, illegitimate,
or his step-children; and by a husband to his wife. This same responsibility
has not been owed by a mother to her children, unless perhaps the mother
is solely responsible for her child's welfare, or by a wife to her husband, or
between unmarried partners. But changing social mores and moves
towards greater sexual equality, based upon the greater economic
independence of women, have challenged these traditional presumptions.
For instance, in Hong Kong doubts have been expressed as to the continued
absence of the presumption between mother and son 40 and the continued
application of the presumption of advancement between a husband and his
wife, 41 although the presumption of advancement between husband and
wife in relation to the matrimonial home has received a boost in:
Ho Nga Sheung v Ma Fook Leung 0993) 2 HKC 647
FACTS
The plaintiff and defendant were husband and wife. They bought the
property in dispute as their matrimonial home. The property was assigned
into their joint names with the aid of a mortgage. The husband paid the
mortgage instalments. The wife did not make any direct financial contribution
to the acquisition of the property although she did pay some household
expenses. On the break-up of the marriage the plaintiff applied for an order
for sale of the property under the Partition Ordinance and the issue arose
as to the wife's interest, if any, in the property.
JUDGMENT
There was a presumption that where the matrimonial home was acquired
by a husband in the joint names of himself and his wife that the husband
39 Ngai Hong Cycle (Electric) Ltd v China Harmonious Ltd (1994) HCt MP No 4343 .of 1993
Lily Cheung v CED (1987) HCt MP 2045 of 1987 and Re Mak Woon Shui (dec'd) [1992]
2 HKC 144
41
CIR v Yeung Cheung Foon, David (1989) CA Civ App No 142 of 1988
40
122
FORMAUTIES: THE INTERVENTION OF EQUITY
intended to advance to the wife a beneficial interest in the property. The
presumption was rebuttable but had not been rebutted in the present case.
It is important to remember that even if the presumption of advancement
is held to exist in a given relationship it is only a presumption and can be
rebutted. That rebuttal is increasingly likely to be established, particularly
as the courts can look to the q:mstructive trust to give effect to the parties'
common intentions. For instance, in Mcgrath v Willis 42 Nourse LJ described
the presumption of advancement as 'a judicial instrument of last resort'.
6.4.2.3
Timing of Intention
The relevant time for measuring the parties' intention is the date of
acquisition of the property, although subsequent acts may be used to infer
or demonstrate the parties' intentions at the date of acquisition. 43 For
instance, if A has acquired the property with the aid of a loan, then
repayment of the whole or part of that loan by B some time after the
acquisition of the property may point to an intention that was formed at the
time of acquisition that B was intended to share the beneficial ownership
of the property. In order to support an intention based upon contributions
subsequent to the acquisition of the property, the courts have looked
particularly to the extent to which a claimant's subsequent contributions can
be referred or linked to a belief that in making those contributions he was
acquiring a beneficial interest in the property. 44
6.4.2.4
Qualifying Contributions
Contributions either to the deposit or to the balance of the purchase price
will clearly support the implication of a resulting trust, but qualifying
contributions are not confined to payments made at the time of purchase.
The repayment of the whole or part of a loan that has been used to acquire
the property may also support the implication of a resulting trust, provided
it is made pursuant to an intention, that may be express or inferred,
formulated at the time of acquisition that such contributions would be made
and would lead to the acquisition of a beneficial interest in the property. 45
In this connection, a contribution to payment of the deposit or legal
expenses at the time of acquisition will assist in the formulation of such an
intention, so that the case for the implication of a trust will be that much
stronger where the contributor has contributed both to the deposit and/or
legal expenses and the repayment of the mortgage. 46
Contribution may be indirect where B shoulders a financial burden of A,
so that A can pay the purchase price or repay a loan used to purchase the
42
43
44
45
46
[1995] 2 FLR 114 at 115
Gissing v Gissing [1971] AC 886
Gissing v Gissing [1971] AC 886
Gissing v Gissing [1971] AC 886
Gissing v Gissing [1971] AC 886
at
at
at
at
906E
909G
908C and Burns v Burns [1984] Ch 317 at 328H
907F and Burns v Burns [1984] Ch 317 at 328H
123
HONG KONG LAND LAW
property. For instance, a husband and wife may arrange their finances in such
a way that the wife pays the household expenses so that the husband can use
his salary to repay the mortgage. But any indirect contribution must be
financial in nature- mere housekeeping duties are insufficient. 47 Furthermore,
it must be clear that any indirect contribution is made in pursuance of a clear
financial arrangement between the parties whereby the claimant would
acquire an interest in the property. 48 It is not clear whether a right, referable
to the status of one of the parties which confers a financial advantage, may also
qualify as a financial contribution sufficient to support a resulting trust. For
instance, would the entitlement to a Home Ownership Scheme flat, or the
reduction in price from the market value that a sitting tenant may be able to
negotiate, qualify? One of the difficulties in admitting such a contribution
would be measuring in financial terms the value of that entitlement.
6.4.2.5
Illegality
The question of how the illegality of a transaction may affect the acquisition
of proprietary interests was raised in the House of Lords case of:
FACTS
Ms Tinsley and Ms Milligan were lovers who jointly purchased a house in
the name of Tinsley to enable Milligan to make false claims for government
benefits. After some years Milligan admitted to the government what she
had done but the government decided not to prosecute her. Tinsley and
Milligan then parted: Tinsley moved out and Milligan remained in occupation.
Tinsley brought an action for possession asserting that she was the sole legal
and beneficial owner.
JUDGMENT
Tinsley was not entitled to possession; she and Milligan were jointly entitled
to the beneficial interest in the house. Milligan could establish her claim to
an interest by way of resulting trust upon proof of her contributions to the
purchase price without any need to rely on the underlying illegality of the
reason the house was registered only in Tinsley's name.
The result would have been different if Tinsley and Milligan had not
been lovers but wife and husband or child and father. In these circumstances,
the presumption of advancement would have operated to presume that the
beneficial ownership was intended to pass with the legal estate to the wife
47
48
124
Burns v Burns [1984] Ch 317
Gissing v Gissing [1971] AC 886 at 908A and Burns v Burns [1984] Ch 317 at 329C
FORMALITIES: THE INTERVENTION OF EQUITY
or child, since a gift would have been presumed. The husband or father
would have had to rely on their illegal design to rebut the presumption
of advancement and establish their claim to the beneficial ownership. This
the law would not have allowed. The distinction may seem somewhat
arbitrary but the House of Lords refused to accept a rule based upon a
'public conscience test' advocated by the Court of Appeal 49 which looked
to the seriousness of the illegality. By contrast, in New Zealand statute has
conferred upon the courts a discretion as to whether or not relief should be
granted where illegality is proved. 50
Thus illegality does not prevent the proprietary interest passing but it
does prevent a party enforcing or asserting a proprietary claim where to do
so they must rely upon the illegal transaction. The effect is thus procedural
rather than substantive.
Where the illegal design has not been carried into effect, although it has
prompted the transfer of the legal estate, the transferor may still rebut the
presumption of advancement by bringing evidence of the illegal design.
"'
~ ~ .-,~·
""
-
,.,.
Tribe v Tribe [1995] 3 WLR 912
FACTS
The plaintiff held shares in a company which sold ladies' clothing from a
number of leasehold shops, two of which were in poor repair. The plaintiff,
as he was reaching retirement age, wished to pass the business to one of
his sons. He transferred some of the shares in the company to his son
although the consideration remained unpaid. The next year the landlord
started proceedings to enforce the plaintiff's repairing obligations under the
lease of the shops. The cost of the repairs would have required the plaintiff
to sell the company. He thus transferred the remaining shares in the
company to his child. The transfer was expressed to be for consideration
but there was no intention that the consideration would be paid. In fact the
landlord did not pursue the enforcement of the covenant; instead the
plaintiff bought the reversion of one shop and surrendered the other to the
landlord. Once the danger of losing the leases had passed the plaintiff then
asked his son to transfer the second batch of shares back to him. The son
refused and the plaintiff claimed that the son held the shares on trust for him.
JUDGMENT
The transfer of the second batch of shares had been prompted by an illegal
purpose but as the illegal purpose had not been carried into effect the
plaintiff was entitled to lead evidence to show that the presumption of
advancement was rebutted.
49
50
[1992] Ch 310
See ss 6&7 of the New Zealand Illegal Contracts Act 1970.
125
HONG KONG LAND LAW
6.4.3
Constructive Trusts
The constructive trust is somewhat controversial, for its nature and
parameters are ill-defined. A constructive trust arises by operation of law
when the courts require an owner, as a result of his conduct, to hold
property as trustee for the benefit of those who are prejudiced by his
conduct. There is controversy on two fronts. First, there is disagreement
about whether a constructive trust is a substantive institution in itself or ••
merely a remedial device which the courts may employ in the same way as,
for instance, an injunction. Second, it is uncertain when a constructive trust
should properly be applied. In America the constructive trust is more readily
accepted as a device to remedy unjust enrichment whenever it may arise.
It is, in the oft-quoted words of Cardozo J:
. . . the formula through which the conscience of equity finds
expression. When property has been acquired in such circumstances
that the holder of the legal title may not in good conscience retain
the beneficial interest, equity converts him to a trustee. 51
But in English law, while the courts have flirted with this approach, the
predominant view, at least for the time being, appears to prefer to categorise
the constructive trust as an institution in itself existing within ill-defined but
limited boundaries.
It is clear that the constructive trust is not created intentionally by the
parties: it is imposed by the court in order to correct or remedy a wrong.
As such its nature is clearly remedial - but is the remedy the imposition
or the recognition of an institution with all its ramifications on the rights and
duties of the parties and their proprietary interests? In other words, does a
declaration by the court that there is a constructive trust change the parties'
relationship and respective interests, or give recognition to a relationship
and interests that already exist? The former view would suggest that the
constructive trust is a merely a remedial device, although one that has
far-reaching consequences for the parties' relations; the latter view that the
constructive trust is an institution that does not owe its existence solely to
the court, but rather is a consequence of the· parties' conduct.
Regardless of whether a constructive trust is viewed as a remedial device
or a substantive institution, English law presently appears concerned to
confine the occasions for using a constructive trust to a number of situations
which, although not closed, cannot be categorised simply whenever justice
so requires. What then are the accepted situations where equity will impose
or recognise a constructive trust?
6.4.3.1
Fraudulent, Inequitable, or Unconscionable Conduct
Perhaps the most significant situation, at least for the property lawyer (as
opposed to the trust lawyer), arises when the owner of property has been
51
126
Beatty v Guggenhiem Exploration Co 0990) 225 NY 380 at 386
FORMALITIES: THE INTERVENTION OF EQUITY
guilty of such fraudulent, inequitable, or unconscionable conduct that
equity will not allow him to continue to enjoy unfettered rights of
ownership. In this case, equity will require the property to be held by the
owner as a constructive trustee. For instance, a criminal will not be allowed
to benefit from his crime - thus a murderer cannot inherit the property of
his victim, 52 nor will a person be allowed to retain property that he has
acquired through undue influence. 53
We have seen that a declaration of trust or the disposition of an equitable
interest relating to land must be in writing, 54 but equity will not allow that
requirement to be used fraudulently by an owner who has entered into an
arrangement or understanding to the effect that another is to enjoy some
interest in property that the owner holds or is to acquire. For instance, where
a person has relied on that arrangement or understanding and has then
acted to his detriment, the owner will not be allowed to deny the arrangement
or the interest to which it gives rise. He will be deemed instead to hold the
property as a constructive trustee in order to give effect to the c~mmon
understanding. It is in this situation that the constructive trust has overlapped
and become confused with the resulting trust, but there are clear distinctions.
6.4.3.2
Common Intention v Presumed Intention
A constructive trust of this type contrasts with a resulting trust in that it is
not a direct result of the presumed intention of the parties: its imposition
results from a need to prevent injustice. However, the imposition of a
constructive trust in these circumstances ultimately rests upon a common
understanding or intention as to the existence of rights over the property
which the owner is seeking to avoid. 55 Greater flexibility is evident in
ascertaining a common intention than the limited circumstances where a
court will presume an intention in order to establish a resulting trust. There
may be direct evidence of the parties' intention, but the courts have not
shrunk from inferring a common intention from the parties' conduct, both
at the time of and subsequent to the acquisition of the property, when there
is no express or direct evidence of their intention. In drawing an inference
from the parties' conduct both at the time of and subsequent to the
acquisition of the property, the courts have adopted an objective approach.
It is not so much what inferences the parties actually drew, but what a
reasonable man would infer from their conduct. 56 The courts have, however,
stopped short of expressly condoning the imputation of an intention that
the parties never had - although the dividing line between objective
inference and imputation is a narrow one, if it can be said to exist at all.57
Indeed, the signs are that the courts may be prepared to step over the
dividing line at least to the extent that once a common intention is
52
53
54
55
56
57
In the estate of Crippen [1911] P108
Barclays Bank Pie v O'Brien [1994] 1 AC 180 and CIBC v Pitt [1994] 1 AC 200
Section 5 Conveyancing and Properly Ordinance Cap 219 and Chapters 5.3.1 and 5.3.2
See for instance in Hong Kong Hon Po Sun v Lau Ngai [1995] 1 HKC 556.
Gissing v Gissing [1971] AC 886 at 906B
Pettitt v Pettitt [1970] AC 777 at 805 and Gissing v Gissing [1971] AC 886 at 897F and 904E
127
HONG KONG LAND LAW
established that the parties are to hold the property jointly they will overlook
the fact that the parties never thought of the proportions in which the
property would be held; the court will infer what the parties would have
intended if they had thought about it.58
Unlike a resulting trust, the intention need not be evident at the time of
acquisition of the property. The parties may decide to vary their respective
interests in the property. Thus a contribution to the repayment of a loan
used to acquire the property may well, but need not, be made in pursuance
of an arrangement formulated at the time of acquisition. Such a contribution
may support an inference of a common intention, formulated at the time the
contribution was made, that the claimant should have an interest in the
property.59
The intention need not be formulated with the party who is to enjoy the
interest. A trust may be imposed upon an owner, or more likely in this
situation a prospective owner, where he has agreed or arranged with a third
party, usually in this situation the vendor, that someone is to have an interest
over the property which it would be inequitable for him subsequently to
deny. 60
6.4.3.3
Unconscionability v Qualifying Contributions
In order for equity to impose a constructive trust it is not sufficient for the
legal owner to renege on a common understanding, for equity will not assist
a volunteer. It must be inequitable or unconscionable for him to do so. Such
inequity may arise because the claimant has acted on that understanding to
his detriment, or because the owner has been unjustly enriched. The limits
of acceptable detriment are wider than the contributions required to
support a resulting trust.
Financial detriment clearly qualifies, but the detriment need not be
financial - for instance, physical labour towards the improvement of the
property may be sufficient. 61 The difficult question in deciding the limits of
acceptable detriment is how to define the nature of the link between the
common intention of the parties and the detriment suffered by the claimant.
The detriment must be referable to the common intention, but must it be
referable only to the acquisition of a beneficial interest in the property or
may it have some additional motivation? The answer unfortunately remains
unclear.
As a result of these distinctions, the sphere of operation of a constructive
trust in giving rise to an equitable interest in land is far wider than the
resulting trust. The following provide examples of the circumstances where
constructive trusts have been employed to give recognition to interests in
land:
58
59
6o
61
128
See Midland Bank Pie v Cooke [1995] 4 All ER 562.
Gissing v Gissing [1971] AC 886 at 906 E and Lloyds Bank PLC v Rasset [1990] 2 WLR
867 at 877B
Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044
Cooke v Head [1972] 1 WLR 518 and Eves v Eves [1975] 1 WLR 1388
FORMALITIES: THE INTERVENTION OF EQUITY
6.4.3.4
Examples of Constructive Trusts
• An understanding that B retain a beneficial interest in land acquired
by A from B
For instance, in Bannister v Bannistet' 2 a lady agreed to sell her property to
her brother-in-law at a gross undervalue on an oral understanding that she
would be able to live in one of the properties rent-free for the rest of her life.
When her brother-in-law tried to evict her, the court held that he was a
constructive trustee holding the property subject to the oral undertaking.
• An understanding that B retain an interest in land purchased by A from
a third party
For instance, in Binions v EvanS' 3 a landowner agreed to allow the widow
of his employee to live rent-free in one of his cottages. When the cottage
was sold the purchaser expressly took subject to this arrangement. When
the purchaser tried to evict the widow, the court held that the purchaser held
the cottage as constructive trustee subject to the widow's right to occupy
the cottage. 64
• An understanding that B should acquire a beneficial interest in land
either held by A or acquired by A from a third party
This situation is closest to that which gives rise to a beneficial interest under
a resulting trust, which we shall be exploring further in the context of
matrimonial property.
There are other situations where equity regards a party's conduct as
sufficiently reprehensible to justify the imposition of a constructive trust.
• Transfer of property in breach of trust
A transfer of trust property in breach of trust may give rise to a constructive
trust upon a number of persons involved in the transfer. First, a purchaser
who receives the trust property with notice of the breach will be deemed
to hold the property as a constructive trustee. As we have seen in the context
of our examination of priority, a bona fide purchaser of the legal estate for
value with notice, whether actual, imputed, or constructive, will not be
allowed to ignore a prior equitable interest. He will take the legal estate as
a constructive trustee subject to the prior equitable interest. Second, a
constructive trust may be imposed on one who has wrongfully intermeddled
with trust property. For instance, where the trustees have transferred trust
property to an agent who deals with the property inconsistently with the
trust, that agent may become liable as a constructive trustee. Last, even a
person who has assisted in the disposition of trust property in breach of trust
may become liable as a constructive trustee if he did so with either actual
or constructive knowledge of the breach. 65
6z
63
64
65
[1948] 2 All ER 133
[1972] Ch 359
See also Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044 and Ashburn Ansalt Ltd v
Arnold [1989] Chl.
For example see Blyth v Fladgate [1891] 1 Ch 337.
129
HONG KONG LAND LAW
• Profit by a Trustee or Fiduciary
A trustee 66 or fiduciary67 is not permitted to profit from his position. If he
does so, he holds that profit or benefit as constructive trustee.
• Vendor/Mortgagee as Constructive Trustee
A vendor holding property subject to a specifically performable contract for
sale and a mortgagee exercising his power of sale are often termed
'constructive trustees', for they do not hold the property entirely for their
own benefit. As such they both are obliged to deal with the property with
due consideration of the interests of the purchaser or the mortgagor as the
case may be.
6.4.4
Matrimonial Home
Resulting and constructive trusts have been pushed into the limelight in
recent years with respect to the ownership of the matrimonial home or the
home of partners of an informal union. The ownership of the matrimonial
home is not governed by any special rules. Prima facie if property is held
in the name of one spouse or partner it is his property. Attempts have been
made to introduce a concept of 'family assets' through the equivalent of s 6
of the Married Person's Status Ordinance. 68 This section confers upon the
court power to decide questions relating to the ownership or possession of
property between a husband and wife. But these attempts were rejected by
the House of Lords in Pettitt v Pettitt 69 and Gissing v Gissing 70 when they
decided that the section was a convenient procedural device but no more.
It did not entitle the courts to vary the spouses' respective proprietary
interests. The courts have now been given wide powers to alter the parties'
beneficial ownership of the matrimonial home and other assets upon
divorce. Reliance on general equitable principles, however, remains
necessary to determine the ownership of the matrimonial home in other
circumstances - for instance, upon the breakdown of an informal union,
or upon the death or bankruptcy of a spouse or partner of an informal union.
The ownership of the matrimonial home is not subject to special rules
but it is characterised by an ignorance of and a lack of concern for legal
formalities. Given the trust inherent in any close personal relationship, the
parties to a marriage or informal union rarely think in terms of recording
their respective interests in their property with the formality required by law.
It is thus often necessary to resort to the implications of equity and the
principles of resulting and constructive trusts to ascertain the beneficial
ownership of the matrimonial home. It is interesting to examine how the
courts have applied these principles in this context.
A not uncommon scenario is for a couple in the early years of their
marriage or relationship to buy a flat with the aid of a mortgage. The legal
66
67
68
69
70
130
For example see Karak Rubber Co Ltd v Burden [1972] 1 All ER 1210.
For example see Keech v Sandford (1776) Se! Cab King.
Cap 182 which enacts s 17 Married Women's Property Act 1882
[1969] 2 All ER 385
[1970] 2 All ER 780
FORMALITIES: THE INTERVENTION OF EQUITY
title to the flat is put in the name of one of the parties, say the husband or
male partner. Initially the wife or female partner may go out to work and
contribute to the family finances. She may help repay the mortgage
repayments directly or she may pay for other family household expenses.
Children may then be born and the wife or female partner may give up work
to stay at home to look after the children. If the relationship then ends, either
as a result of a break-up or the death of one of the parties, the question may
arise as to who owns the flat.
At law the husband or male partner clearly owns the property- the legal
title is in his name - but equity may take a different view. There is unlikely
to be any written declaration as to the ownership of the beneficial interests,
but the wife or female partner may establish an interest based on the
resulting or constructive trust principles that we have looked at. In the
matrimonial context the courts have rarely differentiated clearly between
these two types of implied trust. Indeed, in Gissing v Gissing Lord Diplock
thought it was 'unnecessary for the present purpose to distinguish between
these . . . classes of trust. '71
As we have seen, a resulting trust is dependent upon a presumed
intention, and a constructive trust may arise where there is a common
intention that it would be inequitable to deny. It is thus vital in order for a
spouse or partner to establish a beneficial interest in the matrimonial home
that there be an intention that they are to have such an interest, and that it
would be inequitable to deny that intention because one of the parties has
relied on that intention and has acted to their detriment. In the case of a
resulting trust, contributions to the purchase price provide evidence
sufficient to establish both the required presumed intention and detriment,
but in the case of a constructive trust the two issues may, but need not, be
so closely intertwined. What is required in order to establish a sufficient
intention and a sufficient detriment?
6.4.5 Common Intention
There may be direct evidence of the parties' common intention. For
instance, in Eves v Eves 72 the fact that the Eves' home was conveyed into the
name of Mr Eves because he persuaded his partner that she was too young
to have the legal ownership transferred into her name was taken as showing
an express intention that the house was to be owned jointly. However,
evidence of an express intention is likely to be rare - it is probably not often
that a couple sit down to thrash out exactly how they intend to own the
property that is to be their home.
The House of Lords recognised that it may frequently be necessary to infer
an intention from the parties' conduct in the leading case of:73
71
72
73
(1971] AC 886 at 905B
[1975] 1 WLR 1338
For an application of such principles to Hong Kong see Lui Kam Lau v Leung Ming
Fai (1994] 3 HKC 477.
131
HONG KONG LAND LAW
Gissing & Gissing
FACTS
Mr and Mrs Gissing were married for many years. The matrimonial home
was purchased in the sole name of the husband. The price was raised
primarily with the aid of a mortgage, the balance being paid by the husband.
The wife made no direct contributions to the cost of the house as the
husband paid the mortgage instalments. She did, however, improve the
garden and buy some furniture and equipment for the house, as well as
clothing for herself and their son. The remaining household expenses were
met by the husband. Upon the break-up of the marriage the wife claimed
a share in the matrimonial home.
JUDGMENT
The wife had no interest in the matrimonial home. Her contributions to the
household expenses and to improving the property were not referable to
a prior common intention that she would acquire a beneficial interest in the
home.
The House of Lords recognised that in a matrimonial context there was
unlikely to be direct evidence of the parties' intention but accepted that
spouses or partners may have nevertheless formed such a common
intention. It was thus often necessary to infer what the parties intended from
their conduct. In so doing the courts were prepared to go so far as to infer
such intention as a reasonable man would infer from the parties' words and
conduct. Words and conduct at the time of the acquisition of the property
were clearly relevant. Subsequent actions are also relevant, but only in so
far as they could either cast light on the parties' intentions at the time of
acquisition, or if they support the inference of a subsequent fresh agreement
or understanding between the parties to vary the existing beneficial
ownership of the home.
What inferences would a reasonable man draw from certain conduct?
6.4.5.1
Payment of Purchase Price
Where the purchase price is paid directly from the parties' own funds, the
parties' intention is usually simply drawn, according to resulting trust
principles, from the parties' respective contributions to the purchase price
at the time of acquisition. But payment of the full purchase price from a
purchaser's own resources is rare. It is more likely that the parties have
arranged only to pay a small proportion of the purchase price from their
own resources, for instance the deposit, and to fund the balance by raising
a mortgage secured upon the property and repayable by instalments.
132
FORMAUTIES: THE INTERVENTION OF EQUITY
6.4.5.2
Payment of Deposit
Contributions to the deposit provide important support for the inference of
a common intention. Since the payment is made at the time of the
acquisition, it is contemporaneous with the usual time for the formation of
an intention as to the ownership of the home. The payment of a deposit or
initial expense may, as such, provide a framework against which other
evidence of a common intention may be measured.
6.4.5.3
Mortgage Instalments
In order to support the inference of a common intention to share the
beneficial ownership of the home, the repayment of mortgage instalments
must be made pursuant to an understanding, formulated at the time of
acquisition, that such payments would give rise to an interest as and when
made. Alternatively, they may provide evidence to support the inference of
a common intention to vary the beneficial ownership of the property after
acquisition. Thus if the property was acquired by the husband or male
partner prior to the marriage or the start of the relationship, so that it is
impossible to establish a common intention as to the joint ownership of the
beneficial interests at the time of acquisition, it may nevertheless be possible
to establish a common intention to vary the beneficial ownership of the
property on constructive trust principles where the wife or female partner
has contributed to repayment of the mortgage instalments.
6.4.5.4
Indirect Financial Contribution
The House of Lords recognised in Gissing that in the matrimonial context,
where a family's assets may be pooled, indirect financial contributions may
also qualify provided they are clearly referable to meeting the costs of
acquisition. For instance, a couple may have an understanding that because
of their limited resources the wife or female partner will meet the
housekeeping or other joint expenses so that the husband or male partner
can use his funds to repay the loan. Unfortunately for Mrs Gissing, there was
no evidence that she bore some of the household expenses in order to assist
her husband in meeting the loan repayments.
6.4.5.5
Improvements
Contributing financially to the improvement of the property may support
a common intention that the contributor is to enjoy a beneficial interest in
the property, although the improvements must be of some substance.
Indeed, as between husband and wife, s 9 of the Married Person's Status
Ordinance 74 now provides a statutory right to a beneficial interest or an
enlarged beneficial interest where a spouse has made substantial
improvements in money or money's worth. Contribution to the improvement
71
Cap 182
133
HONG KONG LAND LAW
of the property through labour as opposed to the cost of improvements is
unlikely to be sufficient to establish a common intention, unless a spouse
can take advantage of s 9. Despite earlier decisions in support of an
inference based upon labour, the House of Lords have indicated that while
labour may be sufficient detriment, it is not sufficient to establish an inferred
intention. 75
6.4.5.6
Domestic Duties
Housekeeping or mothering duties do not by themselves raise an inference
of a common intention that the home is to be held jointly. Such action could
be equally referable to the discharge of the wife's duties as a wife and
mother. The vital quality of conduct sufficient to found an inference of a
common intent is that it must be referable to the acquisition of the home.
6.4.6
Detriment
In Gissingthe question of detriment was not clearly considered as a separate
issue. The financial contributions, whether direct or indirect, that the House
of Lords identified as possible sources of a common intention also provided
sufficient detriment. The English Court of Appeal have considered this
question of detriment more closely in:
Grantv
FACTS
The plaintiff, Mrs Grant, and defendant decided to live together after the
birth of their first child. Mrs Grant already had two older children from her
first marriage. A house was purchased in the name of the defendant and his
brother. The defendant told Mrs Grant that if the house was in their joint
names it could prejudice her divorce. The purchase price was met by two
mortgages and the balance by the defendant. Initially Mrs Grant made only
a small contribution to the household expenses, but after the birth of a
second child she returned to work and made substantial contributions to
joint household expenses, which enabled the defendant to use his earnings
to pay the mortgage instalments. After a fire at the property the family
moved into public housing. They used the insurance monies to repair the
property, which was let, and the balance was paid into a joint savings
account. On the breakup of the relationship, Mrs Grant claimed a share of
the house.
JUDGMENT
Mrs Grant was entitled to a half share in the house.
75
134
See Lloyds Bank Pie v Rasset [1990] 2 WLR 867.
il
'
I,
I
FORMALITIES: THE INTERVENTION OF EQUITY
The Court of Appeal emphasised that it was necessary to establish not
only a common intention that the property be held jointly, but also that the
claimant relied on that intention and as a result acted to his or her detriment
so it would be unconscionable for the legal owner to deny his or her interest.
They then considered what conduct would be sufficient detriment referable
to the parties' common intention, and identified two broad circumstances
when the treatment of conduct might differ. First, there was the situation
where the court was obliged to infer a common intention; and second, the
situation where there was direct evidence of the parties' intention.
6.4.6.1
Inferred Intention
We have seen that where it is necessary to infer an intention the claimant's
conduct must be referable to the acquisition of the home. The courts are
most reluctant to infer any intention from conduct that is not directed
towards meeting the financial cost of acquiring the home. 76 The claimant's
conduct in these circumstances will thus serve the twin function of
demonstrating a common intention and sufficient detriment.
6.4.6.2
Express Intention
Where there is direct evidence of the parties' intent there is no need for the
court to infer a common intention from the parties' conduct. For instance,
Mrs Grant was persuaded not to insist on the home being bought in joint
names because that would prejudice her divorce. Furthermore, the parties
demonstrated that they were jointly entitled to the insurance monies by
placing them in a joint account. These actions provided direct evidence of
the parties' true common intention that the property should be held jointly.
It was thus not necessary for Mrs Grant to rely on her subsequent conduct
to infer a common intention. 77
Mrs Grant did still have to show that she had acted to her detriment as
a result of that common intention. The court was satisfied she had done so
by her contribution to the household expenses, which had enabled the
defendant to use his funds to repay the mortgage. In this case the detriment
was referable to the acquisition of the property, as the defendant could not
have paid the mortgage without this assistance. But the court did not
express any common view as to whether detriment had to be referable to
the acquisition of the home or what other link had to be shown between
the intention and detriment. Nourse L J suggested that 'it must be conduct
on which the woman could not reasonably have been expected to embark
unless she was to have an interest in the house', 78 while Sir Nicholas BrowneWilkinson V-C was prepared to accept a less restrictive link when he
suggested that 'any act . . . relating to the joint lives of the parties is . . .
sufficient detriment to qualify. The acts do not have to be inherently
76
77
78
See Lloyds Bank Plc v Rasset [1990] 2 WLR 867 and in next paragraph.
See also Eves v Eves [1975) 1 WLR 1338, Cooke v Head [1972) 2 All ER 38 but compare
Lloyds Bank Plc v Rasset [1990] 2 WLR 867.
See also Midland Bank PLC v Dobson [1986] 1 FLR 171.
135
HONG KONG LAND LAW
referable to the house'. 79 If the acts do indeed not have to be referable to
the acquisition of the house, then there is a possibility that the performance
of domestic duties may qualify as sufficient detriment.
The House of Lords have not ruled out this possibility in the case of:
Lloy~·Bank
PLC
v Ross~t [1990] 2 WLR
867
FACTS
The Rossets brought a semi-derelict property which was acquired in the
name of Mr Rasset, as the purchase price was being provided by a family
trust. Mrs Rasset spent a good deal of time and effort redecorating and
overseeing the renovation of the property, although she made no financial
contribution to the cost of the property or the cost of its renovation. Without
his wife's knowledge, Mr Rasset mortgaged the property and when he failed
to meet the mortgage payments the bank sought possession. Mrs Rasset
argued that she had acquired a beneficial interest in the property to which
the bank took subject.
JUDGMENT
There was no express intention that Mrs Rasset was to have an interest in the
property and her labour was insufficient to establish an inferred intention.
The House of Lords expressly approved Grant v Edwards and expressed
the view that it was 'extremely doubtful' 80 that any less-than-direct
contributions to the purchase price, whether to the initial cost or by
repayment of mortgage instalments, would support an inferred intention
that the property was to be jointly owned. The meeting of household
expenses or physical labour which had been evident in Grant v Edwards
and Eves v Eves 'fell far short' 81 of the conduct that would support the
inference of a common intention. Such conduct was only sufficient to
provide evidence of detriment where there was direct or express evidence
of a common intention regarding the beneficial ownership of the property.
It is interesting to note Sir Nicholas Browne Wilkinson V-C 's comments
in Grant v Edwards on the similarity between the principles upon which a
resulting or constructive trust may be implied and the doctrine of proprietary
estoppel, and it is evident that there is increasing use of this doctrine in
establishing an interest in the matrimonial home.
at 648G
so at 657B
81
at 877. See also Irvin v Blake 0993) 67 P&CR 263.
79
136
FORMALITIES: THE INTERVENTION OF EQUITY
6.4.7
Quantification
Having established that the parties did have a common intention that the
home be owned jointly the court must establish the proportions in which
the beneficial interest is to be held. It is here that the divergence between
resulting and constructive trust principles is cast into greatest relief. Under
a resulting trust it is the parties' contributions at the time of acquisition which
will govern the proportions of their beneficial interest, while under a
constructive trust it is the common intention of the parties which will govern
the division. The court will often be guided by the parties' respective
financial contributions in inferring this common intention but they are by
no means limited to financial matters; they can take into account all the
circumstances of the case to search out the parties' intentions.
The difference in approach is evident from the case of:
Lui Kam Lau v Leung Ming Fai
FACTS
I I
(
i.
'I
I (
I
The defendant had been the common law husband of a Madam Ng Pui Lin
who had died. Her personal representatives claimed possession of premises
in which the defendant and Madam Ng had lived, which were registered in
Madam Ng's name. The defendant however claimed that Madam Ng had
held the property on trust for him because he had made substantial
repayments of the mortgage and had eventually redeemed the mortgage,
at her request.
JUDGMENT
The defendant was entitled to remain in possession of the premises as he
was entitled to a half share in the premises.
The court was not entirely clear in their appreciation of the distinction
between a resulting and constructive trust: they did first seek to view the
situation from the point of resulting trusts where the presumption of
advancement could have given rise to the presumption that the defendant
intended the mortgage repayments to be a gift to Madam Ng. The court
however rejected that approach in favour of finding a constructive trust
based upon possibly a direct, but in any event, an inferred, common
intention by reason of the substantial direct contributions to the purchase
price. Under this trust the defendant was entitled to a half share in the
premises, although his contributions represented a slightly lesser proportion.
But what if it is clear that the parties never discussed or intended any
agreement of how they would share ownership of their home? At one time
it appeared clear that the courts would not intervene in these circumstances
137
I
,.I
r
HONG KONG LAND LAW
to infer an intention the parties never had, but a change of attitude can be
detected in:82
FACTS
Mr and Mrs Cooke married in 1971 and moved into a house bought for
£8,500 in Mr Cooke's sole name: his wife was under age at the time and thus
could not hold the legal estate in the house. The purchase was financed with
a mortgage of £6,450 and the balance was paid from the husband's savings
and a wedding gift from his parents of £1,100. In 1978 the mortgage was
replaced by a mortgage to the bank which also secured the husband's
company's overdraft. In 1979 Mrs Cooke was persuaded to consent to this
mortgage taking priority to any interest she might have. The property was
subsequently transferred to the joint names of Mr and Mrs Cooke. In 1987
the bank sought possession of the house as the mortgage repayments were
in arrears. At first instance Mrs Cooke established that the mortgage should
be set aside against her share, on the grounds that her consent had been
obtained by undue influence, but the court held that her share in the house
was only 6.74%, being her direct contribution to the house, ie her share of
the wedding gift of £550. The parties both admitted that they gave no
consideration as to how the property should be held at the time of
acquisition and no common intention could be implied from subsequent
conduct, as Mrs Cooke, although she had carried out repairs and
improvements to the house and had paid certain household bills, had not
made any contribution to the mortgage repayments.
JUDGMENT
Although the parties had not discussed the ownership of their home, it was clear
that their presumed intention was to hold the property equally, which was
reinforced by their subsequent transfer of the property into their joint names
The Court of Appeal refused to accept that positive evidence that the
parties never discussed nor intended any agreement as .to the proportions
of their beneficial interests precluded them from inferring one. They noted
that the Cookes' attitude was typical of 'hundreds, perhaps thousands of
others .... There will inevitably be numerous couples, married or unmarried,
who have no discussion about ownership and who, perhaps advisedly,
make no agreement about it.' The court felt that it would be 'anomalous'
to put such couples 'beyond the pale of equity's assistance ... just because
they were honest enough to admit that they never gave ownership a
thought.' 83
138
l
82
McHardy and Sons (a firm) v Warren (1994] 2 FLR 338
83
at 571 per Waite LJ
FORMALITIES: THE INTERVENTION OF EQUITY
The court in taking this approach had to reconcile the case of Springette
v Defoe 84 in which the court applied strict resulting trust principles to
apportion the beneficial ownership in the home according to the parties'
financial contributions, when it was clear that the parties had never
considered how they would hold their beneficial interests. The court did so
by resorting to Gissing v Gissing and Grant v Edwards from which they drew
the principle that the court should seek to determine the proportions in
which the parties are to hold their beneficial interests by looking at what
the parties 'must be assumed to have intended' .85 To do so the court should
undertake a survey of the whole of the course of dealings between the
parties and would not confine itself to the limited range of acts of direct
contribution of the sort that are needed to found a common intention. It is
to be remembered that Mrs Cooke did not have to establish that there was
an intention that she have an interest in the house, that was clear from her
contribution to the deposit and the subsequent transfer of the house into
her and her husband's joint names. What she was seeking to establish was
the quantification of her share in the common ownership.
6.5 ~Propri~
One of the most important developments in land law in recent years has
been the emergence of the doctrine of proprietary estoppel. The parameters
of the doctrine are as yet ill-defined, but the doctrine is firmly established
as a source of an equity based upon estoppel. 86 That equity may arise where
A has actedto his detriment as a result of a beHef, whic:h ~as known to and
enc;u-~~g;c:iJ;;,B, that h~-eith~;-h~i~~
in or over
'ifs prop_e,rty.In these circumsta~~~s B ~ill be e;t;pp~d fr;~-~i~rcising his
-rights-if to do so would be inconsistent with A's belief. Three distinct
elements can be identified, which we will have to examine in a little more
detail: (1) a representation or assurance by B which is (2) relied on by A
who (3) as a result acts to his detriment. However, before we examine these
elements it is important to trace the development of the doctrine.
i;-g~i~g"t~-b~-gi;;;~~-right
6.5.l Development of Proprietary Estoppel
Proprietary estoppel may have come to prominence only in recent years,
but it has its origins in the 19th century. An early example can be found in
the case of:
84
[1992] 2 FLR 388
85
at 570 per Waite LJ
The most recent attempt to establish the parameters of the doctrine is to be found in
the judgment of the High Court of Australia in Commonwealth of Australia v
Verwayen 0990) 170 CLR 394.
86
139
HONG KONG LAND LAW
----------Dillwyn v Llewelyn (1862) 4 De G F & J 517
FACTS
The plaintiff's father allowed his son to build a house on land the father
owned. The understanding was that the father would give the land to his
son. He signed a memorandum to that effect, but he failed to execute the
formal deed necessary to transfer ownership. When the father died it was
discovered that the land was left in his will to his widow. His son claimed
he was entitled to the land.
JUDGMENT
The son was entitled to the land. Although equity would not normally assist
a volunteer to perfect an imperfect gift, the son had suffered detriment in
building the house -which supplied the consideration necessary to claim
performance of the memorandum.
The analogy to part performance in Dillwyn v Llewelyn is obvious, but
subsequent cases moved away from this analogy to a clearer identification
of a distinct doctrine. The classic exposition of this is found in the case of:
Ramsden v Dyson (1866) LR 1 HL 129
FACTS
The respondents, Dyson and an associate, agreed to take a grant of land
from Sir John Ramsden and a rent was fixed. The respondents built on the
land and subsequently claimed that they believed, as a result of the words
and action of Sir John Ramsden and his agents, that the grant of land would
be for a renewable lease of twenty years rather than the tenancy from year
to year offered by Sir John Ramsden.
JUDGMENT
The respondents were only entitled to a tenancy from year to year.
6.5.1.1
Common Expectation Approach
Although the respondent's claim was rejected on the facts, the judgment of
Lord Kingswood, who dissented, contains a classic exposition of the
doctrine:
140
FORMALITIES: THE INTERVENTION OF EQUITY
I
I
I
[
If a man, under a verbal agreement with a landlord for a certain
interest in land or, what amounts to the same thing, under an
expectation, created or encouraged by the landlord, that he shall
have a certain interest, takes possession of such land, with the
consent of the landlord, and upon the faith of such promise or •
expectation, with the knowledge of the landlord, and without
objection by him, lays out money upon the land, a Court of equity 1
will compel the landlorgtg_give effect to such promise or expectation. 87 l
I
...
·~ ,., )
Lord Kingswood frames his explanation in the context of a landlord and
tenant relationship, but the doctrine has a general application. The basis of
the claimant's belief is a common understanding or expectation that is
encouraged by the owner. Both the claimant and the owner originally share
a common belief from which equity will prevent the owner withdrawing
where the claimant has relied on that common understanding to his
detriment. An example of the 'common expectation' approach identified by
Lord Kingswood is found in:
j
,
iiilP! ....
·~
1% ~··
·•·
·•,-,
~ ,.
,
,
-ii
Plimmer v Wellington Corporation (1884) 9 App Cas 699
FACTS
i
•
I
Plimmer was a licensee of land under a revocable licence from the
Wellington Corporation. At the request of the corporation he went to
considerable expense to erect an extension to the jetty he had built on the
land. The jetty was subsequently requisitioned and Plimmer claimed
compensation on the basis that he had an estate or interest in the land and
not merely a revocable licence.
JUDGMENT
As a result of the corporation's request Plimmer had acted to his detriment
in the belief that his licence would not be terminated. Equity would thus not
. stand by and allow the corporation to revoke his licence, and so for the
purposes of compensation Plimmer's licence was irrevocable.
6.5.1.2
Acquiescence Approach
Lord Cranworth in Ramsden v Dyson identified a slightly different scenario
from the common expectation approach adopted by Lord Kingsdown in
which equity might invervene:
87
(1886) LR 1 HL 129 at 170
141
HONG KONG LAND LAW
If a stranger begins to build on my land supposing it to be his own,
and I, perceiving his mistake, abstain from setting him right, and
leave him to persevere in his error, a Court of equity will not allow
me afterwards to assert my title to the land on which he had
expended money on the supposition that the land was his own. 88
Here it is the mistaken belief of the claimant, of which the owner is aware
but does nothing to correct, that results in the claimant acting to his
detriment. The equity in this instance springs from the owner's failure to
correct the claimant's mistaken belief, and is accordingly often referred to
as an 'equity of acquiescence'.
6.5.1.3
The Five Probanda
It has been Lord Cranworth's 'acquiescence' approach that has dominated
the development of proprietary estoppel, due to the much quoted five
probanda identified by Fry Jin Wilmott v Barber 89 as the elements necessary
to establish a claim over land by an estoppel. These five probanda are:
• the claimant must have made a mistake as to his legal rights;
• the claimant must have expended some money or carried out some act
on the faith of his mistaken belief;
• the owner must know of the existence of his own right, which is
inconsistent with the right claimed by the claimant;
• the owner must know of the claimant's mistaken belief of his rights; and
• the owner must have encouraged the claimant in his expenditure of
money or in other acts which he has done, either directly or by
abstaining from asserting his legal rights.
These probanda clearly relate to instances of estoppel arising from
acquiescence, where the claimant mistakenly believes that he is entitled to
certain rights and the owner of the land is aware of that mistaken belief but
does nothing to disabuse the claimant, even when the claimant acts to his
detriment. But they do not accommodate instances when an estoppel may
arise as a result of a common expectation from which the owner seeks to
renege after the claimant has acted to his detriment. In these circumstances
the owner may not be aware of his own rights that are inconsistent with
those of the claimant, or he may not know of the claimant's mistaken belief
or the claimant's detriment.
Nevertheless, these five probanda have been taken up and repeated in
many subsequent cases, even though they have not always been satisfied
on the facts before the court. 90
Ii
88
89
90
142
(1886) LR 1 HL 129 at 140
(1880) 15 Ch 96
Matharu v Matharu 0994) 68 P&CR 93
FORMALITIES: THE INTERVENTION OF EQUITY
Crabb v Arun District Council [1976] Ch 179
FACTS
i
1
Crabb owned some land, the access to which was by way of a road owned
by the defendants. Crabb decided to divide his land into two parts and to
sell them separately. He met with the defendants and it was agreed that the
defendants would grant the necessary additional rights of access. No formal
agreement was entered into, but the defendants fenced the land, providing
access points as had been agreed. Crabb sold a part of the land but, relying
on his agreement with the defendants, did not reserve any right of way over
the land sold for the benefit of the land retained. Differences arose between
the parties and the defendants blocked the agreed access point to the land
Crabb had retained, and refused to grant Crabb the necessary access to this
land unless he paid them £3,000.
JUDGMENT
Crabb was entitled in equity to the right of way without payment.
'I
In deciding whether the equity was established, Scarman LJpurported
to apply the five probanda, but whilst he was in no doubt that the first four
had been established there was a question over the fifth: the defendants had
no knowledge that Crabb had sold off part of the land and thus acted to his
detriment by leaving the retained land with no access. The case does,
however, fit happily into the common expectation category. Both parties
had reached an understanding that Crabb was to have the necessary access
rights. The defendants, however, were seeking to withdraw from their
commitment in view of the differences that arose and despite the
encouragement that they had given to Crabb, both by the understanding
itself and by their own fencing works, which had been conducted with that
understanding in mind. Indeed, Scarman LJnot only cited the five probanda
but also Lord Kingswood's statement of the law.
6.5.1.4
The Modern Trend
The difficulty of fulfilling all the five probanda has become increasingly
obvious, and the courts have shown a willingness to relax their strict
application and adopt a more general test of detrimental reliance. This trend
is identified in the case of:
143
HONG KONG LAND LAW
nw,rn,'ln,
Victoria Trustees Co
[1982] QB 133
FACTS
The plaintiffs held a lease that granted them an option to renew that was
not registered because it was not thought necessary. The landlords assigned
the reversion to the defendants. The plaintiffs, believing the option to be
enforceable against the defendants, incurred substantial expenditure on
improvements to the premises. Some years later a case established that an
option to renew should be registered in order to bind a subsequent
landlord. The plaintiff's option was thus void against the defendants, who
refused to renew the lease. The plaintiffs sought to argue that the defendants
were estopped from refusing to renew the lease, for they had stood by and
allowed them to incur expenditure.
JUDGMENT
The plaintiffs failed to establish a right to renew the lease based on
proprietary estoppel as there was no evidence that the defendants had
encouraged them to believe the lease would be renewed. That belief arose
from a common mistake.
A distinction was drawn between an estoppel arising by acquiescence
where the owner had acquiesced or failed to disabuse a claimant of a
mistaken belief, and an estoppel by representation where the owner has
actively encouraged the claimant in a belief from which he subsequently
seeks to withdraw. Oliver J was of the view that Fry's five probanda were
only relevant, if at all, to the acquiescence cases where there was some
obligation on the owner to inform the claimant of his mistake, which he
could clearly only do if he was aware of that mistake. Indeed, Oliver
preferred:
a very much broader approach which is directed rather at
ascertaining whether, in particular individual circumstances, it would
be unconscionable for a party to be permitted to deny that which,
knowingly, or unknowingly, he has allowed or encouraged another to
assume to his detriment than to inquiring whether the circumstances
can be fitted within the confines of some preconceived formula serving
as a universal yardstick for every form of unconscionable behaviour. 91
A slavish adherence to the five probanda thus appears to be on the wane.
For instance, in Re Basham Dec 'd 92 and Maharaj v Chand 93 a more flexible
91
92
93
144
[1981] 2 WLR 576 at 593D
[1986] 1 WLR 149B
[1986] 3 All ER 107
FORMALITIES: THE INTERVENTION OF EQUITY
approach is evident; but there have been occasions when the courts have
clung to its strictures. 94
Elements of Proprietary Estoppel
6.5.2
There are three elements that we must look at:
• assurance,
• reliance, and
• detriment.
6.5.2.1
Assurance
There must have been some assurance as to the claimant's present or future
rights given by the person against whom the estoppel is raised. If there is
no assurance, promise, or representation, then there is nothing to be
estopped. This was the problem for the Hong Kong Government in:
----■
AG of Hong Kong v Humprey's Estate (Queen's Gardens) Ltd
[1987] AC 114
FACTS
I
I I
The government and Hong Kong Land entered into an agreement in
principle to enter into a land exchange by which Hong Kong Land would
obtain a grant of land on May Road in exchange for a number of apartments
in its Tregunter development which were to be used as government
quarters. The agreement was expressed to be 'subject to contract' and
negotiations continued. In the expectation that the agreement would be
implemented, government servants were allowed a licence to occupy the
Tregunter apartments and Hong Kong Land paid the agreed difference in
value of the exchange and was given a revocable licence of the site of the
proposed new grant to allow them to demolish the existing buildings. The
property market fell and Hong Kong Land decided to withdraw from the
proposed exchange and reclaim the money they had paid. The government
claimed that they should be estopped from doing so.
JUDGMENT
The agreement between the government and Hong Kong Land was not
binding and Hong Kong Land had not made any representations or
encouraged the government to believe that it was binding. The government
had merely acted in the hope that the agreement would be performed but
that was a hope that had not been encouraged by Hong Kong Land who had
not done anything to compromise their right to withdraw from the agreement.
94
See for instance Coombe v Smith (1986] 1 WLR 808.
145
HONG KONG LAND LAW
The assurance must be given by the owner of the land or one of his
employees or agents. For instance, in Crabb v A run District Counci/ 95 it was
the employees of the council who assured Crabb that he would be granted
the access rights he required and in Matharu v Mathanf 6 it was a husband's
assurance to his wife that his father's house was their home that gave rise
to an estoppel when the father tried to evict the wife.
The rights that may be promised are many: for instance an outright
disposal of ownership, 97 the grant of a licence to occupy, 98 a lease, 99 and an
easement. 100 The rights must, however, relate to land and be within the
capacity of the owner to grant - although it appears that a claim may
succeed even if the property is not clearly identified or the rights promised
are future rights over such property.
FACTS
The deceased's stepdaughter had worked for the deceased for some thirty
years without payment. After her mother died, she and her husband looked
after the deceased. On several occasions she and her family had considered
moving away but was dissuaded by her stepfather, who constantly assured
the plaintiff that she would lose nothing by staying and looking after and
working for him. A few days before her stepfather died, he indicated that
he wished to make a will in which he would leave his house to his
stepdaughter and some money to her son. However, he failed to do so and
died intestate, his estate passing to other relatives.
JUDGMENT
The stepdaughter was entitled to the deceased's residuary estate. She had
acted to her detriment on the faith of a belief that was encouraged by the
deceased that she was going to have certain rights over his property after
his death.
•I
i
The court felt that the stepdaughter's claim should not fail either because
the rights promised could only arise in the future, ie after the stepfather's
death, or because they were over property that at the time of the
representations was not yet ascertained, ie the stepfather's estate. Neither
of these factors affected the unconscionable nature of the stepfather's
95
96
I
97
98
99
100
l·i
146
[1976] Ch 179
(1994) The Times 13 May. The family were Indian and the court was persuaded that
in the context of the family's cultural background anything said by the son to his wife
would have the authority of the father.
For example Dillwyn v Llewelyn (1862) 4 De GF & J5A
For example Greasley v Cooke [1980] 1 WLR 1306
For example Griffiths v Williams 0977) 248 Estates Gaz 947
For example Crabb v Arun District Council [1976] Ch 179
FORMALITIES: THE INTERVENTION OF EQUITY
II
conduct on which the estoppel was based. However, vague promises of
being looked after that are not related to any particular property or
assurances of probable future entitlement are unlikely to succeed.
The assurance will usually take the form of an express promise, but in
the instance of an estoppel arising by acquiescence the owner's mere
silence may constitute the necessary assurance. If the owner is aware of the
claimant's mistaken belief and his own inconsistent rights, he has a duty to
stop the claimant relying on his mistaken belief to his detriment. He cannot
stand by and reap the benefits of the claimant's mistaken belief. For
instance, in Taylor Fashions, 101 if the mistaken belief as to the validity of the
option to renew had only been the lessee's, then the landlord would have
been under a duty to prevent them incurring expenditure on improvements
as a result of that mistaken belief.
6.5.2.2
Reliance
The claimant must have relied upon the owner's assurance and as a result
acted to his detriment. The claimant's reliance thus forms a vital link
between the owner's assurance and the detriment suffered by the claimant.
For instance, in Taylor Fashions1°2 there was a suggestion that the lessees
would have undertaken the improvements in any event. This causal link can
present particular problems in the domestic situation where the acts of
detriment relied on are not financial in nature but are in the form of personal
hardship, which it might be said the claimant undertook not because of the
owner's assurances but because of the close relationship between the
owner and the claimant.
Greasley v Cooke [1980] 1 WLR
1306
FACTS
Miss Cooke went to work for the Greasley family as a maid at the age of 16.
She worked for the family for 43 years. For 28 of these years she looked after
a mentally retarded daughter of the family and for 29 years she was the
mistress of one of the sons. For the first fifteen years she received payment,
but after the father of the family died she received no money because she
was encouraged to believe that she could live in the house for the rest of
her life. Subsequently the family sought to evict her.
JUDGMENT
Miss Cooke was entitled to remain in the house for as long as she wished
despite allegations that there was insufficient evidence that she had acted as
she did because of a belief that she would be entitled to remain at the house.
101
[1982] QB 133
102
Ibid.
147
HONG KONG LAND LAW
Lord Denning MR was of the view that there was a presumption that the
claimant had acted to her detriment in reliance on the owner's assurances,
and that the burden of proof was on the owner to prove that this was not
the case. Lord Denning's views have not been supported wholeheartedly.
For instance, the Privy Council in AG of Hong Kong v Humprey's Estate
(Queen's Garden) Ltd 103 appear to have placed the burden of proof back
on the claimant, although they also acknowledged in Lim Teng Huan v Ang
Swee Chuan 104 that reliance may be an 'inevitable inference' from the
claimant's actions. Nevertheless in GrantvEdwards 105 Sir Nicholas BrowneWilkinson V-C suggested that setting up house, having a baby, and meeting
general household expenses might constitute sufficient detriment even
though they might be more directly referable to the 'mutual love and
affection of the parties and not specifically referable to the claimant's belief
that she had an interest in the house.' 106
It is important that the owner be aware that the claimant may act upon his
assurances to his detriment. This knowledge may arise either because the
owner actually knows that the claimant is relying on the assurance to his
detriment or because the assurance was made with the intention that it be
relied upon. For instance, in Crabb v Arun District Council 107 the council did
not know that Crabb had sold part of his land in reliance on the assurance
that access would be granted. Nevertheless, an estoppel was established
because the council was aware that Crabb might well rely on their negotiations.
6.5.2.3
Detriment
The classic form of detriment is the expenditure of money on the land,
whether by way of building or by the improvement of an existing building.
More recently there has been the case of: 108
Lim Teng Huan v Ang Swee Chuan [1992] 1 WLR 113
FACTS
The plaintiff and defendant jointly purchased land in Brunei. The defendant
decided to build a house on the land and at his own expense started
building work. When the house was partially completed, the parties entered
into a written agreement in which the plaintiff acknowledged that the
building was with his consent and agreed that he would exchange his
interest in the land for unspecified land which the defendant expected to
acquire from the government. The defendant completed the house and
I03
104
105
106
107
108
148
[1987) AC 114 at 124D per Lord Templeman
[1992) 1 WLR 113 at 118D per Lord Browne-Wilkinson
[1986) 1 WLR 808
See also Maharaj v Chand [1986) 3 All ER 107 but compare Coombe v Smith [1987)
1 WLR 808.
[1979) Ch 179
See also Voyce v Voyce (1991) 62 P&CR 290.
FORMALITIES: THE INTERVENTION OF EQUITY
went into occupation. The plaintiff then sought a declaration that he was
the owner of a half share in the land.
JUDGMENT
Although the agreement was unenforcable it did show the parties'
intentions regarding the ownership of the land upon which the defendant
had acted in completing his construction of the house and taking up
occupation. The plaintiff would accordingly be estopped from denying that
the defendant was entitled to the sole ownership of the land subject to the
payment of compensation.
We have already looked at the examples of Dillwyn v Llewelyn, 109
Plimmer v Wellington Corporation, 110 or, in Hong Kong, Citibank NA v Lai
Tat-chee. 111 It is clear that other acts may be acceptable although they do
not involve monetary expenditure. In Greasley v Cooke, Lord Denning MR
indicated that: 'It is sufficient if the party to whom the assurance is given
acts on the faith of it in such circumstances that it would be unjust and
inequitable for the party making the assurances to go back upon it.' 112
In that case the detriment was long service without wages and, in effect,
foregoing an independent life outside the employer's family. In Re Basham
Dec 'd 113 it was also long service without wages and lost opportunities that
constituted the necessary detriment. The acceptance of non-financial
detriment provides an alternative and possibly easier ground for claiming
an interest in the matrimonial home than the traditional constructive trust
route that we have examined. An example is found in the case of:
ER 107
FACTS
The plaintiff was granted a sublease of land by the Fiji Native Land Trust.
The plaintiff told the defendant that the house he had built on the land
would be a home for her and her children, one of whom was fathered by
the plaintiff. The defendant gave up her flat and moved into the house and
looked after the plaintiff and the children. She also contributed to the
household expenses from her earnings, The plaintiff left the defendant but
told her she could stay in the house. He later sought to evict her.
109 (1862) 4 De G F &J 517
no (1884) 9 App Cas 699
111 [1986] 2HKLR 855
112 [1980] 1 WLR 1306 at 309
113 [1986] 1 WLR 1948
149
HONG KONG LAND LAW
JUDGMENT
The plaintiff was estopped from evicting the defendant. Upon reliance on
the plaintiff's assurances the defendant had acted to her detriment in giving
up her former home, supporting the plaintiff's application for land from the
Fiji Native Land Trust, paying household expenses, and looking after the
plaintiff and their children.
II
Non-financial detriment need not revolve around personal hardship it may take many forms. For instance, in Crabb v A run District Council 114
it was acting in such a way as to leave the claimant's retained land without
access.
Despite the courts' acceptance of a broad test of detriment in terms of
inequitable conduct, it would be a mistake to think that it is an easy test
to pass. As the cases illustrate, the courts are cautious in their application
of the test, for an owner's rights will not be limited without very careful
consideration. All the circumstances must be considered by the court,
including the benefits, for instance by way of rent free accommodation, that
the claimant has obtained as well as the detriment he has suffered. All in
all it is often obvious that the enforcement of the owner's strict legal rights
would be inequitable, and where there is room for doubt the courts will
be reluctant to intervene unless the remedy awarded can be tailored to
balance the parties' interests.
i
I
'.
ii
l
6.5.3
Remedies
Having established that an equity exists, the question then arises as to how
that equity is to be satisfied. Here the courts have shown themselves at their
most flexible in applying the principle established in Plimmerv Wellington
Corporation that 'the Court must look at the circumstances in each case to
decide in what way the equity can be satisfied'. 115
There are evident from the cases two different approaches that the
courts have adopted in deciding what remedy is appropriate. The first has
been to seek to satisfy the expectation raised by the assurance given to the
claimant and the second to compensate the claimant for the detriment that
they have suffered in reliance on the assurance. On occasions the two
approaches may lead to the same conclusion, but not always. Divergence
is particularly likely to emerge where the detriment suffered is small
compared with the assurance made and it is clear that the court will not
sanction redress which is out of proportion to the detriment suffered they must seek 'the minimum equity to do justice' _116
It may be sufficient for the courts to protect the equity in a negative
fashion by refusing to grant the owner a right to possession that he would
114
115
116
150
[1976] Ch 179
(1884) 9 App Cas 699 at 714
Crabb v A run District Council [1976] Ch 179 at 198 per Scarman LJ
FORMALITIES: THE INTERVENTION OF EQUITY
otherwise have enjoyed. But one factor that distinguishes proprietary
estoppel from promissory estoppel is that the courts have been prepared
to go further and positively protect an equity arising by estoppel by the grant
of a proprietary interest. Proprietary estoppel may thus be used as a sword
as well as a shield. It is completely within the discretion of the court to
decided the nature of the remedy to grant the claimant.
6.5.3.1
Injunction to· Restrain
Where it is sufficient to merely stop the owner from exercising a right to which
he would otherwise be entitled, the courts will protect the equity by the grant
of an injunction restraining the owner from exercising his rights of ownership.
Most commonly that right is the right to claim possession from the claimant.
ll!illlli!'!!!!!!'.!~,
,;, ,. _-.-~,~'""'"::,:..,.,.i!!l;:
.. ,I
•Et_,!!!!!I!!!.\\:i
Inwards v Baker [1965] 2 QB 29
FACTS
A son wished to build a bungalow but could not afford to buy any land. His
father suggested the bungalow be built on his land. The son did so, and went
into occupation under the impression that he could stay as long as he wished.
The father died and his personal representatives sought to evict the son.
JUDGMENT
The son was entitled to remain as long as he wished.
6.5.3.2
Entitlement to Money
The court may, in effect, order the repayment of the detriment the claimant
has suffered in money terms. Repayment may be secured by a charge over
the land as in the case of:
i,dlii1~1it
..,....
,11ili;J,,_ ....
,~,iiilr::
...i2l'""'iiiii!'!lllllllii-9!!,.,J.\ib,.1,,.iii•
:~.:~.,.~ ••
!Ill,.,~
Chalmers v Pardoe [1963] 1 WLR 677
FACTS
The plaintiff held a lease of land in Fiji. The defendant built a residence on
the land as a result of an agreement that the plaintiff would sublet the land
to the defendant on receiving the necessary consent from his landlord, a
government body. The parties quarrelled and the plaintiff refused to seek
consent.
151
HONG KONG IAND IA W
JUDGMENT
The plaintiff should be estopped from denying his agreement, but as the
court could not order him to grant the sublease he was ordered to repay
the cost of the building to be secured by a charge over the land.
The repayment of money may also be secured by protecting the
claimant's right to stay until repayment is received. 117
Dodsworth v Dodsworth 0973) 228 Estates Gazette 1115
FACTS
The defendant accepted an invitation from his sister for he and his wife to
go and live with her in her bungalow. The defendant and his wife spent
money on improvements and the defendant did considerable work on the
bungalow in the expectation that they would be able to stay as long as they
wished. After a while the sister regretted her invitation and tried to evict the
defendant and his wife.
JUDGMENT
The defendant and his wife should be entitled to reimbursement of £700
and eviction would be ordered when they had been repaid.
In establishing the compensation due to the claimant it may be inappropriate
to take into account outside factors which have mitigated the detriment
suffered:
Baker v Baker (1993) 25 HLR 408
FACTS
Mr Baker left his public housing to live with his son and his family. He gave
almost £34,000 to help his son buy a new home in which t;hey were to all
live on the understanding that he would have his own rent-free room in
the new home. The arrangement worked well until his daughter-in-law
falsely accused Mr Baker of molesting her daughter. He left the home and
after a period in temporary accommodation secured a public housing unit
in which he was very happy.
117
152
See also Re Sharpe [1980] 1 WW 219.
FORMALITIES: THE INTERVENTION OF EQUITY
JUDGMENT
Mr Baker was entitled to compensation for the loss of rent-free accommodation
for the rest of his life. This compensation was to be measured at the time
he left his son's home and was not to be reduced by the fact that he had
since obtained other accommodation. It was wrong in principle to take into
account a public benefit in satisfaction of a private equitable right.
6.5.3.3
Entitlement to Remain
Where the courts feel that the occupation of the claimant should remain
undisturbed, they have not only rejected the owner's claim to possession
but have also declared the claimant entitled to remain in occupation for a
given period. For instance, in Greasley v Cooke 118 Miss Cooke was allowed
to stay in the property for the rest of her life.
In England the grant of a right to occupy for life gives rise to technical
problems in the light of the Settled Land Act 1925, but in Hong Kong there
is no problem arising from this or similar legislation. There may, however,
be difficulties given the leasehold nature of land in Hong Kong. Clearly the
claimant cannot claim an interest greater than that enjoyed by the owner.
Thus if the owner's Crown lease is due to expire shortly it is difficult to see
how the claimant's occupation can be protected beyond the term of the
Crown lease, even though the owner may obtain a renewal or re grant of his
Crown lease. Even if the Crown lease has many years to run, there is still
the practical problem that it is impossible to grant a lease for life in Hong
Kong. The solution in these circumstances is to direct that the property be
held in trust for the claimant for life.
6.5.3.4
Entitlement to a Proprietary Interest
The court may also go so far as to order the creation or transfer of a
proprietary interest in the property. For instance, in Crabb v A run District
Council 119 the court ordered the creation of an easement, and in Dillwyn
v Llewelyn 120 and Re Basham Dec 'd,121 the transfer of the property concerned.
Perhaps the most controversial example is to be found in the case of:
Pascoe v Turner
FACTS
Mrs Turner, a widow, become friendly with the plaintiff and after two years
moved into his house as his housekeeper. They subsequently lived together
118
119
120
121
[1980] 1 WLR 1306
[1976] Ch 179
(1862) 4 De G F &J 517
[1986] 1 WLR 1498
153
HONG KONG LAND LAW
as man and wife and moved to another house brought by the plaintiff. In
reliance on the plaintiff's statements that he had given her the house and
contents, Mrs Turner spent money on redecoration, improvement, and repair
of the house. The relationship broke up and the plaintiff sought possession.
JUDGMENT
The plaintiff should be required to transfer the house to Mrs Turner. The
court felt that only a complete transfer of ownership would protect the
claimant's equity in view of her own limited resources and the harassment
that she had suffered at the hands of the plaintiff.
6.S.4
Nature of Proprietary Estoppel
It is impossible to ascertain the exact nature of the equity before the court
has considered whether an equity has been established and how it should
be satisfied. The equity may thus fluctuate prior to its determination by the
court. For instance, in Dodsworth v Dodsworth 122 at first instance the court
refused to grant the defendants a licence to remain, for that would have
forced the parties to live together. But after the sister's death the defendants
reasserted their claim to a right of occupation. In fact the court once more
declined to award such a right, but this time it was because to do so would
unduly prejudice those interested in the sister's estate. The uncertain nature
of an equity arising by estoppel gives rise to a number of issues.
6.S.4.1
Misconduct
An equity arising by estoppel may be affected by misconduct on the part
of the claimant prior to but not after the nature of the equity has been
determined by the court. The effect of misconduct was considered in:
!!!
........ .p~.....
'Williams v Staite [1979] Ch 291
i
~
....oi:-.J!•!•ij
FACTS
The Staites were married. Mrs Staites' mother owned two neighbouring
cottages. She lived in one and when the Staites were married she told her
daughter t~at she could have the other cottage as a wedding present and
live there as long as she wished. The Staites took up this offer and Mr Staite
gave up the cottage that went with his job. Mrs Staites' mother died a couple
of years later. Her executors sold both properties to a builder who tried to
evict the Staites, but they successfully resisted his claim and in a previous
court action had been awarded a right to occupy the cottage for life by way
of proprietary estoppel. The builder sold both cottages to Mr Williams who
122
I
A
154
(1973) 228 Est Gaz 1115
FORMALITIES: THE INTERVENTION OF EQUITY
moved into the other cottage. Arguments arose between Mr Williams and
the Staites over the use of a paddock that went with the cottages. During
these arguments the Staites were guilty of certain misconduct, and Mr
Williams claimed that as a result their equitable licence to occupy was
revoked and he was entitled to possession.
JUDGMENT
The Staites' equitable licence to occupy was not revoked
subsequent misconduct.
by their
Lord Denning MR felt that in extreme circumstances where other
remedies, eg nuisance or trespass, had failed, an equitable licence by
estoppel might be revoked - but this was not such a case. The court did,
however, observe that misconduct or some other change in relevant
circumstances could affect an equity prior to its determination by the court.
6.5.4.2
Priority
It is clear from the case of Williams v Staite that once the court has
determined that an interest has arisen by proprietary estoppel it will bind
third parties in the same way as an interest created according to the requisite
statutory formalities. It is as if the court order awarding the interest takes the
place of the instrument. The extent to which an equity arising by estoppel
will affect third parties prior to the determination of the nature of the equity
by the court is uncertain. It seems clear that the equity will bind a third party
who has actual notice, 123 but it is less clear first, whether a purchaser with
constructive notice will be bound, and second, whether the holder of a
subsequent equitable interest will be bound regardless of notice. According
to the traditional rules we have examined in Chapter 2, there would seem
no reason why a purchaser should not be bound even if he has only
constructive notice. The difficulty is that the purchaser will not know nor
will he be able to find out what he is bound by until the court determines
the nature of the equity. The holder of a subsequent equitable interest
would be bound regardless of notice if the equity is regarded as equivalent
to an equitable interest, on the basis of the rule that the first interest in time
prevails. But if the equity is classified only as a mere equity, which given
its uncertain nature may well be the case, the priority of a subsequent
equitable interest will also depend on notice.
6.5.4.3
Transferability
It is also uncertain to what extent the benefit of an equity can be transferred
to a third party. If the equity is truly proprietary in nature it should be
capable of passing to third parties, but the close connection between the
123
ER Ives Investment Ltd v High [1967] 2 QB 379
155
HONG KONG ZAND LAW
detriment suffered by the claimant and the nature of the remedy granted
raises doubts about the extent to which a third party can, in effect, claim the
benefit of another person's detriment.
6.5.5
Relationship with Constructive Trusts
Sir Nicholas Browne-Wilkinson V-C in Grant v Edwards 124 noted the
similarity, at least in the matrimonial context, of constructive trusts and
proprietary estoppel. They are both based upon the principle that equity
will prevent a person from asserting his strict legal rights if to do so would be inequitable given his past conduct. But there are differences.
6.5.5.1
Common Intention v Representation
The inequitable conduct upon which a constructive trust is based arises as a
result of the owner reneging on a common understanding between the parties
which must be evidenced by the conduct of both parties. An estoppel may also
arise as a result of the owner going back upon a common understanding, but
that understanding is based upon his representations rather than the conduct
of the claimant. Furthermore, an estoppel may arise where there is no common
understanding but rather a mistaken belief by the claimant that the owner does
nothing to correct, despite being aware of that belief.
6.5.5.2
Detriment
The link between the detriment and representation appears to be more
loosely drawn in the case of estoppel than the link between the common
understanding and detriment in the case of a constructive trust. As a result
a wider range of detriment appears acceptable to support estoppel than a
constructive trust. For instance there is no doubt that domestic hardship may
establish a claim based upon estoppel, while no claim based upon such
hardship has yet succeeded in establishing a constructive trust.
6.5.5.3
Remedies
A constructive trust gives rise to an equitable interest, while proprietary
estoppel may give rise to a whole range of interests - some of which are
clearly proprietary, some less so. Thus while a claimant will be sure of the
nature, although not necessarily the extent, of his interest, under a
constructive trust a claimant based upon estoppel will not even know the
nature of his right until the courts have considered his claim.
124
156
11986] Ch 638
Adverse Possession
7 .1
Introduction
We have examined in the last two chapters how interests in land can be
created and transferred. Another way to acquire ownership of land is
through the operation of the Limitation Ordinance, 1 which lilllits the thµe
within which actions for the recovery of the possession of land can be
brought. In order to understand how the ordinance leads to this result it is
necessary to look at the role of possession in the proof and acquisition of title.
7 .2
Possession
7.2.l
and Title
Relativity of Title
Title to land has historically been based upon possession. If there was a
dispute over the ownership of land the court would decide in favour of the
person who could show that he had the better, ie the earlier, right to
possession. The titles to land are thus relative rather than absolute) If the
owner ofland, A, is dispossessed by B whose occupation is in turn disturbed
by C, then B does not have to prove that he is the owner of the land in order
to take action against C. He merely has to prove that he has a better right
to possession than C. Likewise C cannot argue in his defence to an action
by B that A is the true owner of the land. He cannot claim what is known
as 'jus tertii' or the right of a third party.2 Only A can set up his own better
right to possession in order to defeat B's right to possession. Thus, although
a squatter has no documentary title to the land, he does have a right to
protect his possession against all those who do not have a better right to
possession. This concept of relativity of title is derived from the fact that
historically the actions developed for the recovery of land that were based
upon possession were far more efficient, and thus more popular, than those
actions based upon ownership. Even an owner ofland preferred to base his
claim for repossession of his land upon his better right to possession rather
than his ownership. As a result, actions based upon ownership fell into
disuse and title to land became inextricably linked with possession.
7.2.2
Lim{tation of Actions
An ability to recover the possession of land that was based purely on an
earlier right to possession had its disadvantages. The possibility that an
occupier might be evicted even after he had been in possession of the land
for a considerable time might well discourage him from improving or
developing the land. Even if the occupier was prepared to take the risk and
Cap 347
Tang Chi Ho v Wong Yuk Ho & others 0996) CA Civ App No 198 q 1995
157
l'J
I
HONG KONG LAND LAW
invest his labour in developing the land, he might be unable to persuade
banks or other financial institutions to invest their money so he could
develop the land to its full potential. There was also the difficulty of bringing
an action to court that was based upon evidence of events that had taken
place a long time ago. Accordingly, the holder of a prior title even at
common law had to bring his action for possession within a specified time
known as the 'limitation period'. The common law rules have now been
superseded by the st~tutory time limits which are contained in the
Limitation Ordinance. 3
7 .2.3
Nature c!f Title by Adverse Possession
If an owner cannot bring an action to evict a squatter because the period
during which he is permitted to bring an action has expired, then the
squatter can rest secure in the knowledge that there is no one with a prior
title that can evict him. His right to possession cannot then be disputed by
anyone. The Limitation Ordinance, in fact, goes further than preventing the
owner from bringing any action: it actually extinguishes his title or
ownership of the land. 4 In this somewhat negative fashion the squatter has
acquired the undisputed title or ownership of the land. He is not a purchaser
or even a transferee of the owner's estate and cannot, for instance, claim
free of prior interests that have not been registered or of which he has no
notice. He acquires a separate estate upon his assumption of possession
which, ortce the limitation period has expired, cannot be defeated. It is an
estate that the squatter is able to transfer or dispose of during in his lifetime
or by his will and will pass on his intestacy. Interestingly, the estate acquired
appears to be a fee simple estate, subject in the case of leasehold land to
the right of re-entry of _the landlord ..
7.2.4
Proof of Title
The importance of possession in establishing ownership is reflected in the
procedure for proof of title to land. A vendor proves his title to land to a
purchaser by establishing his right to possession of the land for the period
considered sufficient to exclude any reasonable probability of a superior
adverse claim. This period is known as the 'title period'. At common law the
title period is at least 60 years, but this period has now been reduced to 15
years. 5
7.3
Limitation Periods
The Limitation Ordinance 6 provides that the limitation period for actions
brought for the recovery of land by the Crown is 60 years, and by any other
---
·--.
-
Ibid.
Sees 10 of Cap 347.
See s 13 of the Conveyancing and Property Ordinance Cap 219.
See s 7 of Cap 347.
158
1
ADVERSE POSSESSION
person the period is.2Q_yearswhere the right of action accrued bt::fo_Le
lJuly
1991 and.12 years where the right of action accrued after 1 July 1991.7 This
reduction of the limitation period will bring Hong Kong int~-Iine with the
limitation period in England, which has been 12 years since 1874.8
Other limitation periods of importance are the periods of six years for
actions on a simple contract or on a tort, as well as for the recovery of arrears
of rent; 9 and 12 years for actions on a specialty, which include covenants
relating to land that are contained in a deed, for instance a lease under seal
or deed of mutual covenant. 10
The limitation period in respect of actions brought upon a mortgage
generally follow the 2o~year period, which is also to be reduced to 12 years
for actions accruing after 1 July 1991.11Thus a mortgagee must sue foi:
repayment of the principal sum advanced under the mortgage or claim the
exercise of his powers for recovery of this sum within 20 or 12 years, 12 as
appropriate, of the due date for repayment. 13
r.,,,11::
:11111,~
Tang Kun Nin v Tang Chun Cbak 0992) HCt MP No 761 of 1991
FACTS
The plaintiffs had succeeded to property from their father who in turn had
succeeded to the property from his father, the plaintiffs' grandfather. In
1917, the plaintiffs' grandfather had mortgaged the property for $40,
repayment being due in 1919. At least since 1962, when the plaintiffs
inherited the property, there had been no repayment or demand for
payment.
JUDGMENT
The time for enforcement of repayment of the principal and interest had
expired as had the time for bringing a foreclosure action or other
enforcement remedy. Accordingly the plaintiffs were entitled to a declaration that the mortgage had been discharged.
A claim for the repayment of interest due on the mortgage debt,
however, must be brought within six years. A mortgagor will also lose his
right to repay the mortgage debt and recover his property if the mortgagee
in exercise of his powers goes into possession of the property and for a
period of 20 or 12 years, as appropriate, the mortgagor fails to repay any
8
9
10
11
13
See
See
See
See
See
See
Limitation
Limitation
(Amendment) Ordinance 1991.
Act 1874.
s 4 of the Limitation Ordinance Cap 347.
s 4(3) of the Limitation Ordinance Cap 347.
s 19 of the Limitation Ordinance Cap 347.
also Fung Kam Cheung v Kwok Yiu Wing [1991] 1 HKC 321 and CastleCity Ltd v
Choi Yue Development Ltd [19951 2 HKC 593.
159
HONG KONG LAND LAW
part of the mortgage debt or assert his right to redeem the property. 14 In
either situation an acknowledgement by one party of the rights of the other,
for instance the payment or acceptance of any money due under the
mortgage, may start the period running again.
7.3.1
Accrual of Right of Action
Section 8(1) of the Limitation Ordinance1 5 provides that the tig_ht_ofacti_on,
to re~_oyerland accrues from the time of dispossession or the discontinuance
9L_p9_s~essicm.
It is, however, clear that time will not begin to run until there
is someone in adverse possession of the land from whom the owner can
seek possession .. Dispossession of the land by its nature implies that
someone else has taken possession, but where an owner has discontinued
or abandoned his possession nobody may have immediately followed into
possession. In these circumstances time will not run from the discontinuance
of possession but from the time adverse possession is taken by a squatter.
There must be someone against whom action can be taken. 16
The reduction of the limitation period from 20 years to 12 years
introduced by the Limitation (Amendment) Ordinance results in two
limitation periods depending on when adverse possession started. Where
the adverse possession commenced before 1July 1991, the limitation period
is still 20 years. The amending ordinance does not, in other words, affect
an existing cause of action, and the owner still has 20 years in which to assert
his prior title against the squatter. It is only where adverse possession started
after lJuly 1991 that the shorter 12-year limitation period is applicable. It
will thus be some time before an owner's title will be extinguished by a 12year period of adverse possession.
7.3.2
Aggregation of Periods
The period need not be established by the possession of only one person. For
instance, if A is dispossessed by Bin 1965, and Bin tum is dispossessed by
C in 1980, then C may claim in defence to an action for possession by A the
period of possession by B as well as his own period of possession. C will,
however, remain at risk from an action by B, for as against B he must be in
possession for the full period.
Fig. 7.1
B takes possession
from A in 1965
1960
1965
1970
C in possession
1975
1980
1985
Time running against A-20 years
14
15
16
160
See s 14 of the Limitation Ordinance Cap 347.
See Cap 347.
See s 13 of Cap 347.
1990
1995
ADVERSE POSSESSION
Periods may also be accumulated if a squatter sells or gives his
possession of the land to another, whether that gift is made during his lifetime
or upon his death. Thus, in our example C would be able to accumulate
the periods of B's possession if in 1980 B had either sold or given the land to
him or had died, and in his will or on his intestacy had left the land to C and
C had entered into possession.
Periods of possession must be continuous to be accumulated. Possession
is likely to be continuous where a squatter disposes of his right to possession
by sale or gift, but iL~~q\latter abandons possession and there is a gap
before another squatter takes possession of the land, then the second
squatter cannot accumulate the first period of adverse possession with his
own. He must possess the land for the full period. Thus, in our example if
-B had given up possession in 1975 but it was not until 1980 that C took up
possession, C will be at risk of an action for possession from A until the year
2000. The interruption in continuous possession means that C cannot
accumulate B's period of possession with their own.
7.3.3
Future Interests
The basic limitation periods may be extended where the person entitled to
bring an action to recover possession holds a future interest. In such
instances the owner's action will be barred on the expiry of the normal
limitation period or six years from the time his interest falls into possession,
whichever is the later. 17 Thus, if land is held by A for life with remainder to
B and C is in possession for 25 years before A's death, B will still have
another six years after A's death in which to recover possession from C
before his title is extinguished. Thus effectively C will have to be in
possession for 31 years before he can extinguish both A and B's titles.
Fig. 7.2
Future Interests
1960 C takes
possession
1960
1965
1980 A's title
extinguished
1970
1975
1980
1985 A dies
1985
1991 B's title
extinguished
1990
1995
1991
Time running against A -
20 years
Time running against B -
20 years
I Time running 1
against B - 6 years
Alternatively, if C had taken possession prior to 1 July 1991 but only ten
years before A's death, the ordinary limitation period would apply and B
would have another ten years before his title was extinguished. In these
17
See s 9 of Cap 347.
161
HONG KONG LAND LAW
circumstances, the additional six-year period available to the holder of a
future interest does not produce a longer period.
Fig. 7.3
1975 C takes
possession
1975
1985 A dies
1980
1985
1990
1995
1991
6 years
Times running against B
20 years
We will see that most future interests in Hong Kong must exist behind
a trust. Action for possession in these circumstances can then be taken by
either the beneficiaries or by the trustees. The trustees' title is not
extinguished and their right to take action is not extinguished until the titles
of all the beneficiaries have been extinguished. 18 Thus, in our example
above where land is held in trust for A for life with remainder to B, the
trustees' title is not extinguished until B's title is also extinguished. The
trustees cannot, however, bring an action should there be a gap between
the expiration of one beneficiary's right to take action and the start of
another beneficiary's right to do so. For instance, in the first scenario we
have seen that there is a gap of five years between 1980, when A's title is
extinguished, and 1985, when B's alternative period of limitation starts.
During this time the trustees' title is not extinguished, but their right to take
possession proceedings is suspended until restored by B's right to take action.
7.3.4
Disabilities
The basic periods may also be extended where the persons entitled to bring
an action to recover the land are under a disability, for instance, minority
or insanity. 19 The limitation period is then either the normal limitation period
or six years from the date the disability ends, whichever is the longer, subject
to a maximum period of 30 years. For instance, if the original owner of the
land is only two years old when he is dispossessed, he will have 22 years,
ie 6 years from attaining his majority at 18, before his claim for recovery of
possession of the land is barred.
18
19
162
See s 20 of Ca]cl347
See s 22 of Cap 347.
ADVERSE POSSESSION
Infancy
Fig 7.4
1970 A takes possession
from B who is 2 years old
1970
1975
1980
1985
1990
1995
20 years
Time running against B
1986
6 years
1992
B attains
18 years
The disability must exist at the time the right to seek possession accrued.
If the disability arises subsequently, the usual limitation period applies.
7.3.5
Fraud or Mistake
Where there has been fraud or fraudulent concealment on the part of the
defendant as the person in possession of the land, then the limitation period
does not begin to run until the prior owner discovers the fraud or could with
reasonable diligence have discovered the fraud. In those rare cases when
an owner is able to seek relief from the consequences of a mistaken belief,
the commencement of the limitation period will also be postponed to the
date the mistake was discovered. 20
7.4
Adverse Possession
The possession of the land by the squatter must be adverse. It is clear that
the squatter must show either:
• that he has dispossessed or ousted the owner; or
• that there has been a discontinuance or abandonment of possession by
the owner followed by an assumption of possession by the squatter.
7.4 .1
Discontinuance of Possession
An owner will be presumed to be in possession of the land, even if he is
not in actual physical possession of the land, unless the contrary is clearly
proved. Very little is required in order to support this presumption. In the
case of land that is built upon it will usually be comparatively easy to
establish whether or not there has been discontinuance - for instance, the
leaving of just a few personal possessions may be sufficient to establish that
there has been no abandonment of the premises. Where the land is vacant
20
Sees 26 of Cap 347.
163
HONG KONG LAND LAW
the question is more difficult. The mere failure of the owner to make use
of the land, even if some other person does, is not sufficient to prove
discontinuance of possession provided the owner intends throughout to
use the property for some specific purpose.
The difficulty of establishing adverse possession of vacant land is
illustrated by the cases of:
Leigh v jack (1879) 5 Ex D 264
FACTS
In 1854 the plaintiff conveyed land to the defendant upon which the
defendant built a factory. Subsequently, the defendant acquired another
plot close by which had been owned by the plaintiff. The two plots were
separated by a strip of land owned by the plaintiff, which she intended to
dedicate as a roadway. In 1854 the defendant started storing building
materials on the roadway, and in 1856 he enclosed part of it. The plaintiff
made no use of land herself during this time, except to repair a gate at one
end of the road. The plaintiff sued for possession.
JUDGMENT
The plaintiff was entitled to possession. She had not discontinued her use
of the land, for she had repaired the fence and had throughout the period
an intention to make use of the land by dedicating it as a public highway.
N$?r had the defendant established dispossession, for his <\S;!?-~~ot
inconsistent
with the ,.;;....
plaintiffs intended...future use of the land .
.....,
______
____
',
·-·-----
FACTS
In 1937 the plaintiffs purchased a vacant site behind some shops. The
Second World War prevented development of the site, but in 1948 they had
the site surveyed and applied for planning permission. Although this was
refused they did not abandon their intention to develop the site. In 1953 they
dumped some rubbish on the site. In the meantime, from 1943 to 1948 the
defendant, who was a tenant of one of the shops, cultivated part of the land
and in 1948 he erected a shed on the land and started using it for breeding
greyhounds. The plaintiffs sought possession.
l
JUDGMENT
ll,
j
It
The defendant was not in adverse possession of the land. The plaintiffs had
never discontinued their possession in view of their intended future use of
164
ADVERSE POSSESSION
the land, which they had pursued so far as they were able. Nor had the
plaintiffs been dispossessed, for the defendant did not have the necessary
intention to oust the plaintiffs.
A similar view was taken in Wallis's Cayton Bay Holiday Camp Ltd v Shell
Mex and BP Ltd.21 There the owners intended to use the disputed vacant
land as an extension to a petrol station in which they were interested, but
had delayed their development plans until the necessary road connections
had been built.
7.4.2
Dispossession/Assumption of Possession
Where there has been no discontinuance of possession the squatter must
establish dispossession of the owner, and even where there has been
discontinuance of possession the squatter must also establish that he has
been in possession of the land. The dividing line between dispossession and
an assumption of possession appears to be a fine one. In Treloar v Nute, 22
SirJohn Pennycuik commented: 'I doubt if there is any real difference in the
concept of taking possession and the concept of dispossession except in the
special type of case where the owner, although not technically in
possession, has some purpose to which he intends to put the land in the
future.' Nourse LJwent even further in Buckinghamshire County Council
v Moran 23 when he stated that 'I think it is doubtful whether the distinction
between dispossession and a discontinuance of possession can ever have
any decisive consequences .... '
Clearly, in either case tiLe squatter must estabijsh ~ been in
possession of the land, but if he is to establish dispossessi0n he mlJ.§.Uilso
establish that his occupation of the land is inconsistent with the owner's
intended u~ottneproperty~---- - ·--=--·
- --
~ But ~hAf
is me;nt by pc;ssession for the purposes of the Limitation
Ordinance? In the words of Slade J in Powell v McFarlane, 25 it bears 'the
traditional sense of that degree of occupation or physical control, coupled
with the requisite intention commonly referred to as animus possidendi,
that would entitle a person to maintain an action of trespass.' Thus both
factual possession and an intention to possess must be established.
7.4.2.1
Factual Possession
Possession must be 'open, not secret; peaceful, not by force; and adverse,
not by consent of the true owner'. 26 The possession must be open in order
to give the owner the opportunity to object by taking action. It may be
21
22
23
24
25
26
[1975] 1 QB 94
[1976] 1 WLR 1295 at 1300
[1989] 3 WLR 152 at 170
See cases at 7.4.1
0979) 38 P&CR 452 at 469
Mulcahy v Curramore PEY Ltd [1974] 2 NSW LR464 at 475
165
HONG KONG LAND LAW
necessary for the squatter to prove dispossession, but clearly the law cannot
condone violent acts, thus the dispossession or assumption of possession
must be peaceful. The possession must be adverse. It is not necessary for
r- possession to be hostile in order to be adverse. Indeed, possession may t,~
adverse even though neither party knows that their rights are inconsistent.
The requirement for adversity goes rather to the nature of the possession.
We have already seen that where there is dispossession of the former
owner, 'the acts must be inconsistent with his enjoyment of the soil for the
purposes for which he intended to use it.' Where the owner has consented
to the occupiers' use of the land, whether by way of lease or licence, the
possession cannot be adverse. For instance, in Country Rich Development
Ltd v Ma Chan Fuk Kiu 27 the defendant cast a death sentence on her claim
to adverse possession when she pleaded in her defence that she had entered
into possession pursuant to an agreement for sale and purchase from the
then owner. Furthermore, an acknowledgement of the owner's title by
either an offer to pay rent 28 or the acceptance of a tenancy agreement to
compromise a claim to possession 29 will also be fatal.
An attempt was made by Lord Denning MR to establish a doctrine of
implied licence to deal with those cases where the owner retained an
intention to use vacant land in the future. The owner was deemed to have
granted a licence to the occupier to use the land, thus preventing his
possession from being adverse. The case in which Lord Denning MR tried
to establish this doctrine is:
Wallis Cayton Bay Holiday Camp Ltd v Shell Mex & BP Ltd
[1975] 1 QB 94
FACTS
The plaintiff's holiday camp adjoined a garage to which the defendant sold
petrol. Nearby was a farm. In 1950 the council bought part of the farm for
a proposed road. Between the site of the proposed road and the garage was
the disputed strip of land which the defendant acquired in 1961 together
with the garage, so that they would have a frontage to the new road when
it was built. The defendant bought the remainder of the farm in 1961 in order
to enlarge their caravan site. The site of the proposed road and the disputed
land were not fenced, and the plaintiff incorporated these areas into their
caravan site. After almost 12 years the new road proposal was dropped, and
the defendant tried to sell the disputed land to the plaintiff. The plaintiff did
not respond until 12 years had elapsed, when they claimed title by way of
adverse possession of the land.
27
28
29
166
0994) HCt HCA No A5503 of 1993
R v Secretary of State for the Environment 0990) P&CR 487
Colchester Borough Council v Smith [1991] Ch 421
l
ADVERSE POSSESSION
JUDGMENT
The plaintiffs had not acquired title by adverse possession, for when an
owner intended to use the disputed land for a particular purpose in the
future, the use by the squatter was attributable to an implied licence arising
from the owner's forbearance in taking action against him.
1
Amendments introduced in England by the Limitation Act 1980 30 cut
short this development. Although these amendments have not been
incorporated into the Limitation Ordinance, the Hong Kong courts in Man
Kam-tong v Man Lin-tai 31 declined to follow Lord Denning's implied
licence doctrine. The finding of an implied licence, the court felt, is only
justified from the clear facts of the case and not the mere fact that the owner
intends to use the land in the future.
Trivial acts of trespass will not be sufficient to establish possession.
There must be a sufficient degree of physical control over the land, which
will vary depending on the circumstances of the case. What may be
sufficient acts in one case may be insufficient in another. The nature and
value of the property, the use to which it may be put, and the means the
owner might adopt to protect his title are important considerations. The
fencing of vacant land is often quoted as an example of sufficient control,
but it is not decisive.32 Building on the land will usually suffice. 33 Cultivation
or the grazing of animals on the land will generally be insufficient unless
accompanied by other acts, for instance fencing, or unless grazing or
cultivation are the only uses to which the land can usefully be put. 34
An illustration of what acts may or may not qualify is found in the case of:
~·
1••
•
~--~-~,.,
....,
'
-~,
Treloar v Nute [1976] 1 WLR 1295
FACTS
The plaintiff owned a field adjacent to which was land that the defendant's
father acquired in 1961. The defendant's father mistakenly believed his
purchase included the plaintiff's field. He initially used the disputed land for
grazing, storing timber and stone, and his children rode motorcycles over
it. He also filled in a gully that formed part of the land. In 1963 he erected
a fence, which he re-erected when the plaintiff pulled it down. In 1965 he gave
the disputed land to his son, who in 1974 started to build a bungalow there.
30
31
32
33
34
Sees 4.
[1985] 2 HKC 299
George Wimpey Co Ltd v South [1967] Ch 487
Tam Mo Yin & another v AE & others 0995) HCT MP No 1868
Red House Farms (Tbordon) Ltd v Catchpole 0977) Estates Gaz 798
167
f
HONG KONG LAND LAW
JUDGMENT
The plaintiff's title had been extinguished by adverse possession. The court
was not impressed by the grazing and storage, but laid much more weight
to the levelling of the gully as an act preparatory to the building of the
bungalow.
7.4.2.2
Animus Possidendi (Intention to Possess)
The squatter must not only prove factual possession, but he must also prove
that such possession was taken with the intention of excluding all oth_E;rs
from possession, including the owner. Such intention is described, in the
words of Slade J in Powell v McFarlane as: 'the intention in one's own name
and on one's own behalf, to exclude the world at large, including the owner
with the paper title so far as was reasonably practicable and so far as the
processes of the law will allow'. 35
For instance, in Williams Brothers Direct Supply Ltd v Raftery 36 the
defendant failed to establish adverse possession because it was clear that
he used the land because he thought he was entitled to do so although the
English Court of Appeal has made the point that the necessary intention was
an intention to possess and not an intention to dispossess.
•··-
Hughes v Cork 0994) EGCS 25
FACTS
The plaintiff had bought a rectangular plot of land in 1980. The following
year some question arose as to the title to a small part of this plot when the
plaintiff discovered that the boundary fence had been diverted to form a
small triangular indentation into the plot. He removed the fence, which
some time later was rejected by the neighbours. An examination of the
conveyancing history revealed that although the plaintiff's seller had used
the disputed land for many years and had purported to sell it to the plaintiff
it in fact belong to someone else who had sold it to the plaintiff's neighbours
when the dispute emerged.
JUDGMENT
The plaintiff was entitled to possessory title of the disputed land. He had
occupied the land because he thought, as it turned out mistakenly, that he
was the true owner, but this was no bar to his obtaining title by adverse
possession. The important factor was that he intended to possess the land
which he and his seller had done.
35
36
168
(1979) 38 P&CR 452 at 471
[1958] lQB 159
ADVERSE POSSESSION
It appears that where tb-~
acts of possession are µ11eqµivocal, the act itself
should be sufficient to establish the necessary animus. This was certainly
the view of the Hong Kong Court of Appeal in:
CA Civ App No
1989
FACTS
Mr Ma, the owner of land in Ping Shan, left the land in 1953 or 1954 and
did not return before his death in 1964. He left the management of his land
in the control of a lady who allowed the plaintiff and her husband to use
the land for growing sweet potatoes. The plaintiff fenced the land and by
1963 or 1964 had built over most of the land. In 1987 the plaintiff sought
a declaration that she had acquired title by adverse possession.
JUDGMENT
Whilst the plaintiff had entered the land upon the licence of the previous
owner, that licence had been revoked by his death and since then she had
been in adverse possession of the land. Her acts of fencing the land and
building over the land were unequivocal acts excluding the owner from
possession, and no further evidence of intention was necessary.
The English courts do not appear to have taken such a robust line. For
instance, in Powell v McFarlane 37 Slade J noted the reluctance of the courts
over many years to infer the necessary intention even where factual
possession had been clearly shown.
Unequivocal.qcts are acts that clearly show an intention to exclude the
true owner. They are likely to be acts of exclusive physical possession ratlier
than acts which, while associated with ownership, are of a more marginal
character and might be equally consistent with an intention to profit or
derive some enjoyment from the land. Whether a particular act is regarded
as equivocal or unequivocal will depend on the circumstances of the case,
but such acts as fencing, the building of permanent structures, or full-scale
farming
cultivation of the land by way of pl9ughing and harvesting are.
more likely to be regarded as unequivocal than gr~zing, the harvesting of
the natural produce of the land, or the erection of temporary structures.
Where acts are equivocal, the intention with which they are done is vital.
The question of intention was the central issue in:
or
37
0979) 38 P&CR 452
169
HONG KONG LAND LAW
FACTS
The disputed land adjoined a farm owned by the plaintiffs grandfather and
was bought by the defendant in 1952. He intended to build a house on the
land, but in 1955 he was transferred abroad where he stayed for 11 years.
In 1956 the plaintiff, who was then 15 years old, started grazing the family
cow on the land. He also harvested the hay from the land and used to shoot
over the land. Later when he started a tree-felling business he put up a
business signboard on the land. On several occasions, while the defendant
was abroad, his wife visited the land but saw nothing untoward. On his
return the defendant applied for planning permission for the land but was
refused, and he subsequently entered in to a grazing agreement in respect
of the land. The plaintiff then claimed title by adverse possession.
JUDGMENT
The plaintiffs actions in 1956 were not sufficient to establish adverse
possession. His acts were equivocal in that they could be said to be directed
towards taking the profits from the land rather than to dispossessing the
owner and occupying the property as his own. Furthermore, as the first acts
were carried out when he was only 15 years old, it was unlikely that they
were done with a view to claiming the land wholly as his own property.
The question of intention, and in particular the role of the intention of
the owner, has come before the courts in:
Buckinghamshire County Council v Moran [1989] 3 WLR 152
FACTS
In 1955 the council acquired the disputed land for road development. Since
1967 the land was maintained by the owners of an adjoining house. In 1971
Mr Moran acquired this house. He was aware of the council's intended use
of the land, but nevertheless he sought to incorporate the land into the
garden of the house. The land was already fenced but he put a lock on the
gate and had electricity cables installed. In 1976 Mr Moran spoke with the
council about the future use of the land, and as a result through his solicitors
made a claim to be acquiring title by adverse possession. Nevertheless it was
not until 1985 that the council commenced proceedings for possession.
170
ADVERSE POSSESSION
JUDGMENT
The council's claim for possession failed: they had been dispossessed by Mr
Moran's exclusive and adverse possession of the land which was not
compromised by their future intention to use the land for road widening.
I
Both Slade and Nourse noted that the emphasis placed upon the owner's
future intended use of the land by cases like Leigh vJack 38 and Wallis Cayton
Bay Holiday Camp Ltd v Shell Mex & BP Ltd 39 had created an unwarranted
confusion. The intention of the owner was only relevant to the extent that
it might influence the intention of the squatter. Nourse stated at p 170 that:
By this route I have come to a belief that the intention of the true
ow'ner. .. is irrelevant in practice. To that I would make one exception.
If an intention on the part of the true owner to use the land for a
particular purpose at some future date is known to the squatter, then
his knowledge may affect the quality of his intention, reducing it
below that which is required to constitute adverse possession.
The importance of the intention of the squatter arises because a title
derived from the operation of limitation is based upon adverse possession
by the squatter and is to be contrasted with the operation of prescription
which is based upon a presumed grant when the intention of the grantor
becomes all important. Prescription acts positively, limitation acts negatively through the acts of the squatter including the intention with which
they are done.
A further point that may be derived from Buckinghamshire Coun(v Council
v Moran is the requisite intention is an intention to possess to the exclusion of
all, including the true owner, and not necessarily an intention to own the land.
In order to establish a sufficient intention to possess, the court will lay
very little weight upon past or present declarations of intention by the
claimant. They are 'obviously easily capable of being merely self-serving' .40
Even declarations made at the time of taking possession will be treated with
suspicion 'unless they are specifically brought to the attention of the true
owner'. 41 The intention of the claimant must thus be inferred from the acts
themselves.
7.5
Leasehold Lap.d
Given the leasehold nature ofland in Hong Kong, the special rules affecting
tenants and their landlords are particularly important.
38
39
40
41
(1879) 5 Ex D 264
[1979] 1 QB 94
Powell v McFarlane (1979) 38 P&CR 452 at 480
Powell v McFarlane 0979) 38 P&CR 452 at 476
171
dONG KONG IAND IA W
7 .5.1
Landlords v Tenants
A tenant cannot claim to be in adverse possession against his landlord since
he is in possession of the land with the consent of his landlord pursuant to
the terms of his lease. But once the tenancy has expired or been brought
to an end, adverse possession by an occupier against his former landlord
will begin to run.
7.5.1.1
Periodic Tenancies
The limitation period will begin to run against a landlord under an oral
periodic lease as soon as the initial period expires. But the payment of rent
will restart the period. Thus, so long as the tenant continues to pay rent, the
limitation period will not start to run.
Haywood v Chaloner [1968) 1 QB 107
FACTS
Some time prior to 1938 the Saville estate let a small piece of ground as
garden land on a half-yearly tenancy for a very modest rental. In 1938 the
estate was sold and the new owner never asked for the rent, the last rental
being paid in 1942. The appellants, being the present owners of the land
in question, sought possession from the persons then in occupation of the
land, who were successors of the original tenant.
JUDGMENT
The tenancy ceased at the expiry of the last period in respect of which rent
was paid. Thereafter the possession of the respondent and his predecessors
in title became adverse, so that the title of the appellants had been extinguished.
A landlord who waives his right to rental from a periodic tenant should
thus require his tenant to periodically sign a written acknowledgement of
his status as a tenant to avoid the running of the limitation period.
7.5.1.2
Tenants at Will
The limitation period in respect of a tenancy at will, other than a tenancy
at will by the Crown, runs from the expiry of one year from its commencement unless it is previously determined. 42
i
:!
42
172
See s 12 of Cap 347.
ADVERSE POSSESSION
'I
7.5 .1.3
Rental
A landlord will lose his right to recover rental from his tenant after six years
from the date the i:ent became due. 43
7.5.1.4
Forfeiture
Most written leases contain a right for the landlord to forfeit the lease should
the tenant breach or fail to observe any of the terms of the lease. A right to
forfeit a lease will expire 20 years from the date of the breach where the
breach occurred before 1 July 1991, and 12 years where the breach was
committed after 1 July 1991.44 However, where the breach is continuing the
limitation period will start again with each fresh breach.
7.5.2
Ii
I
Landlord/Tenant
v Third Parties
If a third party takes up adverse possession against a tenant, the limitation
period immediately begins to run against the tenant. However, the
limitation period does not begin to run against the landlord until the expiry
of the tenant's lease. For instance, if A let property to B for ten years in 1975
and after five years of the term, in 1980, B was dispossessed by C, then A
will have until 2005, ie 25 years from the date C dispossessed B, in which
to bring an action to evict C, for the limitation period does not begin to run
against him until the expiry of B's ten-year term.
Fig 7.5
Limitation against a Landlord
A lets property to B for
10 years
--------,>
1975
1980
1980 C
qispossesses B
1985
1990
1995
2000
2005
Time running against A - 20 years
If, however, A had granted the lease to Bin 1985 and Chad dispossessed
B in 1991, then A will only have 17 years from the date C dispossessed B
in order to claim possession, since the reduced 12-year limitation period
introduced by the Limitation (Amendment) Ordinance 1991 applies. A's
right of action accrues only on the expiry of B's lease in 1995, which is after
the vital 1 July 1991 cutoff date.
43
44
See s 18 of Cap 347.
See s 12 of Cap 347.
173
f
HONG KONG LAND LAW
:t
A lets property to B for
10 years
----~
1985
1990
1995
2000
2005
1991 C
'---------~
dispossesses B Time running against A
12 years
2010
2007
In the cases of dispossession of a government lessee holding under a
Government lease expiring in 2047 the limitation period against the
Government of the Hong Kong Special Administrative Region would not
expire for another 60 years, in 2107!
7.5,2.1
Surrender and Merger
Can a dispossessed tenant whose right to claim possession has become
time-barred surrender his term to his landlord? It might be argued that the
tenant's title has been extinguished and so he has nothing to surrender to
his landlord, but the Hong Kong courts have rejected this view in:
Cheuk Chau Co Ltd v Chau Kwan-nam & others
(1983) HCMP No 274 of 1982
FACTS
A piece of land in the New Territories was assigned to the plaintiff in 1980,
The vendor and the plaintiff mistakenly identified the boundaries of the
land, which in fact included a strip on which the defendants had lived for
over 20 years. The plaintiff surrendered the lease to the Crown and took a
new lease of the same land. The plaintiff then sought possession of the strip
of land from the defendants.
JUDGMENT
The vendor and plaintiff's original title to the land had been extinguished
by the defendants' possession of the land, but as a result of the surrender
of the land to the Crown and the subsequent re-grant of the land, a new title
was conferred upon the plaintiff free from the defendants' interests. The
plaintiff was thus entitled to succeed in his claim for possession,
The court followed the much-criticised judgments of Lord Denning and
Lord Ratcliffe in Fairweather v St Marylebone Property Co Ltd 45 They were
of the view that the tenant's title was only extinguished against the squatter
45
l.
174
[1962] 2WLR 1620
ADVERSE POSSESSION
and not the landlord. The lease remained effective between the landlord
and the tenant, and any covenants and the right of re-entry were enforceable
until the expiry or prior determination of the lease. Thus the tenant did have
something to surrender.
A dispossessed tenant will also be able to renew a claim for possession
against a squatter where he acquires his landlord's reversion. His lease, so
far as it exists against the landlord, merges in the landlord's reversion and
he then steps into the shoes of the landlord and acquires his rights to take
action to recover possession upon the expiry of the lease.
As the Cheuk Chau case vividly illustrates, a squatter is in a precarious
position in his attempt to acquire title to leasehold land. There is the danger
that even though his long period of possession may have barred a tenant's
claim for possession, the tenant may come to an arrangement with his
landlord to surrender his lease and take a re-grant or acquire the landlord's
reversion, so as effectively to revive his right to reclaim possession. Lord
Denning recognised this danger in Fairweather but felt it was an inevitable
result. He pointed out that a similar result could be achieved if the tenant
ceased to pay the rent under the lease so as to give rise to a right for the
landlord to forfeit the lease. The squatter could not resist the landlord's
forfeiture by seeking to pay the rental unless the landlord agreed to accept
the rental, nor could a squatter claim relief from forfeiture.
However, so far as Crown land is concerned, it is unlikely that the Crown
as landlord would knowingly seek to defeat a title acquired by adverse
possession by a squatter against a Crown lessee. This is what happened in
the Cheuk case, but it is clear from the report that this result was unintentional.
7.5.2.2
Renewal under Ordinance
It is common for Crown leases to be granted for renewable terms. To
overcome the administrative inconvenience of renewing all Crown lease
terms by individual documentation a number of ordinances have been
passed to provide for the automatic exercise of these options to renew the
le<1~eter~s. The Crown Leases Ordinance' 6 provides for the automatic
renewal of Crown leases on Hong Kong Island and Kowloon. In the New
Territories the New Territories (Renewable Crown Leases) Ordinance' 7
effects the automatic exercise of options to renew in Crown leases and the
New Territories Leases (Extension) Ordinance' 8 automatically extends Ne,v
Territories Crown leases which are due to expire on 27 June 1997 to 30 June
2047, pursuant to the terms of the Joint Declaration.
In the normal course the expiry and renewal of a lease will revive the
title of dispossessed tenant. The expiry of the lease confers authority on the
landlord to recover possession of the land from any squatter and to deal with
the land, including the granting of a new lease to the dispossessed tenant.
46
47
48
Cap 40
Cap 152
Cap 150
175
.I
HONG KONG LAND LAW
The rights of a dispossessed tenant to seek possession against a squatter
thus may be revived in the same way as was illustrated by the surrender and
new grant in Cheuk Chau Co Ltd v Chau Kwan-nam & others.
Squatters on land held under Crown leases which contain a right of
renewal thus face a further hurdle - the possibility of the revival of a Crown
lessee's claim to repossession following the automatic renewal of the Crown
lease. A series of cases 49concerning the operation of the New Territories
(Renewable Crown Leases) Ordinance have recently demonstrated the
operation of that ordinance in the light of a large number of renewals that took
effect in 1973 to renew the leases for a further 24 years until 27 June 1997.
The lower courts in .!!'LI:
Mei Ling Mary v Yeung Hong 50 came to the
conclusion that a squatter could assert their possession against a Crown
lessee under a renewed lease where they had been in adverse possession
for a period sufficient under the Limitation Ordinance to extinguish the
right of the lessee to recover possession before the renewal took effect in
1973. But the lower courts reluctantly felt unable to assist those post-1953
squatters whose period of adverse possession prior to the deemed renewal
was insufficient to extinguish the title of the Crown lessee. The issue caused
widespread concern as is evident from the large number of cases brought
before the courts. Given the lamentable state of lot demarcation, a large
number of titles in the New Territories are dependent on adverse possession. Calls were even made for legislative intervention 51 but fortunately such
intervention has proved unnecessary. The Privy Council has come to the
squatters' aid in the case of:
1m1mt Co
PingKwan_v Lam
1.Jtive,totJ
--- •-- -[1996] 3 WLR 448
FACTS
The land in question was held under a block Crown lease for a term of 75
years from 1 July 1898 with a right of renewal for a further term of 24 years
less 3 days. The respondents, Lam Island Development Ltd, took an
assignment of the residue of the Crown lease in March 1973 just before the
right of renewal was automatically exercised by the operation of the New
Territories(Renewable Crown Leases) Ordinance. However, since 1959 the
land had been continuously occupied by the appellants against whom the
respondents now claimed possession.
49
50
51
176
Cheuk Chau Co Ltd v Chau Kwan Nam & others 0983) HCt MP No 274 of 1982,First
Base Development Ltd v Or Lau Chun (1991) HCt MP No A2669 of 1990, Lam Kee On v
Lam Hing [1992] 2 HKC 317,Chui Shui On v Tang Koon Yung &another[1992] 2 HKC
323, Fortune Year Development Ltd v Mui Shu Huen 0993) HCA No A2951 of 1993, Ho
YeeMing Theresa v Chung Loi Toi [1994] 1 HKC 618, Ng Fung Property Investment Ltd
v Lam Ting Sin 0993) HCMP No 2446 of 1993, Tang Shu Tin v Tang Kin Kwok [1994]
2 HKC 727, and Hong Kong Ferry (Holdings) Co Ltd v Chan Kwan Fat & others [1995]
1 HKC 542
[1994] 2 HKC 1
See Tam Mo Yin & another v AG & others 0995) HCt MP No 1868 of 1994.
ADVERSE POSSESSION
JUDGMENT
The respondents were not entitled to possession. Their title to the land had
been extinguished by the operation of the Limitation Ordinance as a result
of the adverse possession of the appellants.
I
I
The Privy Council draw a distinction between a renewal in situations,
first, where the renewed lease was made pursuant to an option to renew
and second, where the landlord had re-entered on the expiration of the old
lease and had granted a new lease, whether to the original lessee or to a
new lessee. Where there is no option to renew the landlord is able to assert
their title against the squatter and grant a new lease, under which the tenant
also can defeat the squatter's rights, whether or not they are a new tenant
or were the tenant under the expired lease. But where the lease contains
an, option to renew the lessee has a property right which is enforceable
against the landlord, but which, together with the legal estate in ·the lease
which flows from this right, may be rendered unenforceable against the
squatter by the appropriate period of adverse possession. The distinction
stems from the fact where there is an option to renew which is specifically
performable against the landlord, the landlord is not entitled to reclaim
possession and assert their title against the squatter.
The New Territories (Renewable Crown Leases) Ordinance operates in
a similar way to an option to renew. Thus a Crown lessee under a lease
renewed under the ordinance could not assert their; new lease against a
squatter who had been in adverse possession of the land for a period before
the deemed renewal which was sufficient under the Limitation Ordinance
to extinguish the title of the lessee, ie at least prior to 1953. The Privy
Council, admitting that the case of the post-1953 squatter, ie the squatter
who had not been in adverse possession for a sufficient period to extinguish
the title of the lessee prior to the renewal, was 'not so obvious', 52
nevertheless decided that the right to possession of such a squatter could
not be defeated by the Crown lessee provided the squatter could establish
adverse possession for a sufficient period before the action for possession
was brought to extinguish the title of the Crown lessee. In the latter instance,
the Privy Council felt that the ordinance should not be read so as to exclude
all adverse incidents affecting a lessee under a deemed renewal. The
lessee's right of action against the squatter was deemed to accrue on the date
upon which the squatter moved into possession and thus the squatter's
rights under the Limitation Ordinance had already started to operate
before the renewal, even if they had not matured. The lessee would have
been subject to these adverse right if the lease had been actually renewed
pursuant to the option to renew and their position should be no different
under the deemed renewal.
The positiori of squatters as result of the enactment of the New Territories
Leases (Extension) Ordinance has not yet been considered by the courts
52
at 459D
177
f
HONG KONG LAND LAW
but there appears no reason why this ordinance should operate to revive
the rights of a Crown lessee to bring action against a squatter who has
extinguished or is in the process of extinguishing the Crown lessee's title
under the operation of the Limitation Ordinance . The ordinance extends
the term of the Crown lease. It thus operates to postpone the Crown's right,
as landlord, to enter into possession at the expiration of the original Crown
lease term. As such it bears a closer resemblance to the exercise of an option
to renew than to regrant of a lease that has expired.
7.5.2.3
Landlord and Squatter Relationship
During the period between the barring of the tenant's title and the expiry
of the lease, the squatter does not step into the tenant's shoes to become
the tenant of the landlord. He acquires a separate title so there is no direct
relationship between the landlord and the squatter. There is no privity of
contract nor privity of estate, and the covenants in the lease are not directly
enforceable against the squatter on the basis of either of these doctrines.
This situation arose in:
FACTS
In 1802 the plaintiffs predecessors in title granted a lease of a house for 89
years. The lease contained a covenant to repair. The tenant mortgaged the
premises, and the mortgagee went into possession and remained in
possession until 1876, when he purported to assign the lease to the
defendant who remained in possession until 1891, when he delivered up
possession to the· plaintiff on the expiry of the lease. The plaintiff sued the
defendant for breach of the covenant to repair.
JUDGMENT
The defendant had acquired title by adverse possession, but the lease had
not vested in him and thus he was not liable on the covenants.
Nevertheless, a landlord is unlikely to be without a remedy against an
unwanted squatter. As we have seen, if the lease contains a right of re-entry
then a failure to pay the rent due under the lease or to perform the other
covenants contained in the lease will entitle the landlord to forfeit the lease
and to seek possession against the squatter, who will be unable to resist
forfeiture by claiming relief.
178
ADVERSE POSSESSION
Tickner v Buzzacott [1965] Ch 426
FACTS
The plaintiff's mother lived with a tenant of premises under a lease for a term
of75 years from 1930. On the tenant's death in 1941, the plaintiffs mother
continued to live in the house and pay the rent under the lease until her own
death in 1960. The rent was accepted by the landlord, but he was unaware
that the original tenant had died and the plaintiff's mother was a squatter.
After the plaintiffs mother's death, the house remained empty and no rent
was paid. In 1962 the defendant, the assignee of the original landlord,
forfeited the lease. The plaintiff claimed relief from forfeiture.
JUDGMENT
The plaintiff's mother had acquired title by adverse possession against the
tenant, but she did not hold under the lease and accordingly was not entitled
to claim relief from forfeiture.
A landlord is not bound to accept rent from a squatter but if he does and
the rent is measured with reference to a given period, say one month, then
at common law the squatter may become a periodic tenant unless it is clear
that the parties, in paying and accepting the rent, did not intend to create
a new landlord-and-tenant relationship. It is also possible for a squatter to
become bound by the terms of the tenant's lease on the basis of estoppel.
If he takes the benefit of a right granted to the tenant under the lease, he
cannot also refuse to accept the burden of the lease. The mere payment of
rent under the lease will not raise an estoppel because the payment is not
a benefit to the tenant. Furthermore, the leasehold covenants, although not
enforceable by virtue of privity of contract or estate, may be enforceable
against the squatter under the principles of Tulk v Moxhay 53 as these have
been varied bys 41, Conveyancing and Property Ordinance. 54
7.5.2.4
Encroachment
If a landlord leases land to a tenant and the tenant encroaches on adjoining
land that also belongs to the landlord, the land is presumed to be an addition
to the leased land so that it becomes subject to the terms of the lease. The
limitation period will thus not begin to run against the landlord until the
expiry of the term.
53
54
Tulk v Moxhay (1848) 2 Ph 774
Cap 219 see further Chapter 15.
179
f
l•
HONG KONG LAND LAW
l
TamMo Yin
vAttomey
No 1868 of 1994
HCtMP
FACTS
A Crown lease lot was granted north of Yuen Long in 1931 for a term of 45
years from 1 July 1928 with a right to renew for a further 24 years (less three
days). A term of the grant required the Crown lessee to construct a wall or
bund and sluice gates or gei-wai on the seaward side of the lot. The Crown
lessee sold off a part of the land but a dispute arose between the Crown and
the plaintiffs, the original Crown lessee's successor in title, as to the area of
the lot. The plans and surveys at the time of the grant were indecisive and
thus the plaintiffs also based their claim to the disputed area on adverse
possession - their predecessors in title had erected the wall and sluice
gates and had been in possession of the land for over 60 years.
JUDGMENT
The disputed land, if not within the Crown lease lot, was an encroachment
to it and held on the same terms as the original Crown lease. The deemed
exercise of the renewal in 1973 pursuant to the New Territories (Renewable
Crown Leases) Ordinance stopped time running so that the plaintiffs failed
to establish that they had been in adverse possession of the land against the
Crown for the requisite 60 years.
The presumption that an encroachment onto adjoining land is held on the
same terms as the original grant is rebuttable but the tenant's occupation
must be clearly separate and adverse to form an independent claim. 55
If the land encroached on by the tenant does not belong to his landlord
but to a third party, then the tenant's possession will not work to his own
benefit but to his landlord's because upon expiration of the limitation period
it is the landlord and not the tenant who can claim title to the land and, on
the expiry of his tenant's lease, possession of it.56
55
56
180
Lord Hastings v Sadler (1898) 79 LT 355
Kingsmill v Millard (1855) 11 Exch. 313
Future Interests
8.1
Introduction
We saw in the first chapter, when looking at the doctrine of estates, that the
law does not recognise absolute ownership ofland but rather the ownership
of an interest in land for a defined duration, such as a life estate or a lease
for a fixed term. This concept of holding an estate in land for a defined
duration leads to the possibility of a succession of interests in the land. For
instance, if A owns a Crown or Government lease of land on Hong Kong
Island for a term of 75 years which he leases to B for a term of 5 years, the
Crown or Government, A, and B all have an estate in the land. But only one
of them is entitled to enjoyment of the land at any one time. B has a fixedterm lease that gives him a present right to use the land for five years. He
enjoys a lease 'in possession'. A also has a fixed-term lease, but A does not
have a present right to use the land: he has granted that right to B. A's right
to use the land does not arise until B's lease terminates, when the land will
revert to A. A's interest is a 'reversion'. The Crown also has a reversion a fee simple reversion that it has agreed to relinquish to Chinese sovereignty
in 1997; thereafter, the reversion on the Crown leases will vest in the
Government of the Special Administrative Region of Hong Kong.
Fig 8.1
Crown
Fee simple reversion
I
I
I
A
Leasehold reversion
I
I
I
B
Lease in possession
Likewise, if A provides in his will that his 75-year Crown lease should pass
to his wife to enjoy during her lifetime and after her death it is to pass to
their only child C, then on A's death both his wife and their child C have
an interest in the property. His wife has an interest vested in possession, for
she is now entitled to the rents and profits arising on B's lease and on the
expiry of B's lease will be entitled to possession of the land. During the
lifetime of A's wife, their child C also has an interest in the land. C's right
to the land is not a right to immediate possession. His right to possession
will only arise in the future on his mother's death. The interest of A's child
is either a 'remainder' or an 'executory interest', depending on how exactly
it has been created.
181
HONG KONG LAND LAW
FigB.2
Crown
-
Freehold reversion
-
Leasehold reversion to wife for life
(life interest) and then to C
(remainder/ executory interest)
-
Lease in possession
I
I
Wife and C
I
I
I
I
B
Where an interest gives an immediate right to enjoyment of the land it is said
to be 'held or vested in possession'. Where an interest gives a right to
enjoyment of the land in the future it is known as a 'future interest'. There
are three types of future interest that we must consider: reversions,
remainders, and executory interests. First, however, it is important to
appreciate the distinction between vested and contingent future interests.
8.2
8.2.1
Vested and Contingent Interests
Conditions of Vesting
A future interest may be either vested or contingent. For an interest to be
vested, two conditions must be satisfied:
1 the person entitled to the interest must be ascertained; and
2 the interest must only be prevented from taking effect in possession
by the existence of some prior interest.
If we look again at our example where A gives his property to:
• his wife for life and remainder to their child C,
we have seen that A's wife's interest is vested in possession since she is
entitled to the present enjoyment of the property. Indeed, her interest is not
a future interest. C's interest, although it is not vested in possession as it only
gives him a right to enjoy the land in the future, is vested in interest, for both
the conditions are satisfied: C is in existence and identifiable, and his right
to possession is only delayed by his mother's prior interest.
But if the gift was to:
• A's wife for life with remainder to their only child C when he attains the
age of 21,
not only would the enjoyment of the interest depend on the death of A's
wife but also upon the fact that C must reach the age of 21. Although C
satisfies the first condition, he is in existence and ascertainable, the gift
182
FUTURE INTERESTS
cannot vest until he is 21 and thus the second condition is not satisfied. His
interest is contingent until he attains 21, when it will vest in interest.
If A had more than one child and the gift was to:
• A's wife for life with remainder to their first child to marry,
neither of the conditions for vesting are satisfied. The remainder will only
be vested when A's first child marries. Prior to that time all A's children hold
a contingent interest, for it is impossible to say which one of his children
will qualify before the contingency is satisfied. The potential beneficiary is
not ascertainable nor is their right to possession merely delayed from taking
effect in possession by a prior interest - it is also dependent upon the
satisfaction of a further condition.
It does not matter if it is very unlikely that a future interest is going to
vest in possession. That will not prevent it vesting in interest. For instance,
if A had made his gift the other way around:
• to my only child C for life with remainder to my wife,
the fact that C is more than likely to outlive his mother does not prevent his
mother's interest from being vested in interest.
The fact that the size of the interest is not finally quantified will not
prevent the gift from vesting. For instance, if A made his gift to:
• my wife for life with remainder equally between all our children who
attain the age of 21,
the first child to attain 21 will take a vested interest even though it is not
possible to say whether he takes the whole interest or only a portion until
it is clear whether or not A's other children satisfy the condition by attaining
21. The first child to attain 21 is accordingly treated as taking the whole
interest subject to the possibility of a partial divesting should any other child
within the class qualify by attaining 21. The divesting only affects the
quantum of the interest vested in each beneficiary and not the fact of vesting
itself. If a child fails to attain 21, his contingent interest fails and his estate
has no interest in the property.
Although the quantification of a beneficiary's share will not prevent
vesting, we will see that it is significant when we come to test the validity
of a class gift for the purpose of the rule against perpetuities.
The law leans in favour of vesting, and a gift, which on its face appears
contingent, may be construed as vested subject to a possibility of it being
divested. For instance, a gift:
• to my wife for life with remainder to such of our children as my wife may
appoint, and in default of appointment to all our children in equal shares
is construed as granting all the settlor's children a vested interest subject to
divesting in the event of the settlor's wife exercising her power of appointment.
183
HONG KONG LAND LAW
8.2.2
Assignability of Vested and Contingent Interests
A vested future interest is a future right in the sense that it only gives a right
to enjoyment of the property in the future, but it is a present interest in the
sense that it is an existing right that can be either alienated inter vivos or
pass on death. A contingent future interest, on the other hand, is in some
ways not an interest at all. It is only a possibility that an interest may arise
should the contingency be satisfied. As such, the common law regarded
contingent interests as inalienable. It is thought that a contingent interest
may now be left by will by virtue of the provisions of s 3 of the Wills
Ordinance. 1 But there is no statutory means in Hong Kong whereby a
contingent interest may be assigned inter vivos at law. In England, s 4(2)
of the Law of Property Act 1925, permits the assignment of contingent
remainders, but this section has not been enacted in Hong Kong. The
assignment of a contingent remainder may be enforced in equity, for equity
will require an assignor of a contingent interest to assign the property to an
assignee who has given valuable consideration should the contingent
interest vest both in interest and possession. 2
8.3
Reversions
A reversion comprises that part of the grantor's estate that is not disposed
of by the grant and which will thus revert to the grantor on the expiration
of a lesser interest disposed of by the grant.
8.3.1
Leasehold Reversions
The most common reversions in Hong Kong are leasehold reversions. The
tenant's assignment of his lease will dispose of the whole of his interest in
the land and thus no reversion arises, but if the tenant grants a sublease then
a reversion will arise in respect of the balance of the head-lease term. In our '
first example A's leasehold reversion represents the balance of his 75-year
term which he does not dispose of when he grants the 5-year lease to B,
ie 70 years. A leasehold reversion may be of a very short duration. For
instance, when the Crown first granted leases in the New Territories they
granted Crown leases for 99 years less the last three days from 1 July 1898.
These Crown leases were just three days shorter than the lease of the New
Territories that the Crown was granted. The three days represented the
Crown's reversion.
A leasehold reversion gives a future as opposed to a present right to
possession, but for historical reasons, a fee simple owner who grants a lease
is said to hold his leasehold reversion in possession. This apparent anomaly
arises because the common law, following feudal principles, continues to
I
!,
1
2
184
Cap 30, which superseded the Wills Acts 183 7 and 1530 to which liberal interpretations had been given to permit the devise of contingent interests.
Crofts v Middleton (1856) De GM and G 192
FUTURE INTERESTS
recognise the fee simple owner, being the holder of seisin, as the owner in
possession subject to the lease. In England the Law of Property Act 1925
continues to define a leasehold reversion as 'an estate in possession'. 3
Although in Hong Kong it is only the Crown, or from 1 July 1997 the
Government of the special Administrative Region of Hong Kong, as the fee
simple owner of land in Hong Kong Island and Kowloon which technically
remains in possession, it is common to talk of the Crown or Government
lessee who has granted a lease as also being in possession to the extent that
he is entitled to the rents and profits of the land.
8.3.2
Settled Reversions
A reversion may also arise where an owner of an interest in property settles
either a lesser interest upon another or a contingent interest that fails to vest.
For instance, if A makes a gift on trust to:
• my wife for life,
on his wife's death the property will revert to A, or to his estate if he is dead.
Likewise, if A makes a grant on trust to:
• my wife for life and then equally to our children who attain 21,
a reversion to A or his estate will arise if A has no children who attain 21.
A's intended gift to his children, which would have disposed of his whole
interest in the property, has failed. But the interest must pass to someone
and as A has not indicated any one else who should take in these
circumstances, the interest reverts to him or, if he has died, his estate.
8.3.3
Legal and Equitable Reversions
In England only a leasehold reversion can exist at law. The Law of Property
Act 1925 provides that a settled reversion in England can only exist in equity
behind a trust. 4 However, in Hong Kong there is no similar statutory
limitation. A leasehold reversion will be legal unless the lease out of which
it is created is equitable. A settled reversion may be either legal or equitable,
depending first on the interest out of which it is created, and second on the
means by which it is created. For instance, in our examples if the interest
in property which A settles is equitable, his reversion will also be equitable.
Furthermore, if he settles the life interest to his wife and the remainder to
his children by use of a trust, then his reversion will also be equitable as we have seen a trust operates only in equity.
3
4
See s 205(1} (xix).
See ss 1 (1) and (3) LPA.
185
HONG KONG LAND LAW
8.3.4
Nature of Reversions
A reversion arises by operation of law rather than by express grant. As we
have seen, in neither of our examples does A indicate by express words that
his property is to revert to him or his estate; but the property must pass
somewhere on the determination or failure of the prior estate and the law
dictates that it reverts to the grantor.
A reversion is always vested since it is that part of the estate which the
grantor has failed to dispose of. Applying the tests of a vested interest, it can
be seen that the grantor is always identifiable and his right to enjoyment is
only subject to the failure or termination of a prior interest or interests.
Although a reversion is initially held by the grantor it need not continue
to be held by him. He can deal with his interest as he wishes. For instance
if, instead of settling his property to his wife for life with remainder to his
children, A had initially settled his property on his wife for life and then, by
a separate and subsequent disposal, he had granted the balance of his
interest to his children, his children's interest would be a reversion and not
a remainder. They would have taken a transfer of A's reversion that arises
on the grant of the life interest to his wife rather than a separate and distinct
interest.
8.4
Remainders
A remainder is a future interest that arises in favour of a person other than
the settlor after the natural determination of a prior interest of limited
duration. The interest remains away from the settlor rather than reverting
back to him. For instance, if after the grant of a life interest the settlor directs
that the interest should pass to a third person, a remainder is created. The
estate of limited duration which takes effect in possession prior to a
remainder is usually, in the Hong Kong context, a life estate, since it is not
possible at common law to create an entailed interest of a leasehold estate.
The life interest, together with the remainder and any reversion to the
settlor, comprises the whole original estate of the settlor.
8.4. l
Nature of Remainders
In contrast to a reversion, a remainder does not arise by operation of law
but by express grant Furthermore, while a reversion is always vested a
remainder may be either vested or contingent.
In England the Law of Property Act 1925 now provides that all
remainders are equitable. 5 They can only exist in equity behind a trust.
There is no similar legislative limitation in Hong Kong, but nevertheless all
remainders in Hong Kong are equitable. The reason for the equitable nature
of remainders in Hong Kong lies not in legislation but in history. 6
5
6
186
See ss 1 (1) and (3).
For greater detail on the historical aspects of future interests see Simpson: An
Introduction to the History of Land Law, Chapters 8 and 9 and Holdsworth: A History
of English Law, Volume VII Chapters 3, 4, 6, and 7.
1
FUTURE INTERESTS
8.4.2
Remainders at Common Law
The common law had little difficulty in accepting vested remainders over
freehold land. A limited estate followed by a vested remainder did little
more than carve up the grantor's estate into smaller portions, and presented
no problems in identifying who was entitled to the estate at any given time.
Contingent remainders gave rise to greater problems, for it was possible for
there to be a period when no one was entitled to possession. For instance
if A grants freehold land to:
• B for life with remainder to C when he marries
a period when no one was entitled to an interest in possession could arise
if C was not married at B's death. The estate would then be left in abeyance
until C married. If C failed to marry, then the estate would revert to A.
However, it would be impossible to know whether C's remainder would fail
until C died, which could leave the estate in abeyance for a considerable
period of time. The common law abhorred an abeyance of a right to
possession by a freehold owner, or to use its technical expression, seisin,
for it was the person who was seised of the land who was responsible if the
feudal services were not performed. As a result the common law was only
prepared to accept contingent remainders if they conformed to a number
of strict rules that were intended primarily to ensure there was no abeyance
of seisin. For instance, the common law would only uphold a contingent
remainder if it vested during or upon the determination of the prior estate.
Thus, in our example C's remainder would only be valid if C's interest
vested, ie he married, during or on the determination of B's life estate.
Leaseholds fell outside the feudal structure. They do not qualify as real
property but as chattels real, a distinct category of personal property. At
common law it is not possible to create a life or entailed interest in a lease
or any other personal property. Life and entailed interests are freehold
interests, and their creation was originally dependent on the transfer of
seisin, a concept confined to the feudal system. It was thus not possible to
create a freehold interest in leasehold property where seisin had no place.
At common law a grant inter vivas of leasehold or other personal property
by A to B for life with remainder to C operates as an absolute gift of the
property to B. The common law refuses to recognise the limitation on B's
estate to the period of his life, and accordingly the remainder fails. It has
been said that 'a gift of a chattel for an hour is a gift forever'.
8.4.3
Remainders in Equity
The Courts of Chancery did not follow the common law's refusal to
recognise life and future interests in leases or other personal property. By
adopting the vehicle of the 'use' or 'trust', equity gives effect to life interests,
but not entailed interests, in leasehold or other personal property as well
as the remainders that may follow them. Thus A could achieve his purpose
by the transfer of his property to trustees to hold on trust for B for life,
187
r
HONG KONG LAND LAW
remainder to C. The Statute of Uses 1525 did not affect uses or trusts of
leasehold or other personal property, and thus equitable remainders of such
property remain equitable despite this enactment.
8.4.3.1
By Deed or Will
A trust creating an equitable remainder of leasehold property may be
created by deed inter vivos or by will.
8.4.3.2
Vested or Contingent
Equitable remainders may be vested or contingent. Equity saw no reason
to follow the strict rules to which contingent remainders at common law
were required to conform. As the legal estate is vested in trustees, there is
no danger of the abeyance of possession that the common law rules were
intended to avoid, even if the beneficial interests are still contingent. For
instance, if A leaves property to:
• X and Y as trustees to hold for B for life, with remainder to C ifhe qualifies
as a lawyer,
X and Y will hold the legal estate as trustees and be bound by the obligations
that entails until they a,re required, in the performance of their duties, to
transfer the trust property to a beneficiary of full age who is absolutely
entitled in possession. That person might be C, if C qualifies as a lawyer,
or it might be A or his estate, if C fails to satisfy the contingency.
In order to avoid the common law rules against legal contingent
remainders, the use or trust also became a popular means of creating future
interests in freehold property.
Ironically, continuity of possession is now far more significant in the
leasehold context than it is in the freehold context. Seisin and feudal
services are no longer important, but feudal services have their leasehold
equivalent in the form of rent to which the feudal remedies of distress and
forfeiture for non-payment of rent are available to a landlord, as they were
to a feudal lord. Furthermore, the power of a landlord to forfeit a lease is
generally also expressly extended to a tenant's failure to observe or perform
any of the tenant's other obligations under the lease. Accordingly, if there
is no person who is bound to pay the rental or to observe and perform the
tenant's other obligations under the lease, the threat of forfeiture places the
lease in jeopardy. The trust avoids this danger. The trustees, as holders of
the legal estate, are bound to pay the rent and observe and perform the
covenants in order to preserve the trust property.
8.5
Executory Interests
Executory interests also give a person other than the settlor a right to
property in the future. They differ from remainders, however, in that the
188
FUTURE INTERESTS
right does not follow upon the natural determination of the prior estate but
will bring that prior estate to a premature end, either by shifting the interest
to a third person on the happening of a specified event or springing up in the
future on the happening of a specified event. For instance, a grant by A to:
• B for life, but if B marries then to C,
will give rise to a 'shifting use' since B's life estate will be cut short by C's
interest should B marry.
A grant by A to:
• Bat 21,
will give rise to 'a springing use' since B's interest will spring into life when
he attains 21, and will cut short A's reversionary right to the property.
8.5.l
Nature of Executory Interests
Executory interests, like remainders, are created expressly by the grantor
rather than arising by operation of law. However, they differ from
remainders in that they are, by their nature, contingent. They give rise to
a possibility of an interest that will only vest in possession on the happening
of the specified event.
Executory interests fall into two types, executory uses or trusts and
executory devises.
8.5.2
Executory Uses/Trusts
Shifting and springing uses cannot exist at common law either in freehold
or leasehold property. In respect of freehold property, they infringed the
common law rules which limited legal contingent remainders and thus
could only exist in equity behind a"use or trust that did not apply similar
restrictions. With respect to leasehold or other personal property, we have
already seen that the common law does not recognise anything less than
absolute ownership of a chattel. Accordingly, in order to create a shifting
or springing interest the holder of a lease must employ a transfer to trustees.
The Statute of Uses 1525 marked a divergence in executory interests in
freehold and leasehold property. The statute executed the use in respect of
freehold property so that the equitable interests which lay behind the use
became legal interests known as legal executory interests. The statute did
not apply to leasehold or other personal property, and thus executory
interests of leasehold property continue to be recognised only in equity.
However, following the Statute of Uses 1525, uses of leasehold property
started to become known as 'trusts' in order to distinguish them from uses
over freehold property which had been executed by the statute. It is, of
course, the trust that has survived and developed into the institution we
adopt today to create future interests, both by way of remainder and
executory interest.
189
I
HONG KONG LAND LAW
I
8.5.3 Executory Devises 7
There is one future interest in leasehold property that can exist at common
law and that is the executory devise. This one exception is derived from the
Statute of Wills 1530, which permitted a testator to leave his property 'at his
free will and pleasure'. The common law courts, perhaps as a reaction to
the Chancery courts' recognition of limited interests in leasehold and other
personal property, interpreted this liberty widely to enable a testator to
create a life interest in leases. For instance in Matthew Mannings case 8 a
testator left his interest in a 50-year lease to his wife during her life and then
to Matthew Manning. The interest of the testator's widow was held to be
limited by the gift to Manning. The gift looks just like a life interest to the
testator's wife with a gift over by remainder, but in fact the court was not
prepared to depart too far from their traditional view of leaseholds in order
to recognise the creation of successive estates. Instead they interpreted the
gift as an executory devise. In effect, the testator's gift to his wife, which at
common law took effect as an absolute gift, was brought to a premature end
by the shifting of her interest to Manning on her death. The leasehold term
was not sliced up into separate estates - rather it was passed on from one
person to another.
The Statute of Wills 1530was superseded by the WillsAct 1837. This act
was originally incorporated into Hong Kong law by the Application of
English Law Ordinance,9 but it has now, in turn, been superseded by the
Wills Ordinance. 10
Turning back to our original example, where A by will grants a life
interest to his wife with remainder to their only child C, the precise effect
of this gift will depend on the wording of the will. If A provides that his
personal representatives or specially appointed trustees are to hold the
property oh the desired trusts, then an equitable life interest and equitable
remainder will be created. Alternatively, if no trust is established by the will,
the gift will take effect in law as a gift to A's wife subject to an executory
devise to their child C, to take effect on the death of A's wife.
The common law, however, has been cautious about extending its
recognition of executory devises. In particular, the common law declined
to recognise that an entailed interest in leasehold property and successive
life interests were only accepted if the prospective life tenants were all living
at the time of the devise.
In Hong Kong only reversions and executory devises can exist at law.
Remainders and executory interests can only exist behind a trust in equity.
Following the Statute of Uses1525, the position with regard to freehold land
;I
7
8
9
10
190
Technically leasehold property, as a chattel real, when left by will should be termed a
bequest rather than a devise, which is the term reserved for real property. But in
Hong Kong a gift of leasehold land by will is more usually termed a devise.
(1609) 8 Co Rep 94b. See also Lampet's Case (1612) 10 Co Rep 46b.
Cap 88
Cap 30, s 3 of which provides 'a person may by his will ... dispose of all his property
which he is beneficially entitled to', which it is hoped is wide enough to preserve a
testator's ability to grant an executory device.
FUTURE INTERESTS
in England was far more complicated. At common law a future interest in
freehold property might qualify as a legal reversion, a legal vested
remainder, a legal contingent remainder, or a legal executory use, while in
equity all these interests had their equitable equivalent. It was in the light
of this confusing array of interests that the Law of Property Act 1925 reduced
the number of legal estates to two, namely the fee simple absolute and the
term of years absolute, and provided that all future interests can exist only
in equity behind a trust. 11
8.6
Rule Against Perpetuities
A perennial concern of the common law was to balance the desirability of
preserving the free alienability of land against the wishes of many
landowners to retain the control of their estates not only during their
lifetimes but for successive generations. The development of future interests
that were contingent enabled property owners to exert control over the
future ownership of their property for very long periods of time. For
instance, a property owner could effectively tie up the ownership of his
property for several generations by simply leaving his property on trust for
his grandchildren for life with remainder to his great grandchildren.
Furthermore, a property owner could indulge his own likes or dislikes,
eccentricities, or whims in framing the conditions to which he made a gift
dependent. Contingent future interests also led to uncertainty, for until the
interest was vested it was impossible to identify who was going to be
entitled to the land. For instance, in the case of a life interest to
grandchildren with remainder to great-grandchildren, it would be impossible
to determine the ultimate ownership of the remainder until all of the settlor's
grandchildren had died since there was always the possibility that a further
great-grandchild may be born. The modern scientific developments of
artificial insemination, in vitro fertilisation and test tube conception give rise
to even greater problems, with the possibility that a child may be born after
both its parents have died!
The ability to create future interests, particularly contingent interests in
favour of beneficiaries who were not yet born, meant it could become very
difficult, if not impossible, to alienate the land. All persons who had a
potential interest in the land would have to be parties to any disposal and,
if those persons included children or unborn persons who were not capable
of joining in the disposal, the land was effectively inalienable.
To avoid these problems the common law developed the rule against
perpetuities, which has subsequently been modified by the Perpetuities and
Accumulations Ordinance, 12 to produce a highly technical set of rules to
determine the validity of any contingent gift. The Perpetuities and
Accumulation Ordinance is derived from the Perpetuities andAccumulations
Act 1964.
11
See ss 1(1) and (3) LPA.
12
Cap 257
191
HONG KONG LAND LAW
8.6. l
Tbe Common Law Rule Against Petpetuities
What is known as the modern common law rule against perpetrnt1es
developed in the late 17th century from the decision in the Duke of Noifollis
case. 13 The rule applies to both legal and equitable interests in both real and
personal property, and lays down a test which measures the validity of a
contingent interest against the time when it vests. The rule may be stated
as follows:
• A contingent interest is void unless it must vest, if it vests at all, within the
perpetuity period.
8.6.1.1
The Perpetuity Period
The rule dictates that a beneficiary's contingent interest must vest within the
perpetuity period. The perpetuity period is the lifetime(s) plus 21 years of
the life or lives in being at the date the disposition takes effect. In
appropriate cases, where a potential beneficiary is conceived but unborn,
the period of gestation will also be taken into account.
The date on which the disposition takes effect, in the case of a
disposition made during the lifetime of the grantor, is the date of the
disposition and, in the case of a disposition made by will, the date of the
testator's death.
A 'life in being' may be any human being, but not an animal or
corporation, who is alive at the date of disposition. But, as it is obviously
impossible to ascertain all such persons, the relevant lives in being are
restricted to those that are identifiable from the grant. The life must be
mentioned in the grant either expressly or by implication, and must in some
way or other affect when the gift will vest. For instance, in the case of a grant
by A in his will to trustees on trust for:
• his wife for life with remainder to his first child at the age of 30,
A is not a life in being because the gift takes effect on his death. If the gift
had been contained in a settlement inter vivos, A would qualify. A's wife
and children are all lives in being, provided they have not already
predeceased A. The gift is therefore not void for breach of the rule against
perpetuities, since the remainder must vest in the lifetime of A's children
who are all lives in being.
However, if the gift had been to:
• A's first grandchild to attain 30,
then the gift would fail. A may have grandchildren that are born after his
death and will thus not qualify as a life in being. The lives in being will be
13
192
(1681) 2 Swanst 454 and was settled in its final form in Cade!! v Palmer (1833) 1 Cl
and F 372
l
FUTURE INTERESTS
A's children, and if they all die within nine years of the birth of a grandchild,
as is quite conceivable, that grandchild will not attain 30 within the
perpetuity period.
A baby will qualify as a life in being from the time of conception, and
thus a baby en ventre his mother at the time of the grant will be a life in
being. For instance, in the case of a gift by A in his will to:
• his wife for life remainder to his first child to attain 30,
when A's wife is pregnant at the time of A's death, the child that is
subsequently born after A's death still qualifies as a life in being. The baby's
birth after the date of the disposition thus does not give rise to the possibility
that the gift may vest outside the perpetuity periocl. The gift is thus valid.
A period of gestation may thus be taken into account in two instances: first
in determining the lives in being, and second in extending the perpetuity
period. For instance, if there is a gift to:
• A's eldest son for life with remainder to the first child of A's eldest son,
and the wife of A's eldest son is pregnant at the time of the gift, the child
that is born will be a life in being. Furthermore, if A's eldest son dies leaving
his wife pregnant, the period of gestation of the child that is subsequently
born will be included within the calculation of the perpetuity period.
A grantor is free to select lives in being which do not have a connection
with the gift. A popular clause taking advantage of this ability to nominate
lives in being has been 'Royal Lives Clauses'. For instance, the prescribed
lives in being may be designated as 'all the lineal descendants of Queen
Elizabeth II alive at the date of the grant.' However, such clauses may be
struck down for uncertainty if it becomes impossible to trace all the
designated lives. For instance, in Re Villar 14 the designation of the linear
descendants of Queen Victoria as lives in being was upheld, it being
possible at that time to trace the over 100 descendants then alive. But now
it would probably be impossible to trace all the linear descendants of Queen
Victoria, and the gift may well fail for uncertainty.
Where no lives in being are designated or ascertainable, the perpetuity
period is 21 years.
8.6.1.2
Must Vest If It Vests At All
The rule does not require the interest to vest in possession, but only that
it must vest in interest if it vests at all during the perpetuity period. Thus,
where A makes a gift inter vivos while he is a bachelor to:
• his future wife for life, then to his first-born child for life, and in
remainder equally to all his other children,
14
[1929] 1 Ch 243
193
HONG KONG LAND LAW
the remainder may well not fall into possession within the perpetuity period
because his first- born child is not a life in being and may well survive A
by more than 21 years. But this is irrelevant, for the remainder will vest in
interest as soon as A's other children are born, and they must be born within
the perpetuity period as A is a life in being.
Under the common law a gift is void if there is a possibility that the gift
may vest outside the perpetuity period, even though that possibility is very
remote. The test is applied at the date the disposition takes effect, so that
it is not possible at common law to wait and see whether an unlikely event
actually occurs. The test at common law is thus concerned with possibilities,
however remote they may be, rather than probabilities.
We have seen that a gift in remainder to the first of the settlor's
grandchildren to attain the age of 30 years is void at common law, and this
remains so even if A has a grandchild alive at his death who qualifies as a
life in being. It may be very likely that this grandchild will attain a vested
interest during the perpetuity period, but it is also possible that this
grandchild, and any other grandchildren who are lives in being, may die
before reaching the vesting age - leaving either no other grandchildren or
only grandchildren who are not lives in being and thus will not reach 30
within the perpetuity period.
There are plenty of bizarre illustrations of the rule. See, for instance, the
unborn widow in Re Frost,15 the fertile 60-year-old woman in Re Dawson, 16
and the precocious toddler in Re Gaites Will Trust. 17 The common gifts that
tend to cause difficulties are gifts by will to grandchildren and remoter issue
that are dependent either upon attaining an age greater than 21 years old
or upon the satisfaction of a condition other than the attainment of a.
specified age. Similar gifts to children cause difficulties when made in a
settlement inter vivas, for the children of the settlor will not qualify as a life
in being if they are born after the date of the settlement.
8.6.1.3
Class Gifts -
the Rule in Andrews v Partington
18
The rules governing the vesting of a class gift require some further
explanation. A class gift arises where the gift is to a group or class of people,
for instance to:
•
all the children of A who attain 21 in equal shares.
For the purposes of the rule against perpetuities, vesting requires not only
identification of people within the class but also the share they are to take,
for invalidity of a gift will affect the whole gift. It is thus necessary in order
to calculate the share of each member of the class to ascertain the number
of persons within the class. For instance, if A makes a gift in remainder to:
15
16
17
18
194
(1889) 43 Ch D 246
(1888) 39 Ch D 155
[1949] 1 All ER 459
Cl791) 3 Bro CC 401
1
FUTURE INTERESTS
• all his grandchildren who attain 30,
we have a class gift. In order to determine the vesting of the whole gift it
is necessary to wait until all A's grandchildren either attain 30 or die before
reaching that age. As it is possible for one of A's grandchildren to attain 30
after the expiry of the perpetuity period, the gift is void even if some of the
grandchildren do attain 30 and thus a vested interest within the perpetuity
period. A class gift is not divisible. The interests of all class members must
vest within the perpetuity period or the whole gift will fail.
The class closing rule laid down in Andrews v Partington does provide
some assistance to class gifts. The rule provides that the class of persons
entitled to the gift closes when the first member of the class is able to claim
his interest, ie when he satisfies the condition. The class in our example
would thus close when the first of A's grandchildren attains 30 years old.
Grandchildren born before then may qualify if they reach 30, but grandchildren
born subsequently are excluded from benefiting from the gift, even if they
do attain 30. The rule may save a gift that would be otherwise void, where
at the time of the disposition there is at least one qualified member of the
class. In our example the gift would be saved if A had a grandchild who had
attained the age of 30 at the time of A's death, since the class is closed and
all possible members will be lives in being.
The rule also allows at least a partial distribution to a member of the class
who has satisfied the condition. For instance, if A has three grandchildren,
when the eldest reaches the age of 30 a 1/3 share can be distributed to the
eldest grandchild immediately. If either or both of the remaining two
grandchildren fail to qualify, then a subsequent distribution can be made
to satisfy the now enlarged interest of the eldest grandchild.
8.6.1.4
The Rule in Whitby v Mitchell
19
This rule is sometimes known as 'the rule against double possibilities', for
it provided that where a gift was given to an unborn person, any remainder
given to the issue of that person and any subsequent limitations were void.
For instance, in a gift in trust to:
• A for life, and then to B for life, and then to the children of B,
where B was unborn at the time of the gift, the gift to B was valid but the
remainder to his children was void.
The rule has now been abolished by the Perpetuities and Accumulation
Ordinance 20 in respect of gifts made after 13 March 1970, as it has been
rendered largely redundant by the present rules governing perpetuities.
19
20
Whitby v Mitchell (1890) 44 Ch D 85
See s 1 of Cap 257.
195
J'
··HONGKONG I.AND IA W
8.6.2
Statutory Modifications.Perpetuities and Accumulations
Ordinance
The harshness of the common law perpetuity rules has been mitigated
by the Perpetuities and Accumulations Ordinance (hereinafter PAO)21
in respect of dispositions taking· effect after 13 March 1970. These
modifications, however, only apply where a gift is void at common law. The
ordinance supplements the common rules, it does not replace them. It is
thus still necessary to apply the common law rules before turning, if
required, to the assistance of the ordinance.
8.6.2.1
Specified Perpetuity Period 22
It is now possible to specify a perpetuity period within which a contingent
gift must vest provided that period does not exceed 80 years.
8.6.2.2
Wait and See 23
Rather than having to determine the validity of the gift at the date of the
disposition, it is now possible to 'wait and see' if the gift will vest within the
perpetuity period. If it does the gift is saved. This is the most far-reaching
reform and as a result the rule against perpetuities may now be stated as:
• A contingent gift is valid if it vests within the perpetuity period and is only
void ab initio if it must vest if it vests at all outside the perpetuity period.
For instance, a limitation by a grantor to:
• his grandchildren who attain the age of 30,
will not be void ab initio. The gift will only be void if it does not vest within
the perpetuity period. It is necessary to wait and see whether that possibility
will become a reality. The more extreme consequences of the common law
rule against perpetuities are thus removed, as the rule looks to reality rather
than possibilities. The rule, however, does lead to greater uncertainty.
because it is necessary to wait and see if the gift will vest within a period
that can extend well into the future.
8.6.2.3
Statutory Lives in Being 24
When applying the 'wait and see' rule, the definition of lives in being is
prescribed by the ordinance as the following persons who are in being and
21
22
23
24
i
'
l
196
Cap 257
Sees 6 PAO.
See ss 8(1)-(3) PAO.
See ss 8(4) and (5) PAO.
FUTURE INTERESTS
ascertainable at the start of the period provided that they are not so
numerous as to make identification impossible:
• thE; settlor;
• a person in whose favour the disposition is made, including any
potential beneficiary or class member;
• a parent or grandparent of any person in whose favour the disposition
is made; and
• any person on the failure of whose prior interest the disposition is limited
to take effect.
These statutory lives in being are only relevant where it is necessary to rely
on the wait-and-see provision. If the gift is valid at common law, it is the
common law lives in being that are used to determine that validity.
8.6.2.4
Age Reduction
25
Where a gift is void at common law and has not vested within the perpetuity
period despite applying 'wait and see', because it is conditional upon the
attainment of an age greater than 21 years, the gift may still be saved
provided the gift would be valid if the qualifying age were 21 years. In this
case the age qualification is reduced to such age as is necessary to enable
the gift to vest within the perpetuity period. Thus, in the case of a limitation
in trust to:
•
all A's grandchildren at the age of 30,
if at the end of the perpetuity period there is one grandchild who is aged
25, then the age requirement is reduced to 25 so that the gift will vest. If there
are several grandchildren, who are for instance 21, 23, and 25 years old, then
the qualifying age is reduced to the age necessary to enable the youngest
to take a vested interest, ie 21 years. However, any younger grandchildren
are excluded from the class for they cannot take a vested interest even with
the benefit pf age reduction.
If it is apparent at the date of the grant that the gift cannot vest within
the perpetuity period, so that to wait and see will not help, ·then age
reduction can be effected at the time of the gift
8.6.2.5
Fertility Presumptions
26
It is now presumed for the purposes of the rule that:
• a male cannot be a father under 14 years; and
• a female cannot be a mother under 12 years or over 55 years,
25
26
Sees 9 PAO.
Sees 7 PAO.
197
HONG KONG LAND LAW
However, these presumptions are rebuttable, so that medical evidence may
be brought to show evidence of a person's capacity or incapacity which
differs from these presumptions.
Parenthood for these purposes goes beyond having a child by natural
biological means and extends to adoption, legitimation, or other means. 27
8.6.2.6
Unborn Widows
28
A gift to:
• A (a bachelor) for life, then to any widow of A for life, with remainder
to their children then living at the death of the survivor,
is valid so far as the gifts to A and his widow are concerned, but the gift to
their children is void at common law because of the possibility that A's
widow may not be a life in being and may die more than 21 years after A's
death. The gift may now be saved by an application of 'wait and see' or,
where A's widow is both unborn and survives A by more than 21 years,
treating the gift to A's children as taking effect immediately before the end
of the perpetuity period.
8.6.3
The Effect of a Void Disposition
Where there is a series of gifts made of the same property, each gift must
comply with the perpetuity rule. The fact that one gift may be void for a
breach of the rule does not necessarily mean that all the other gifts must fail
too. There are three possibilities to consider.
8.6.3.1
A Valid Gift Followed By a Void Gift
A gift that is followed by a void gift is unaffected by the void gift. Thus, if
property is left to:
• A for life with remainder to A's grandsons who attain 30,
A's life interest is unaffected by the gift to his grandsons which may fail to
vest.
8.6.3.2
A Valid Gift Following and Independent
of a Void Gift
Where a valid gift follows a void gift it will not fail provided it is independent
of the void gift. For example, if property is left to:
27
28
198
The problems presented by in vitro fertilisation, artificial, and test tube insemination
have already been alluded to.
Sees 10 PAO.
7'
FUTURE INTERESTS
• A's first son to become a lawyer for life, with remainder to A's wife,
the gift to A's wife is not in any way dependent on the gift to A's son. Its
vesting is governed by A's marriage - not by the qualification of A's son
as a lawyer, which must take place within the perpetuity period where A
is a life in being.
8.6.3.3
A Valid Gift Following and Dependent on a Void Gift
At common law, a valid gift that is dependent upon a void gift also fails. For
instance, if property is left to:
• A's first son to become a lawyer, but if he has no such son then to A's
wife for life,
the gift to A's wife will fail although it does not itself infringe the rule against
perpetuities. It will fail at common law because it is dependent upon the gift
to A's son which does infringe the rule. However, if the gift is contained in
an instrument taking effect after 13 March 1970, the Perpetuities and
Accumulations Ordinance will save the gift.29
8. 7
Rules against Inalienability
The law is concerned to maintain the free alienability of property, and we
have seen that the rule against perpetuities is intended to promote the free
alienability of property by limiting the time within which an interest must
vest. There are also other rules that are intended to promote alienability.
8.7.1
Restrictions on Alienation
A condition that seeks to significantly restrict alienation may be struck down
as contrary to public policy. For instance, the following conditions have
been struck down as void:
• the prohibition of alienation at any time;3°and
• the prohibition of alienation during a person's life;31
• alienation to anyone but A.32
By contrast, a partial restraint which does not significantly deprive an owner
of his power of alienation may be acceptable, for instance, a prohibition on
selling to a specified person or class of persons provided the class is not too
restrictive. 33 At one time a restraint upon a married woman being free to
29
Sees 11.
3o
31
Re Dugdale (1888) 38 Ch D 176
Re Rosher (1884) 26 Ch D 801
Re Cockerill [1929] Ch 131
Doe d Gill v Pearson (1805) 6 East 173
32
33
I
11-
199
HONG KONG LAND LAW
alienate her property was not uncommon, but with greater sexual equality
a restraint upon a married woman being free to alienate her property is no
longer valid. 34
8.7.2
Purpose Trusts
A trust set up for a specific purpose, rather than to benefit a particular
individual or class, will be void if it requires the property to be held by the
trustees indefinitely in order to carry out the specified purpose. For instance,
if a trust requires the trust income to be applied in a specific way the trustees
will be obliged to retain the capital in order to discharge their trust of the
income. The capital is thus inalienable. Examples of gifts that have fallen
foul of this rule include gifts to maintain family graves and ancestor
worship, 35 and a gift to be applied for the welfare, as opposed to the benefit,
of a village. 36 Charitable trusts, where the necessary element of public
benefit can be established, form an exception to this rule.37Such gifts may
also be saved if the restraint on alienation is restricted to the perpetuity
period. As there will generally be no lives in being, the perpetuity period
for a purpose trust will usually be limited to 21 years.
8.8
Rule Against Accumulations
During the subsistence of the trust, the trustees will have to manage the trust
property. They will collect the income and distribute it to the beneficiary
entitled in possession. For instance, the life tenant will be entitled during
the period of his life interest. When the remainder becomes vested in
possession it is the remainderman who is entitled to the income, but if the
remainder is still contingent when the prior estate falls in, the remainderman
is not yet entitled to the income. The income will revert to the settlor as
undisposed-of property unless the gift is to carry the intermediate income,
in which case the income is accumulated for the benefit of the contingent
remainderman.
8.8.1
Statutory Powers of Accumulation
Section 33 of the Trustee Ordinance3 8 confers special powers on trustees to
accumulate and distribute income to infant beneficiaries. Where the interest
of the infant beneficiary is vested, the trustees may apply the income for his
34
35
36
37
38
200
See s 4 (2) Married Persons Status Ordinance Cap 182.
Yeap Cheap Neo v Ong Cheng Neo (1875) LR 6 PC 381, Lau Leung Shiv Lau Po Tsun
(1911) 6 HKLR 149 and Ip Cheung Kwok v Ip Siu Bun [1988] HKC 437, (1990) CA Civ.
App No 79 of 1988 but note the tong and tso property at Chapter 9.4.
Ip Cheung Kwok v Ip Siu Bun (1990) CA Civ Ap No 79 of 1988.
See, for instance, AG v Pon Yup Chong How Benevolent Association 0992) HCt MP No
1896 of 1991 where following Re Hetherington [1990] 1 Ch 1 a trust for the repose of
souls of those from Pon Yup County in China who died in or around San Francisco
was held to be a charitable trust for religious purposes and could be applied cy-pres.
Cap 29
. .J
The table on the following pages summarises the rules governing future interests and their vesting.
Future Interest Table
to A's wife for life
in possession
vested in possession
NB is an absolute gift at
law thus no reversion to
A or his estate
in trust for A's wife
for life
A's wife for life
then to their child C
in possession
vested in possession
equitable reversion to A
or his estate
vested in interest
in possession
executory devise
vested in possession
contingent on death
of A's wife
valid -A's wife & C
lives in being
"tj
~
~
~
~
~
~
1--l
~
~
i,t.·
~··•-~·~
.. .,...
·""'·
LiL
JM.,
·~·-!:U~.- ~ ;·: :;
;i
5~
~
~
N
~
i
Future Interest Table (continued)
~
~
~
~
in trust for A's
wife for life
then to their
child C
in possession
vested in possession
equitable remainder
vested in interest
in trust for A's
wife for life
then to their
child C
if he attains
21 years
in possession
vested in possession
equitable remainder
contingent on C attaining
21 years
equitable reversion to A
or his estate unless C
attains 21 years
vested in interest
in trust for A's
wife for life
then equally to
all their
children who
attain 21 years
in possession
vested in possession
equitable remainder
to a class
contingent on children
attaining 21 years
equitable reversion to A or
his estate unless child
attains 21 years
vested in interest
valid -C
is a life in being
valid -A
and his wife are
lives in being
in trust for A's
wife for life but
if A's wife
becomes
bankrupt to C
in possession
vested
-
equitable executory shifting
interest
contingent on A's wife's
bankruptcy
valid -A's wife is a life in
being
equitable reversion to A or
A's estate unless A's wife
becomes bankrupt
vested subject to divesting
-
in trust to C at
21 years
equitable executory springing interest
contingent on C attaining
21 years
valid -C
in trust for A's
wife for life
then to their
first child to
marry
in possession
vested
-
equitable remainder
contingent on child
marrying
valid
equitable reversion to A or
A's estate unless a child marries
vested subject to divesting
is a life in
being
-in will as child
will be a life in being
void
-in settlement
at
as child may not
common be a life in being
law
but may be saved
by 'wait and see'or
fertilitypresumptions
~
~
§a
t'l
~
~
~
~
~
~
i'tVT
··~
_.,.,,-~,""'-·=•,.,. iii.ii~:ttM~M!ft.
-_1111711--~-~-"'=
'"~
l1i,.
___p
UJ& ..
",.U...
_z_
Ll_
-
__.J,
N
. fMiiC•J~L7
~
C·
_iit"PL ·--
~
~
~
~
Future Interest Table (continued)
s:
§
s:
~
in trust for A's
wife for life
then to their
first child to
attain 30 years
in possession
vested
equitable remainder
contingent on child
attaining 30 years
equitable reversion to A or
A's estate unless child
attains 30 years
vested subject to divesting
valid
-in will as child
will be a life in being
void
-in settlement as
child may not be a
at
common life in being but
law
may be saved by
'wait and see',
fertility
presumption or
age reduction
in trust for first
of A's grandchildren to
obtain LLB
in trust equally
for all A's
grandchildren
who attain 21
years
equitable executory springing interest
contingent on grandchild
obtaining LLB degree
equitable reversion to A or
A's estate unless grandchild
obtains LLB degree
vested subject to divesting
equitable executory springing interest to a class
contingent on grandchild
attaining 21 years
equitable reversion to A or
A's estate unless grandchild
attains 21 years
vested subject to divesting
void
-grandchild may
at
not be a life in
common being but may
law
be saved by 'wait
and see' or fertility
presumptions
valid
-in will for A's
children will be
lives in being
void
-in settlement for
at
A's children may
common not be lives in
law
being,but may
be saved by 'wait
and see', fertility
presumptions, or
class closing rules
'?:I
~
§a
t?l
~
~
N
§;
~
~
•
II!., .. ! .. IL
..!!!,!,
!!!!IHI :..... U!>.
■
. __j@II) W@S
..._Jc £
I U L £. §d_
J "- , M! L. ..J2JM!!l
i1.
""JE
N
:i:::
~
~
(;')
~
~
Future Interest Table (continued)
is:
~
in trust for A's
wife for life
then equally
to all A's grandchildren who
attain 30 years
in possession
vested in possession
equitable remainder to a class
contingent on grandchild
attaining 30 years
equitable reversion to A or
A's estate unless grandchild
attains 30 years
vested subject to divesting
void
-for grandchildren
at
may not be lives
common in being but may
law
be saved by 'wait
and see', fertility
presumptions, age
reduction, or class
closing rules
FUTURE INTERESTS
maintenance, education, or benefit and if the income is not so applied, it
is accumulated and payable to the beneficiary upon his attaining his
majority or marrying. 39 If the beneficiary's interest is contingent, then,
provided the gift is expressed to carry the intermediate income, the trustees
may also apply the income for his maintenance, education, or benefit and
when the beneficiary attains his majority he is entitled to the income even
if his interest has not yet vested. Income not so applied is again accumulated
and is payable to the beneficiary if he attains a vested interest on attaining
majority or marriage. In other cases the accumulated income is added to the
trust capital. The fact that the infant beneficiary's contingent interest may
ultimately fail does not affect his receipt of income under this power.
There is also power granted to trustees in certain circumstances to
advance capital for the benefit of a contingent beneficiary. 40
8.8.2
Express Powers to Accumulate
In addition to the statutory right to accumulate, a settlor may expressly direct
his trustees to accumulate income for the benefit of a specified beneficiary
who would otherwise not be entitled to the income. For instance, property
may be left:
• by A in trust for such of his brother's children who attain the age of 21, the
income to be accumulated until his brother's youngest child attains 21.
. I
The periods during which it is possible to accumulate income are limited.
At common law the permitted period for accumulations is the same as the
perpetuity period, but this limitation has led to bizarre results. For instance,
in Thellusson v Wood 41 the settlor directed that all income should be
accumulated during the lifetime of his sons, grandchildren, and greatgrandchildren alive at his death. The direction to accumulate did not offend
the rule as all the specified people were lives in being, but nevertheless the
enjoyment of the income, and as a result, the capital, was tied up for a
considerable period. The common law rule has now been repealed by s 17
PAO, 42 which limits the accumulation period to one and only one of the
following periods:
(a)
(b)
( c)
the life of the grantor or settlor; or
a term of 21 years from the death of the grantor, settlor or testator;
or
the duration of the minority or respective minorities of any person
in being at the death of the grantor, settlor or testator; or
39 The age of majority for these purposes is 21 years in respect of interests arising under
instruments made before 1990 and 18 years in respect of interests arising under
instruments made after that date. See ss 8 and 21, Age of Majority (Related) Provisions
Ordinance No 32 of 1990.
40
Sees 34 Trustee Ordinance Cap 29.
41
(1799) 4 Ves 227
42
Cap 257
207
HONG KONG ZAND LAW
(d)
(e)
CD
the duration of the minority or respective minorities only of any
person who would under the limitations of the instrument
directing accumulations would, for the time being, if of full age,
be entitled to the income directed to be accumulated; or
a term of twenty-one years from the date of the making of the
disposition; or
the duration of the minority or respective minorities of any person
or persons in being at the date of the disposition.'
The question of which period is appropriate depends upon the particular
case and the construction of the gift. For instance, periods (a), (e), and (f)
cannot apply to wills, only to dispositions inter vivos; while periods Cb),(c),
and (d) may apply to either wills or dispositions inter vivos. In the case of
our example above of a gift to the children of A's brother at 21 with a
direction to accumulate while any of the children are under 21, the third
period appears to be the most appropriate. The fourth period is inappropriate since the children are not entitled to the income while one of them
is under 21.
Where the accumulation may possibly exceed the perpetuity period, the
whole direction to accumulate is void. It does not seem possible to wait and
see. If the direction does not exceed the perpetuity period but does exceed
the appropriate accumulation period, the direction is only struck down
during the excess period. In those circumstances the income passes to the
person who would have been entitled to receive it but for the direction to
accumulate or, if no one is expressed to be entitled to the income, the
income will revert to the grantor or his estate.
A period of statutory accumulation is disregarded when considering the
period during which accumulations made pursuant to an express power are
permitted. 43 It is possible for an express period of accumulation to be
followed by a statutory period of accumulation where the beneficiaries
entitled are still minors at the end of the express period of accumulation.
8.8.3
Rule in Saunders v Vautier 44
A direction to accumulate income will not prevent a beneficiary who is of
full age and absolutely entitled from exercising his rights under the rule in
Saunders v Vautier to bring the trust to an end. If he does so he will
automatically bring the trustee's power to accumulate to an end.
43
44
208
Sees 18 PAO Cap 257.
(1841) 4 Beav 115 affirmed Cr and Ph 240
Settlements And Trusts For Sale
9.1
Introduction
We have seen, when looking at future interests, that in Hong Kong life
interests, remainders, and executory interests, save for executory devises,
can only exist in equity behind a trust. The settlor transfers his property to
trustees to hold as he directs. The trustees hold the legal estate and the
beneficiaries the equitable or beneficial interest in the property. We now
look at the different types of trusts that can be employed to create interests
in succession. For instance, we know that where A wishes to leave a life
interest to his wife with a remainder to their only child C, he should employ
a trust. But what is the most convenient type of trust to implement his wishes?
There are two types of trust that can be employed: the strict settlement
and the trust for sale. These two types of trust are examined in this chapter.
In addition, it is convenient at this point to look at the Chinese customary
law equivalent of a trust by which successive interests in property in the
New Territories may be held.
9.2
9.2.l
Strict Settlements
Historical Background
The strict settlement has played a prominent role in the development of land
law in England. In many societies land has traditionally been the source of
wealth and power, and England was no exception. Landowners, anxious
to retain their wealth and influential positions, sought both to protect their
family landholding and to provide for their extended family by rendering
the land effectively inalienable. They did so by settling land on trustees to
hold the land on trusts which provided for a number of successive interests
to family members. To sell the land, the trustees and all the beneficiaries
would have to agree to and participate in the sale in order to pass the full
legal and equitable ownership to the purchaser. Not only could it be difficult
to obtain the unanimous agreement of all the beneficiaries, but it was simply
impossible if some of the beneficiaries were under age or unborn and thus
incapable of participating in the sale. In such circumstances, the beneficiaries
could only deal with their individual equitable interests to the extent that they
were capable of doing so.
This inability to sell or deal with the land itself had its drawbacks. The
owner in possession might be unable to raise sufficient money to maintain
the land or to keep any buildings erected on the land in good repair. The
improvement or development of the land was also hampered, for, in the
absence of any express power granted in the settlement or the consent of
all the beneficiaries, an owner in possession could not raise finance by
mortgaging the land or selling or leasing part of it. The finance for repair
or improvement would have to come from other sources: for instance, from
209
HONG KONG LAND IA W
the owner in possession's personal assets, which he might well be unwilling
to invest in property in which he only had a limited interest. As a result of
these difficulties, settlements were drafted to include extensive powers for
the owner in possession to sell and manage the land. In England such
powers were extended to all settlements by legislation. This legislation is
now contained in the Settled Land Act 1925.
The popularity of the strict settlement was already on the wane in England
by the mid-19th century, when the industrial revolution brought new forms
of wealth from manufacture and trade. 1 There was, of course, the same desire
to preserve family wealth - but that desire was not served by retaining the
land in its existing state but by maximising its potential by development. Land
was not so much an inherent source of wealth and power but a commodity
like any other, whose value was enhanced by ensuring it could be freely
developed and sold. That purpose was accommodated by the development
of the trust for sale in the 19th century, but now may also be served through
the vehicle of a limited company. Thus, by the time Hong Kong was
established, the strict settlement was no longer the popular means
employed for preserving family wealth, and it has not served that function
in the territory. Interestingly, it is Chinese customary trusts that have, in some
measure, sought to maintain family prosperity by rendering land inalienable.
If a person wishes to leave successive interests in property, he will use
the trust for sale which, as we shall see, preserves the alienability of the land.
Although strict settlements are not usually intentionally created in Hong
Kong, they may arise where a person in ignorance of the niceties of property
law creates interests in succession without employing a trust for sale.
Unfortunately, home-made wills are a fertile source of strict settlements. It
is thus important to briefly review the position under a strict settlement.
9 .2.2
Alienability and Management of Settled Property
The Settled Land Act 1925has not been enacted in Hong Kong, nor is there
any other legislation dealing specifically with land held under a strict
settlement. Accordingly, land or any other property held for interests in
succession cannot, in the absence of any express powers granted in the
settlement itself, be sold without the participation of all the holders of an
interest in the land or by order of the court.
For instance, in a simple settlement of a life interest on the settlor's wife with
remainder to their children, both the wife and all the children must all agree
to, and join in, a sale of the land. This is the case even if the children's interests
are contingent, for instance upon their attaining 21 years of age. Where the
beneficiaries are minors, there is the problem of the beneficiaries being
incapable of giving consent to the sale. The same problem arises if a
beneficiary suffers from some other disability, or if there are potential
beneficiaries who have not yet been born. For instance, if our simple
settlement of a life interest to the settlor's wife with remainder to their children
contained a further gift by which grandchildren were to take their parent's
''
1
210
Clause 2 of the Trusts of Land and Appointment of Trustees Act 1996 prohibits the
creation of new strict settlements in England.
SETTLEMENTS AND TRUSTS FOR SALE
remainder should their parent die before their interest fell into possession, the
potential grandchildren would have a contingent interest even though they
were unborn.
Where the holder of an interest is under a disability or is unborn, or for
some other reason the trustees lack the power to deal with the land,
application can be made to court under s 56 of the Trustee Ordinance 2 for
an order authorising the 'sale, lease, mortgage, surrender, release, or other
disposition' of the trust property. The court will make an order if it is satisfied
that it is expedient to do so. For instance, in Kwong Suk-chun v Wong Fungming 3 a successful application for an order for sale was made by a mother
who held a flat in trust for her two infant children, where the proceeds were
to be applied for the education and maintenance of one of the daughters.
Section 56 also permits the court to sanction any purchase, investment,
acquisition, expenditure, or other transaction which is, in the opinion of the
court, expedient. It appears that under this power the court could approve
the use of trust assets for the purpose of repairing, improving, or developing
the trust property, although such approval is completely within the
discretion of the court.
The powers of the court under s 56 may be exercised generally or to
permit a particular disposal or transaction, and the court may impose on the
power conferred such terms, provisions, or conditions as the court thinks
fit.4 It is thus conceivable that the court could confer upon the trustees a
general power to sell, lease, or mortgage the property, and that such a
power could be limited in order to safeguard the interests of the beneficiaries - for instance, by providing that any sale must be for full market
consideration, that any lease should not exceed a certain term and should
be for the best rental, or that the money raised by mortgage could only be
used for certain purposes connected with the trust property, such as its
improvement or repair. Examples of the general powers to sell, lease, and
mortgage settled land that have been sanctioned by the Settled Land Act
1925 in England can be found in ss 38, 39, 41, 42, and 71 of that act.
The powers that the court can grant under s 56 can be conferred only
upon the trustees of the settlement. By contrast, the Settled Land Act 1925
in England provides a regime whereby the powers of disposal and
management are exercisable by the owner for the time being in possession
of the land, who is known as the 'tenant for life'. The tenant for life, in
exercising his statutory powers, however, has the same duties as a trustee
and must have regard to the interests of the other beneficiaries. In some
cases he must also give notice to the trustees or obtain their consent to the
exercise of his powers. It is the role of the trustees, under a settlement
governed by the Settled Land Act 1925, to deal with the capital monies
generated by any disposal by the tenant for life.
To avoid having to go to court to obtain an order for the sale or other
disposition of the property held under a strict settlement, or to permit
activities that the court is unable to sanction under s 56, it is vital for the
2
3
4
Cap 29
(1989) HCt MP No 66 of 1989
For instance, in the Kwong case the court required the appointment
trustee.
of an additional
211
HONG KONG LAND LAW
express terms of the settlement to give adequate powers to the trustees or
the tenant for life. Indeed, in the Kwong case, the judge commented on the
unsuitable form of the trust deed that had been employed where no such
powers were given.
9-3
9.3.1
Trusts For Sale
Historical Background
The trust for sale first emerged in medieval times as a means by which a
testator arranged for the payment of his debts on his death. He would leave
his property to trustees on trust to sell and use the proceeds to pay his debts.
The trust for sale is still used in this way: for instance, legislation now
provides that the estate of anyone dying intestate is to be held on trust for
sale, first to pay off his debts and then to pa~s to those entitled to his estate. 5
It was not until the 19th century that trusts for sale emerged to provide
a vehicle for the creation of interests by way of succession. As we have seen,
the strict settlement fell from grace with the shift of wealth from land to
manufacturing and trading activities brought about by the industrial
revolution. Wealthy businessmen also wished to safeguard their family
fortunes by providing for interest in succession, but they did not necessarily
want to confine that fortune to the ownership of a particular piece of land.
Other investments were emerging, such as company shares, that could
serve their purpose as well as land. Land, of course, continued to be a
valuable asset, but its value was enhanced by preserving its alienability so
that the optimum use could be made of the land through development or
sale. The trust for sale met these wishes admirably. Indeed, they became
known as 'traders settlements'. Property, which could include land and
other assets, was transferred to trustees on trust for sale, with a power to
postpone sale, and the proceeds of sale were then fixed with the desired
trusts. Family fortunes could be safeguarded by the creation of interests in
succession, but alienability was preserved by providing that those interests
were in the proceeds of sale rather than the property itself.
The desires that stimulated the development of tfllsts for sale still pertain
in Hong Kong today, and trusts for sale continue to be used in Hong Kong
in order to leave interests in succession.
.I
I
I
'··I
9.3.2
Requirements ofTrustsforSale
Trusts for sale may be created by instrument inter vivas or by will, but in
either case they must satisfy the requirements of the following definition
found in the Trustee Ordinance 6 'an immediate binding trust for sale,
whether or not exercisable at the request or with the consent of any person
and fith or without power or discretion to postpone the sale.'
5
6
212
See s ~2 Probate and Administration Ordinance Cap 10.
Sees 2 Cap 29'. The definition is in fact phrased in the context of a trust for sale of
land, but it is also appropriate for a trust for sale of other property.
SETTLEMENTS AND TRUSTS FOR SALE
9.3.2.1
Obligation to Sell
There must be an obligation on the trustees to sell. A mere power for the
trustees to sell is insufficient. The whole of the will or trust deed must be
considered in order to ascertain whether an obligation to sell is imposed or
a mere power granted. For instance, in the case of Re Newbould 7 the words
'upon trust to sell' were not sufficient where the subsequent gifts were
expressed to be of the land of the donor rather than the proceeds of sale
of the land. 8
Difficulties have arisen where the trusts permit the trustees 'to retain or
sell the land'. Again, the whole of the terms of the will or trust deed must
be considered to establish whether there is a general intention that the land
should be sold or that it should be retained as land with a mere power to
sell.9 In England the difficulties have been resolved, at least in respect of
trusts created after 1925, for s 25( 4) of the Law of Property Act 1925 provides
that a trust to retain and sell shall be construed as an imperative trust for sale.
Unfortunately, s 25( 4) of the Law of Property Act 1925has not been enacted
in Hong Kong.
9.3.2.2
Immediate Sale
The trust for sale must be immediate. A trust that imposes an obligation to sell
in the future will not qualify. For instance, in Re Horne's Settled Estate 10 a
direction that there should be no sale for 21 years was fatal.
9.3.2.3
Power to Postpone Sale
A power to postpone sale will not prevent a trust qualifying as a trust for
sale. The definition of a trust for sale clearly contemplates that a power to
postpone sale may be granted. Indeed, in England s 25(1) of the Law of
Property Act 1925 implies a power to postpone sale unless there is a clear
intention to the contrary.11 This provision has not been enacted in Hong
Kong, and thus a power to postpone sale must be express. If there is no
express power to postpone sale, a year is generally considered to be a
reasonable time within which to effect the sale. 12 As the trust for sale is
imperative, and the right to postpone sale is merely a power, all the trustees
must agree to postpone sale. If they do not the property must be sold. 13
7
8
9
10
11
12
13
(1913) 110 LT 6
Re Hotchkys (1886) 32 Ch D 408
Re White's Settlement [1930] 1 Ch 179; Re Johnson [1915] 1 Ch 435; and Re Crips (1906)
95 LT 865
(1888) 39 Ch D 84
The Trusts of Land and Appointment of Trustees Act 1996 implies a power to postpone
sale regardless of a contrary intention.
Re Petrie [1962] Ch 355
Re Hilten [1890] 2 Ch 548
213
HONG KONG IAND IA W
9.3.2.4
Consent of Third Parties
The fact that the trustees must obtain the consent of one of the beneficiaries
or some other person before they can sell does not prevent the trust
qualifying as a trust for sale. 14 For instance, it is common for a testator who
has left the whole or part of his estate to his wife for life to provide that his
trustees shall not sell the matrimonial home included in his estate without
the consent of his wife, since his wife may wish to continue to reside there.
However, if the third person, whose consent is required, is also able to direct
the trustees never to sell, the trust may fail to qualify as a trust for sale. 15
9.3.2.5
Binding
The prevailing view is that this requirement adds little more than to emphasise
that the trust to sell must be imperative rather than a mere power. 16 In England,
however, a line of cases has sought to extend the meaning to require the
trustees to be able to take free of any prior settled interest.17But these cases
do not appear to be applicable in Hong Kong. In England the issue only arose
when it was necessary to determine whether the land was held under the
Settled Land Act 1925 or had become a trust for sale, but this distinction does
not arise in Hong Kong where there is no legislation dealing with settled land.
9 .3.3
Position of Trustees for Sale
The position of trustees for sale in Hong Kong is little different from that of
any other trustees. It is governed by the Trustee Ordinance1 8 and the express
terms of the will or trust instrument by which the trust is created. A detailed
examination of the position of trustees is outside the scope of this book, but
there follows a brief look at the unique position of trustees for sale of land.
9.3.3.1
Sale
As we have seen, the trustees are under a duty to sell unless they
unanimously agree to exercise a power to postpone sale. If they do decide
to sell, then they may sell by private treaty or auction as they see fit.19 In fact,
very often the intention of a trust for sale is that the land will not be
immediately sold but will be retained for as long as the trustees see fit in
the discharge of their duties as trustees. Alternatively, the beneficiaries, if
they are all of full age, may together decide that the property should be sold
and direct the trustees accordingly. Pending sale, the trustees will hold the
income produced by the trust property upon the declared trusts or may
allow the beneficiary in possession to occupy the land. For instance, if the
trusts grant a life interest to the settlor's spouse and a remainder to his or
14
15
16
17
18
l9
214
Re Wagstaff Settled Estates [1909] 2 Ch 201
Re Goodall's Settlement [1909] 1 Ch 440
Re Parker's Settled Estates [1928] Ch 247
See, for example, Re Leigh's Settled Estates [1926] Ch 852.
Cap 29
Section 13
SETTLEMENTS AND TRUSTS FOR SALE
her children, the spouse will be entitled to receive the income from the
property during his or her lifetime and thereafter the children will be
entitled to the income and capital absolutely. The trustees may allow, but
are not bound to give, the spouse occupation of the property.
The sums raised upon a sale must be either distributed to the
beneficiaries, if they are entitled to call for distribution, or invested by the
trustees in pursuance of the powers expressly granted to them by the will
or trust instrument or in pursuance of their powers implied under the
Trustee Ordinance. 20 It is interesting to note that the trustees cannot invest
in other land unless the will or trust instrument expressly authorises such
an investment or the trustees apply to court for approval. 21
It appears that any 'other land' purchased by the trustees from the
proceeds of sale of land initially held in trust for sale will not necessarily be
held on trust for sale in the absence of any direction to that effect in the will
or trust instrument. 22 In England s 32(1) of the Law of Property Act 1925
implies a trust for sale over such 'other land', but this provision has not been
enacted in Hong Kong.
9.3.3.2
Other Powers
Pending sale and in pursuance of their obligation to manage the land, the
trustees may need to lease the land, raise a mortgage, or pay for repairs or
improvements to the property. In England trustees for sale are granted the
same powers that are conferred upon the tenant for life and trustees by the
Settled Land Act 1925, including the power to lease, to mortgage, and to
carry out improvements. 23 Trustees for sale in Hong Kong enjoy no such
implied powers. They must rely on the express powers granted to them in
the will or by the trust instrument, or they must apply for the court's approval
of the transaction under s 56 of the Trustee Ordinance.
Section 56 is widely worded and permits the court to sanction, either
generally or limited to a particular instance, 'any sale, lease, mortgage,
surrender, release, or other disposition, or any purchase, investment,
acquisition, expenditure or other transaction, [that] is in the opinion of the
court expedient'. 24 The court may impose such conditions as it thinks fit
when sanctioning the exercise of these powers, and may rescind or vary any
order that has previously been made or make a further or new order. As well
as the transactions specifically mentioned, the section would appear, by
inclusion of the word 'expenditure', to contemplate the approval of repairs
or improvements to the property: indeed, the section goes on to permit the
court to direct how any expenditure or costs are to be paid or borne as
between capital and income. The court also has an inherent power to direct
that repairs may be paid and borne out of capital as well as income. 25
20
21
22
23
24
25
Sees 4.
See s 4 (l)b.
Re 7bursby's Settlement (1910] 2 Ch 181 and Re Wakeham (1945] Ch 177.
Section 28 (1) LPA. The Trusts of Land and Appointment of Trustees Act 1996 grants
the trustees of land wide powers of management, including sale, which may be
excluded or modified by the trust instrument-see ss 5&6.
See, for example, Kwong Suk-chun v Wong Fung-ming 0989) HCt MP No 66 of 1989.
Re Hotchkys (1886) 32 Ch D 408
I
li~;i.~---•
...,.,~,/\.i/;·:..,.d,diJ
i"•'\l.Jji.L.c~,.:,e;\;~-
;.,.a~-;
215.
HONG KONG LAND LAW
9.3.4
Position of the Purchaser
Under a trust for sale the interests of the beneficiaries are expressed to be
in the proceeds of sale and not in the trust property itself. But even before
the sale the interests of the beneficiaries are not treated as being in the trust
property, for equity looks on as done that which ought to be done, and so
from the date of the creation of the trust considers the beneficiaries' interests
to be in the notional proceeds of sale. Technically, on the sale of the
property, the purchaser is not concerned with the interests of the beneficiaries since they were never in the property itself.
9.3.5
Protection of the Purchaser
9.3.5.1
Payment of Purchase Price
Initially equity required a purchaser to ensure the sale proceeds were applied
in accordance with the terms of the trust in order to take free of the interests
of the beneficiaries. Section 15(2) of the Trustee Ordinance now provides that
the purchaser will obtain a good discharge if he pays the money to the persons
entitled to assign the land, ie the trustee or trustees. 26 This provision contrasts
with the position in England, where payment must be made to at least two
trustees or a trust corporation in order to obtain a good discharge. 27 In Hong
Kong there is thus no need to have two trustees of a trust for sale relating to
land, although it may well be desirable to do so in order to share the onerous
duties placed upon a trustee and to reduce the possibility of a sole trustee
intentionally or unintentionally acting in breach of trust.
9.3.5.2
Exercise of Obligation to Obtain Consents or Power to Postpone
We have seen that the trustees under a trust for sale may have a power to
postpone sale or that they may be obliged to obtain the consent of the
beneficiary before sale. In England a purchaser is protected if, first, the
trustees fail to exercise their power to postpone correctly; and second, if the
trustees fail to obtain all necessary consents, provided the consent of at least
two of the relevant people has been obtained. 28 Neither of these protections
is available to a purchaser in Hong Kong.
9.3.6
Status of Trustees
A purchaser of land from trustees for sale should be concerned to ensure
that the trustees are indeed trustees for sale. In addition to the possibility
that the will or trust deed may have failed to create a trust for sale, the
purchaser should check that the trust has not come to an end. Where the
beneficiaries are all of full age and absolutely entitled, they may terminate
26
27
28
216
Sik Tak Sbeung & others v Sik Miu Wai (1993) HCt MP No 2797 of 1993
This was also the position in Hong Kong prior to the enactment of s 63 of the
Conveyancing and Property Ordinance on 1 November 1984.
See ss 26 (1) and (2) and 25 (2) of the Law of Property Act 1925 and cl 10 of the
Trusts of Land and Appointment of Trustees Bill 1996.
SEITLEMENTS AND TRUSTS FOR SALE
the trust - whereupon their interests will vest in the property rather than
the proceeds of sale, and the purchaser will be unable to obtain a clear title
to the property unless the beneficiaries also join in the assignment. One way
to avoid this necessity is to ensure that at least one of the beneficiaries
consents to the sale by the trustees in order to show that there has been no
unanimous decision to bring the trust to an end. 29 In England this precaution
is unnecessary, for s 23 of the Law of Property Act 1925 solves the problem.
9.3.7
Position of Beneficiaries
9.3.7.1
Doctrine of Conversion
As we have seen, equity looks on as done that which ought to be done, and
from the creation of the trust for sale the rights of the beneficiaries are in
the proceeds of sale and not in the property. Their rights are interests in
moveable property and not in land. For instance, a gift by a beneficiary of
his moveable property will include a gift of the interest under a trust for sale
of land. Also a beneficiary's interest under a trust for sale cannot be made
subject to a charging order, this being a method of enforcing a court
judgment which is only exercisable over land. 30
However, in England, where a trust for sale is implied whenever land
is co-owned, there has been a growing recognition that a beneficiary's
interests under a trust for sale may in certain circumstances qualify as an
interest in land. For instance, in Cooperv Critchley 31 a contract for the sale
of a co-owner's interest under a trust for sale was held to be a contract for
the sale of an interest in land and thus had to comply with the requirements
for writing already examined. 32 In Elias v Mitchell, 33 a beneficiary under a
trust for sale was entitled to protect his interest under the land registration
legislation as a person interested in the land. Likewise, in William & Glyn's
Bank Ltd v Boland 34 a spouse's joint beneficial ownership in the matrimonial
home, which was held under a trust for sale, qualified as an overriding interest
in the land under the land registration legislation. In fact, in England the Trusts
of Land and Appointment of Trustees Act 1996 abolishes the doctrine of
conversion, so that the beneficiaries' interests are clearly in the land.
But these developments in England have largely taken place in the
context of the statutory trust for sale imposed by the Law of Property Act
1925 whenever land is co-owned. 35 As such, they have largely been
concerned with matrimonial property where the trust for sale has merely
provided a convenient vehicle to prevent a multiplicity of co-owned
29
30
31
32
33
34
35
Re Patten (1883) 52 LJ Ch 787
Irani Finance Co Ltd v Singh [19711Ch 59
[19551Ch 431
Sees 3 of the Conveyancing and Property Ordinance and Chapter 5.3.
[19721Ch 652
[19811AC 487
The Trusts of Land and Appointment of Trustees Act 1996 replaces the statutorily
imposed trust for sale of co-owned land in England with a straight trust of land under
which the beneficiaries' interests will be overreached upon a sale under the statutory
power contained in s 2(1)(ii) of the Law of Property Act 1925.
217
HONG KONG LAND LAW
interests in the land with the attendant conveyancing problems that would
bring. The intention of the co-owners is that the land should be retained and
their rights of occupation protected. There is no statutorily imposed trust for
sale in Hong Kong where land is co-owned. Trusts for sale are largely
confined to their traditional role of facilitating the holding of interests in
succession. Furthermore, in England the beneficiaries' interests under a
trust for sale are overreached by statute and are not dependent, as in Hong
Kong, on the equitable doctrine of conversion. 36
These developments in England must therefore be treated with great
caution in Hong Kong. In Hong Kong trusts for sale can only be created
intentionally: they are not imposed by statute. The intention of the parties
may be that the land should be retained, but it is also their intention that
the beneficiaries' interests are confined to the proceeds of sale. Indeed, it
would be fatal to the operation of trusts for sale in Hong Kong if the
beneficiaries' interests did not remain firmly in the proceeds of sale, for the
ability of the trustees alone to pass a clear title to the purchaser is dependent
upon this concept. There is no statutory overreaching in Hong Kong.
9.3.7.2
Enjoyment of Trust Property
The beneficiary in possession under a trust for sale is entitled to the income
to the property but he is not entitled to occupy the property, unless the will
or trust instrument sanctions his occupation or if the trustees all agree. In
England, again in the context of the co-ownership situation, there have been
a number of decisions which recognise that a co-owner under a statutorily
imposed trust for sale is entitled to occupy the land. 37 Because these
decisions all deal with co-owners and trusts for sale that are imposed by
statute, they must be treated with caution in Hong Kong where trusts for sale
serve a different purpose.
9.3.7.3
Consultation
The testator or settlor may, under the terms of the will or trust deed, require
the trustees to obtain the consent of some or all of the beneficiaries before
exercising their power of sale. Furthermore, where all the beneficiaries are
of full age and absolutely entitled they may call upon the trustees to deal
with the trust property as they wish. But in other circumstances the trustees
are not obliged to consult the beneficiaries in the exercise of their power
of sale or any other of their powers. This contrasts with the position under
a statutory trust for sale imposed in the co-ownership situation in England,
where the trustees are under an obligation to consult the beneficiaries of
full age and give effect to the wishes of the majority. 38
36
37
38
218
Section 2 (1) (ii) of the Law of Property Act and City of London Building Society v Flegg
(1986] 1 All ER 989. The Trusts qf Land and Appointment of Trustees Act 1996 gives the
beneficiaries a right to occupy the trust land where the purpose in setting
up the trust has been to provide for the beneficiary's occupation-sees
12.
Bull v Bull (1955] 1 QB 234 and William and Glyn's Bank Ltd v Boland [1980] 3 WLR 138.
Section 26 (3) of the Law of Property Act 1925. Section 11 of the Trusts of Land and
Appointment of Trustees Act 1996 increases the right of the beneficiaries to be
consulted and have their wishes observed.
SETTLEMENTS AND TRUSTS FOR SALE
9.4
Chinese Customary Trusts
The concept of holding land for successive generations is not unknown to
Chinese customary law. The tso ( :/fJ;: ) and the tong ( 1li; ) are the
institutions by which such land holding is achieved. It is perhaps not
surprising, given the common aim of settlements and the tsos and tongs, that
they bear a close similarity to each other, although there are also some
important differences. Chinese customary law also accepts the concept of
land being held in order to achieve a particular purpose, in a way similar
to a charitable or purpose trust under the English common law but without
the common law's concern to preserve the alienability of the land unless a
public benefit is achieved. For instance, land may be held under customary
law for the support and upkeep of a temple or religious institution or by an
association for the benefit of its members. By s 13 of the New Territories
Ordinance 39, Chinese customary law continues to be recognised and enforced
in relation to land in the New Territories where a significant area of land
continues to be held by institutions unique to Chinese customary law.
9.4.l
Nature of Tsos and Family Tongs
Mills Owen J in Tang Kai-chung v Chang Chik-shang
40
described a tso as:
... an ancient Chinese institution of ancestral land-holding whereby
land derived from a common ancestor is enjoyed by his male
descendants for the time being living for their lifetimes and so from
generation to generation indefinitely. Thus every male descendant of
the common ancestor automatically becomes entitled at birth to an
interest in the land for his lifetime; on his death his interest merges
so as automatically to enlarge the interests of the surviving male
descendants; thus his interest at any given moment during his lifetime
depends on the number of male descendants then living and on his
death it forms no part of his estate.
A family tong is very similar to a tso, though it arises in slightly different
circumstances and for slightly different purposes than a tso. Indeed, the
terms are often used interchangeably, and a trust may be called a tong
although its nature is closer to a tso and vice versa. New tongs and tsos are
not now formed, not because there is a prohibition on doing so but because
the government discourages their formation.
9.4.1.1
Purpose
The primary purpose of a tso is to venerate a common ancestor, and it is
thus named after the con:imon ancestor. A tso is not generally set up by the
common ancestor, but by his son or sons as a matter of filial duty in
39
40
Cap 97
[1970] HKLR 276 at 280
219
HONG KONG LAND LAW
accordance with Confucian tradition. They will either purchase land in the
name of the tso or transfer part of land inherited from their father into the
name of the tso. Exceptionally it appears that a tso may also be formed by
the widow of a male dying intestate and without male issue. 41 The income
from the land is used to pay for the maintenance of ancestor worship, such
as the upkeep of the graves and the cost of the rites of ancestral worship,
including the provision of food to be divided between the members of the
tso after grave sweeping. Any balance may be applied, with the agreement
of the tso members, for the benefit the members of the tso - for instance,
to pay for their education or to provide financial assistance.
A tong is usually established by an individual in the name of the family
rather than a common ancestor. 42 For instance, a landowner may decide
that, rather than allow all his land to devolve in accordance with Chinese
customary law, which would generally lead to a division of the land
between all his sons, all or part of his land should be set aside to be enjoyed
by all his sons in common. As well as making sure that funds will be
available for his own veneration and the upkeep of his grave, such a
settlement may also encourage the cohesion of the family or prevent
division of the land into uneconomic portions. The primary purpose of a
tong is not necessarily to venerate a common ancestor but to provide for
the well-being of the family by providing funds to assist in their education,
health, and general welfare. It is a system of private social welfare.
A tong is thus set up by a landowner in the family name before his death,
while a tso is established by a landowner's sons after his death but in his
name.
9.4.1.2
Subject Matter
The traditional subject matter of a tso or a tong is land. All tongs and tsas have
been established with land situated in the New Territories, but in some cases
the land has been converted into other assets. In the New Territories, for
instance, significant areas of land have been compulsorily acquired by the
government for public purposes in return for monetary compensation. In
Kan Fat-tat v Kan Yin-tat 43 the court noted that there appeared no prohibition
upon a tso or a tong holding moveable property in Chinese customary law. A
difficulty arises, however, from the fact that the recognition of Chinese
customary law found ins 13 of the New Territories Ordinance is restricted to
land in the New Territories, the definition of which in the ordinance does not
extend to the proceeds of that land or other property acquired with those
proceeds. Indeed, in the Kan case the court held that Chinese customary law
ceased to apply to compensation payable on the resumption of tso or tong
land, and presumably by analogy the proceeds of sale of any tso or tong land
would also cease to be subject to customary law.44
41
42
43
44
220
Li Tang-shi v Li Wai-kwong [1969] HKLR 367.
See, for instance, Chu Tak-bing v Chu Chan Cheung-kin [1968] HKLR 542.
[1987] HKLR 516 at 527
54
At
SEITLEMENTS AND TRUSTS FOR SALE
A tso or tong may hold land in other parts of Hong Kong, but when it
does Chinese customary law does not apply. 45
9 .4.1.3
Perpetuity
Tongs and tsos are not subject to the rule against perpetuities, which has no
place in Chinese customary law. Indeed, many tongs and tsos have existed
for many years: for instance, the Tang Tsap Ng Tso was set up approximately
180 years ago. Whether the rule against perpetuities will apply to the
proceeds of sale or compensation monies is less clear. As has already been
noted, s 13 does not apparently extend to such money and thus the
applicable law should be the rules of common law and equity so far as they
are applicable to the circumstances of Hong Kong. In the Kan case the court
felt it would be 'unjust and oppressive' to apply the rule against perpetuities
to compensation arising on a forced sale of tso or tong land, although they
noted that different consideration might apply to the proceeds of a
voluntary sale. 46
9 .4 .1.4
Inalienable
The land held by a tong or tso in Chinese customary law is intended to be
inalienable. It should not be sold but retained for the purpose for which it
was established. However, the land may be compulsorily acquired by
government in pursuance of their powers under the Crown Lands Resumption
Ordinance. 47 In practice tso and tong land may be sold, but only in
exceptional circumstances, for it must be established that the sale is
beneficial to the tso or tong and all members must agree to the sale. 48
9.4.1.5
Entitlement
The entitlement to tso or tong property is restricted to the male descendants
of the ancestor in whose name the tso is founded, for it is upon them that
the obligations of ancestor worship falls. A tso or another tong may be a
member of a tong provided that the tong or tso does not breach the
fundamental rule that only direct male descendants may be members.
Tang Yau Yi Tong v Tang Mou Shau Tso [1995] 2 HKC 245
FACTS
An ancestral hall was built in Tai Po between 1928 and 1930. The project
was a joint venture between the Tang clans in Dong Guan, Tai Po and Kam
45
46
47
48
See Kan Fat-tat v Kan Yin-tat [1987] HKLR 516; and Ip Cheung-kwok v Ip Sui Bun
(1988] HKC 437, (1990) CA Civ App No 79 of 1988.
At 527
Cap 66
Kan Fat-tat v Kan Yin-tat (1987] HKLR 516 at 534. Law Society Circular No 24/87 sets
out details of the guidelines that the District Land Office adopts in sanctioning the sale
of tso or tong land.
221
HONG KONG I.AND I.AW
Tin, the ancestral hall being built for the veneration of their ancestors. The
tong was established in1928 when Mr Tang Wai Tong on behalf of the Kam
Tin Tangs, Mr Tang Fan Shan on behalf of the Tai Po Tangs and Mr Tang
Kei Mong on behalf of the Dong Guan Tangs bought land and caused their
respective clans to be represented in the tong. The land was assigned to
the Tong in 1940. The clans also made financial contributions tb the project,
for instance the Tangs of Kam Tin through the Cheung Chun Yuen
contributed HK$5,231 towards the costs of construction and HK$938 for
repairs to the hall in 1940. A dispute arose as to the entitlement of the Tang
Mou Shau Tso, representing the Kam Tin Tangs, to be members of the tong
when the manager of the tong wished to sell the land and the Tang Mou
Shau Tso objected.
JUDGMENT
On the evidence the Tang Mou Shau Tso could be members of the tong. The
Tai Po ancestral hall had been built for the veneration, in the case of the Kam
Tin Tangs of Tang Mou Shau, and not, as the manager alleged, Mr Tang Wai
Tong. The members of the tsowere thus all direct male descendants of Tang
Mou Shau and thus did not breach the fundamental requirement that the
members of a tong all be direct male descendants. The Tang Mou Shau Tso
had contributed to the acquisition, construction and repair of the ancestral
hall, albeit through a yuen which had identical membership, and were thus
entitled to be recognised as interested in the tong.
However, increasingly vocal demands are being made to give women the
same rights over tso and tong property as their male counterparts and some
tongs and tsos have allowed women to share in the proceeds of tong or tso
land sold or the compensation of land resumed.
The interests of the members of the tso and tong are limited to their lives,
and the membership of the tso or tong will vary from time to time as new
members are born and existing members die.
The Limitation Ordinance 49 has no application to Chinese customary
law so that a male descendant may bring his claim many years after his
entitlement arises.
Tsang Wing-lun v Tsang Lun [1993) 2 HKLR 23
FACTS
Tsang Fat-tun died in 1937. Upon his death his land was registered in the
names of the defendants as his sons. The plaintiff had gone to live in China
when the Japanese occupied Hong Kong in 1941~42and did not return until
1982. He claimed also to be the sort of Tsang Fat-tun and entitled to a share
of the proceeds of his father's land which had been sold or resumed and
222
49
Cap 347
SETTLEMENTS AND TRUSTS FOR SALE
to be registered as an owner of the land that had not yet been sold. The
defendants alleged that his claim was statute barred.
JUDGMENT
The law of limitations had no place in Chinese customary law; thus, having
found that the plaintiff was the son of Tsang Fat-tun he was entitled to the
declarations sought.
Each member's interest is in the common property of the tso or tong,
which cannot be partitioned without the consent of all the members.
Tang Kai-chung v Tang Chik-shang [1970] HKLR 276
FACTS
The Tang Tsap Ng Tso was divided into nine groups, six of which accorded
to tongs established by the sons of Tang Tsap Ng. The number of members
in each tong varied and the smaller tongs alleged that the larger tongs
mismanaged the land and claimed a larger portion of the income than they
were entitled to the detriment of the smaller tongs. Two of the smaller tongs
applied for the tong land within the tso to be partitioned into six parts of
equal value, one for each tong, in order to avoid continued oppression by
the larger tongs.
JUDGMENT
The land could not be partitioned under Chinese customary law, for to do
so would probably lead to a disintegration of the tso by the evolution of
different customs for each tong within the tso.
However, where the consent of all the tong or tsomembers is forthcoming
it seems that a partition or something akin to a partition can take place:
Beautiglory Investments Ltd v Tang Yet Tai Tong & others
[1993] 2 HKC 591
FACTS
The plaintiff claimed to be a tenant in common with the defendants of land
in Ping Shan and as such to have a right to make an application under the
Partition Ordinance. 50 The land in question had been granted by a block
Crown lease to Tang Sze I Tong but in 1920 the tong elders had applied for
°
5
Cap 352
223
HONG KONG LANDLAW
a division of the property to the defendant tongs and one Tang Pak Yun
through whom the plaintiff claimed their interests. This division was
recorded at the ~and Office.
JUDGMENT
Chinese customary law did not preclude the 1920 division of property and
did not prevent a tong taking an interest. in property as co-owner with
another tong or individual. The division had the consent of the Land Office,
the tong elders and managers and had appeared to raise no objection from
any other members of the tong.
Godfrey J,as he then was, did however comment on the unusual nature
of the division by which a clan member became a tenant in common of tong
property describing it as 'something of an illogicallity'.
Although technically tso or tong land is inalienable, we have seen that
it can be resumed or sold in certain circumstances. The question then arises
as to whether the members can distribute the compensation or the proceeds
of sale between themselves, and if so in what proportions. This question
was considered in:
Kan Fat-tat v Kan Yin-tat
FACTS
The case involved a dispute between two brothers over compensation that
had been paid to their father's tso following the resumption of part of the
land comprised in the tso. One brother sought distribution per stirpes, and
the other brother claimed that distribution could only be sanctioned with
the unanimous consent of the tso and that distribution should be per capita.
JUDGMENT
There could be no distribution of the compensation without the unanimous
consent of all members of the tso who would also have to agree the manner
of distribution.
The court refused to decide that custom required either distribution per
stirpes, ie to be divided equally according to the number of families
emanating from the common ancestor, or per capita, ie an equal division
among all the members of the tso. Custom did not envisage distribution of
the tsoproperty and thus there was no custom as to howdistribution should
take place. It was, however, evident that distribution could take place but only if all the members of the tso agreed to distribution in the same way
that they could agree to the sale or partition of the property, although
224
SETTLEMENTS AND TRUSTS FOR SALE
partition and sale also formed no part of custom. Similar distribution
problems may also arise in respect of surplus income.
It appears that in practice most tongs or tsos will have their own wellrecognised method of sharing cash revenue. Occasionally some tsos and
tongs record this division and their other practices and customs in formal
rules. A common formula appears to be a compromise between the per
stirpes and per capita division that was at odds in the Kan case. This
compromise calls for the division of the total proceeds into two, and for one
half to be distributed per stirpes and the other half per capita.
9.4.2
Administration and Management o/Tsos and Tongs
A tso or tong will normally be divided into family branches or fangs
(
m
) representing the families of the sons of the founding ancestor.
There is no uniformity in the way in which each Jong participates in the
day-to-day management of the tso or tong land: that will depend on the
traditions of each particular tso or tong. Common practices are for the land
to be leased to members of the tso or tong, who cultivate the land and pay
a rental that is used to finance the tso or tong activities. Sometimes each jong
will cultivate the land in rotation for one year, the Jong in occupation of the
land taking responsibility for the meeting of that year's expenses.
The day-to-day management of the tong and tsowill not usually require
the participation of the whole tong or tso. However, an important decision
affecting the whole tong or tso, such as the sale of the land and 1the
subsequent division of the proceeds, will require the unanimous consent
of all the members of the tong or tso. But how is this consent achieved
amongst all members, many of whom may well be living abroad?
9.4.2.1
The Decision Process
Decisions are reached in accordance with Chinese tradition by consensus
rather than vote. The Elders of the tsoor tong, being the senior representatives
of each family branch, and in particular the Great Elder as the oldest living
male of the most senior branch, usually play a particularly important part
in ensuring that an acceptable consensus is reached. Compromise solutions
may be put forward or monetary compensation offered to encourage a
compromise. The consent of each member may be necessary for major
decisions affecting the tso or tong property, but that consent is likely to
follow the lead given by the Elders or manager.
9.4.2.2
Managers
Section 15 of the New Territories Ordinance 51 provides that each tso or tong
must appoint a manager as its representative. The manager will be chosen
by the tso or tong by consensus, but his appointment must be approved also
by the Land Officer who will then register the appointment at the Land
51
See Cap 97
225
HONG KONG LAND LAW
Office. The power to_appoint a manager rests solely with the tso or tong.
The Land Officer is concerned only with ensuring that the appointment
reflects the wishes of the tso or tong, which he does by posting notices
calling for any objections to be made within a specified time, usually about
a month. 52 If no objections are received, consent is presumed.
More than one manager may be appointed. For instance, it is common
for each Jong to appoint a manager to look after their affairs. The
appointment may be for a limited time, but it is often made for life or may
be passed from father to son, particularly where the father has been the
Great Elder. A manager can resign or the Land Officer may, on proof of good
cause, cancel his appointment. 53
The manager plays a role similar to that of a trustee. He is responsible
for the day-to-day management of the property, including collecting the
rents, keeping accounts, and paying for the necessary rituals or other
matters that can be met from the tso and tong resources.
The manager is also empowered by s 15 of the New Territories
Ordinance 54 to dispose of or in any way deal with the tso or tong land as
if he was the sole owner, but subject to the consent of the Land Officer. The
Land Officer must be satisfied first, that any sale is for an acceptable purpose
- for example, to maintain the graves or for educational purposes; and
second, that the sale has the consent of the members of the tso or tong. He
satisfies himself on the latter matter by placing notices giving details of the
proposed sale and calling for objections. If certain members of the tso or
tong are abroad, then the Land Officer may require the manager to obtain
their written consent to the sale. 55 If the sale is approved, it is the manager
who is empowered to sign any necessary documents on behalf of all the
tso or tong members, provided he does so in the presence of the Land
Officer. 56
Section 15 necessitates both the registration of the managers at the Land
Office and the Land Office's approval of any sale before title can pass to a
purchaser.
Enway lllwe,to1J,m1mt v
Ocean Investment
[1994] 3 HKC 31
FACTS
The plaintiff entered into an agreement to buy certain land in Yuen Long
from the defendant. The agreement was conditional upon the defendant's
also being in a position to sell to the plaintiff certain other land by 29 March
1993. Part of this other land was owned by a tso whose the manager had
See Law Society Circular No 24/87 for the Land Offices guidelines on the appointment
of tong or tso managers.
53 Li Tang-sbi v Li Wai-kwong [1969] HLKR 367
54 See Cap 97.
55 See Law Society Circular No 24/87 for the Land Office guidelines to be followed for
the application of consent to sell.
56 Lai Chi Kok Amusement Park (No 2) v Tsang Tin-sum [1966] HKLR 124.
52
226
SETTLEMENTS AND TRUSTS FOR SALE
died. The appointment of the new manager was notified to the Land Office
on 22 March 1993 but the appointment was not registered until 1 April 1993
and the Land Officer's consent to the sales was not obtained until 19 July
1993. The plaintiff terminated the agreement for failure to comply with the
condition within the stipulated time and sought recovery of their deposit.
JUDGMENT
The manager's registration and Land Officer's consent were necessary in
order to pass title to tso or tong land to a purchaser and thus the purchaser
was entitled to terminate the agreement.
9.4.3
Other Chinese Customary Trusts
Certain other types of customary land holding continue to be recognised in
the New Territories. Land may be devoted to the support of a particular
temple, when it may be held in the name of the deity to whom the temple
is dedicated. Land may also be dedicated to the support of smaller religious
institutions. A tong may be established in accordance with Chinese
customary law by an association formed either by businessmen or related
members of the family which acquires the land in the New Territories, the
income from which is applied for their business or other common purpose.
227
,I
i
Co-ownership
10.1
Introduction
We have seen that interests in property may be held in succession whereby
property may be given to A for life with remainder to B, or a landowner may
lease his property to another for a shorter period than his own Government
lease. In these circumstances, both the life tenant and the remainderman,
and the landlord and his tenant hold an interest in the property. These
interests are separate estates. It is also possible for more than one person
simultaneously to hold the same interest in a piece of property: a married
couple, for instance, will often both hold the lease of their flat, or maintain
a joint savings or bank account. When this occurs the married couple are
know as 'co-owners' or 'concurrent owners'. They both hold an interest in
property, but instead of holding different interests successively they hold
the same interest concurrently.
There are four types of co-ownership that are recognised at common law:
• joint tenancy;
• tenancy in common;
• coparcency; and
• tenancy by entireties.
We shall concentrate on the first two, namely the joint tenancy and the
tenancy in common. It is important to remember that in the context of coownership the expression 'tenant' or 'tenancy' merely means ownership. It
does not have anything to do with leases, except of course that a lease is
an interest that may be held by co-owners.
Any estate may be held in co-ownership. Thus a leasehold term, a
reversion, a remainder, executory interest, and even a life interest may all
be held concurrently. It might be thought strange for it to be possible for
a life interest to be held by more than one person, but it must not be
forgotten that a life interest may be held for the life of another. For instance,
A and B may hold an interest for their joint lives, in which case on the death
of A, B will continue to enjoy his interest in the property until his death. The
extent of B's interest in the property after A's death will depend upon whether
he held the property with A as a joint tenant or a tenant in common. A and
B's joint life interest might be limited to one of their lives rather than their joint
lives: for instance, the grant might be to A and B for the life of A, in which case
upon the death of A, B's interest will cease. If the gift had been to A and B for
the life of B, then A's death would not bring B's interest in the land to an end.
Any of the interests in land that we will be examining later, for instance
a lease, easement, covenant, or mortgage, also may be held by co-owners.
In Hong Kong both a joint tenancy and a tenancy in common can exist
both at law and in equity. This differs from the position in England, where
it is only possible for a joint tenancy to exist at law. In England there is no
legal tenancy in common. 1 Where co-owners hold as tenants in common
228
Sections 1(6) and 34 of the Law of Property Act 1925
CO-OWNERSHIP
in England, the legal estate is deemed held by them as joint tenants on trust
for themselves as tenants in common in equity.2 A trust is also imposed in
England where co-owners hold as joint tenants, so that they hold the legal
estate on trust forthemselves as joint tenants. 3 The fact that in England no legal
tenancy in common exists, and a statutory trust is automatically imposed upon
co-owners, are significant differences between the law in Hong Kong and
England. These differences were introduced in England in 1925, and thus some
care is needed in interpreting subsequent English authorities. 4 Canadian,
Australian, and New Zealand authorities provide a particularly useful alternative
source of the law in this area, for in each of these jurisdictions the legal tenancy
in common has survived.
10.2
Joint Tenancy and Tenancy in Common Contrasted
10.2.l
Succession
The vital difference between a joint tenancy and a tenancy in common lies
in who succeeds to a co-owner's interest when he dies. When a joint tenant
dies, his interest will be automatically extinguished so that the surviving
joint tenant becomes solely entitled to the property. This special feature of
a joint tenancy is known as the 'right of survivorship'. 5
A tenant in common's interest, on the other hand, will form part of his
estate on his death and pass according to his will or the laws of intestacy.
An example will help to illustrate the operation of the right of survivorship.
If A and B hold as joint tenants and A dies, A's estate will receive nothing.
It is B who becomes solely entitled to the property. If, on the other hand,
A and B were tenants in common, then on A's death his interest in the
property passes to his estate and B's interest is unaffected. B will merely
become a tenant in common with the person(s) entitled to A's interest in
the property, either on A's intestacy or by A's will.
Fig 10.1 Succession
Joint tenancy
~
I
A dies
B sole owner
Tenancy in common
AB
A dies
1/2 A's estate
1/2 B
Sections 34(2) and 35 of the Law of Property Act 1925.
Sections 35 and 360) of the Law of Property Act 1925.
The Trusts of Land and Appointment of Trustees Act 1996 introduces a significant
change in the structure of co-ownership in England. The prohibition on legal
tenancies in common remains but the statutorily imposed trust for sale is abolished
and replaced with a statutorily imposed trust of land under which the
co-owners' beneficial interests are recognised as being in the land itself and not the
notional proceeds of sale.
Or, in Latin, jus accrescendi
229
HONG KONG LAND LAW
If there is any doubt as to which joint tenant died first, s 11 of the
Conveyancing and Property Ordinance provides that the younger shall be
presumed to have survived the elder. This convenient, if somewhat
arbitrary, rule is h1own as the 'commorientes' rule. Thus if A and Bare joint
tenants who are killed in a common disaster and A is older than B, B will
be presumed to have survived and it is his estate that will be solely entitled
to the property. A's estate will receive nothing.
In view of the importance of the right to survivorship to a joint tenancy,
a corporation, which cannot die, could not be a joint tenant at common law.
This rule has now been altered by s 10 of the Conveyancing and Property
Ordinance. A corporation can now be a joint tenant, and upon its dissolution
the surviving joint tenant becomes entitled to the property. It is, however,
unusual to find a corporation holding property as a joint tenant except where
the corporation acts as a trustee. For instance, a number of banks in Hong
Kong have subsidiaries that offer trustee services and, although a trustee
corporation may act as a sole trustee, a testator or settlor may wish to appoint
another trustee to act jointly with a trust corporation. Trustees invariably hold
as joint tenants because of the convenience of the trust property passing
automatically by survivorship to the other trustee(s) when one trustee dies.6
Joint tenancies also commonly arise in the matrimonial or quasi-matrimonial
context, where the parties wish to benefit each other when one of them dies.
10.2.2
The Unities·
A joint tenancy must display 'the four unities', - the unities of possession,
interest, title, and time that we will look at in the next section. This need
arises from the fact that a joint tenant does not hold any interest in the
property in his individual capacity. His only interest is that which he holds •
jointly with his fellow joint tenant. A joint tenant is said to hold the whole
with another but nothing of himself. There is thus only one estate in the land
which is held jointly and, although the joint tenants as between themselves
have distinct rights, to everyone else they are like a sole owner.
A tenancy in common must display the unity of possession, which is an
essential feature of both types of co-ownership. It may but need not display
the remaining unities of interest, title, and time because a tenant in common
is regarded as holding a distinct. yet undivided share in the property
independently of the other co-owners. In contrast to a joint tenancy, each
tenant in common thus holds a separate, although not physically discernable,
interest in the property. While the interests of a joint tenant must be equal,
the shares of tenants in common may, and very often are, unequal. For
instance, A and B as tenants in common need not each hold one half: A may
hold one-quarter and B three-quarters, or A may holds. two-sevenths and
B five-sevenths - the possibilities are endless.
Section 9(3) of the Conveyancing and Property Ordinance Cap 219
230
CO-OWNERSHIP
10.3
The Four Unities
The four unities are vital to a joint tenancy, and the unity of possession must
exist in order for there to be any type of co-ownership relationship. Thus
it is important to examine each of these unities more closely.
10.3.1
Unity of Possession
The concept of unity of possession dictates that no co-owner is entitled to
the possession of any particular part of the land to the exclusion of his fellow
co-owner. He is entitled to the possession of the whole, with and not to the
exclusion of his fellow co-owners. If A and B are co-owners of a flat they
are both entitled to occupy the whole flat. Neither A nor B can exclude the
other from the kitchen, bathroom, 'their' respective bedrooms, or any other
part of the flat.
A number of consequences flow from the concept of unity of possession.
10.3.1.1
Trespass
A co-owner cannot bring an action against his fellow co-owner for trespass
merely because he is in.possession of the whole of the property. His fellow
co-owner is entitled by unity of possession to be in occupation of the whole
property. Nor can a co-owner bring an action for conversion of the
co-owned property merely because his fellow co-owner takes the usual
produce of the land in lawful exercise of his rights as a co-owner. This principle
is illustrated by the case of:
il!!I.S~.,.
~,11,..... 1:i!'l!!ll:!:~••~.li.;1,11,c:.,.,,lll.,
••~•■•!';:' -
, •m,, •
~•llillJ'W.i' •~•■1
-
'"
Jacobs v Seaward (1872) LR 5 HL 464
FACTS
A and B were tenants in common of land that was let to the plaintiff. The
plaintiff was only aware that A was his landlord, so that when B gave the
plaintiff notice to quit he ignored the notice and instead entered into a new
tenancy with A's agent. Meanwhile, B let the property to the defendant who
went onto the land and cut the hay growing on the land and put a lock on
the gate.
JUDGMENT
The plaintiff and defendant were tenants in common, and thus the plaintiff
could not maintain an action for trespass against the defendant for cutting
the hay or putting a lock on the gate.
Redress will be available where the co-owner in possession has
exceeded his own right to possession by. acting so as to exclude or oust his
231
HONG KONG LAND LAW
fellow co-owner or to destroy the co-owned property. In Jacobs v Seaward
the court decided that the defendant, in putting the lock on the gate, had
not intended to exclude the plaintiff but to secure the land. Nor was the
cuttinjind taking away of the hay destruction of the common property but
the harvesting of its natural produce. His actions thus did not constitute
ouster.
Ouster is wider than actual physical exclusion from the property. There
may be ouster where there is interference with the other co-owners'
enjoyment of the property. For instance, in Stedman v Smith 7 the resting of
a roof on a common wall was sufficient, and in Oates v Oates 8 it was
suggested that the letting of the property by one co-owner without the
authority of the other was sufficient interference to constitute ouster.
In Wilkinson v Haygarth 9 the cutting of turfs was considered sufficiently
destructive to warrant redress.
Redress for ouster may be in the form of compensation 10 which where
the ouster has been to exclude the co-owner entirely from the premises will
take the form of an occupational rent.11
Tang Yin Ling v Wong Sai
Hct MP No 2527
1992
FACTS
The plaintiff and defendant bought a flat as tenants in common in equal
shares. They lived elsewhere and the flat was let out to tenants. The
defendant married and his relationship with the plaintiff deteriorated. In
1991 the flat became empty after the last tenants moved out and the.
defendant moved in with his family and would not allow the plaintiff access,
claiming that the flat was his. The plaintiff applied for an order for sale of
the flat under the Partition Ordinance and damages for ouster.
JUDGMENT
The property was jointly owned by the parties as tenants in common and
accordingly the plaimtiff was entitled to an order for sale and damages for the
defendant's ouster in an amount representing the rental value of the property.
Where ouster has fallen short of an entire exclusion of the co-owner but
is nevertheless excessive alternative forms of redress may be available.
Waste is one alternative, although there must remain a doubt as to
whether an action for waste between co-owners can still be maintained in
7
8
9
10
11
232
(1857) 8 E and B 1
[1949] SASR37 at 40
• (1847) 12 QB 837
Compensation is not in the nature of damages for trespass but for interference with
the other co-owner's rights, see Tang Yin Ling v Wong Sai (1994) HCt MP No 2527 of
1992 at 17.
See further 10.3.1.3.
CO-OWNERSHIP
Hong Kong. 12 An interesting modern example of allegations of unwarranted
interference with a co-owner's right to possession is found in:
FACTS
The parties were co-owners of a road giving access to their respective
properties. The defendant wanted to redevelop his property so that it was
necessary to widen and surface the road. The plaintiff objected and sought
an injunction to restrain the defendant on the basis that the defendant's
action amounted to ouster, or alternatively constituted waste.
JUDGMENT
The defendant's action did not amount to ouster since it would not interfere
with the plaintiff's use of the road. The surfacing of the road was an act of
repair and not of waste, although the removal of ornamental trees beside
the road might be waste unless their removal was necessary. The court also
raised the possibility that co-owners might have an action in nuisance for
an interference.
A further course open to a co-owner wishing to prevent or discourage
a resident co-owner's activities on the land is to initiate partition proceedings,
which would either force a sale or a physical partition of the land and bring
the co-ownership to an end. Even the threat of such proceedings might
persuade a co-owner to stop his offending activities.
10.3.1.2
Accounting for Rents and Profits Received
Co-owners are entitled to share the rental and other income and profits
derived from the co-owned property. If they hold as joint tenants, they are
entitled to share these benefits equally. If they are tenants in common, then
their respective entitlements depend upon their shares in the property.
Flowing from the principle of unity of possession, a co-owner cannot be
required at common law to account for his fellow co-owner's share of the
rental or other income or profits from the land which falls into his hands.
There are, however, a number of exceptions that must be considered.
12
The Statute of Westminster II 1285 introduced an action for waste between tenants in
common, which was subsequently extended to joint tenants. This statute was
incorporated into Hong Kong law upon the establishment of the territory. Its
continued application to Hong Kong, however, remains in doubt, as it is not specifically incorporated into Hong Kong law by the Application of English Law Ordinance
Cap 88. See further Wesley Smith (1984) HKLJ 142.
233
HONG KONG LAND LAW
(a)
Ouster
A co-owner who has been ousted may seek damages for the unauthorised
use of the land or the rents and profits from the land.
(b)
Bailiff
Co-owners do not normally owe each other a duty to look after or maintain
their common property. Thus a co-owner who is left in sole occupation of
the co-owned property is not obliged to manage the property on behalf of
the other co-owner. However, a co-owner who agrees to become a bailiff
or agent for his fellow co-owner in the management of the property can be
required to account for the rents or other income or profits he receives.
(c)
Statute of Anne (4 Anne c16)
This enactment granted a co-owner a right to call for an account if his fellow
co-owner received more than his share of the rental or profits derived from
the common property. 13 But it is unclear whether this legislation still applies
in Hong Kong after the enactment of the Application of English Law
Ordinance. 14
If it is not possible to rely on the Statute of Anne, it is not entirely clear
whether a right to account will be recognised in equity, for the authorities
are contradictory. There are suggestions that prior to the enactment of the
Statute of Anne equity would order an account in these circumstances, 15 but
there is also authority to the contrary. 16 It is hoped that the courts would
prefer those authorities supporting an equitable duty.
If there is a duty to account, it is clear that the duty does not extend to
the legitimate fruits of a co-owner's sole efforts. In Henderson v Eason 17
Parke B cited the example of a co-owner who employs his capital and
industry in cultivating a piece of land and takes all the profit from the crops
he grows, and stated:
In taking all that produce he cannot be said to receive more than his
just share and proportion to which he is entitled as a tenant in
common. He receives in truth the return for his own labour and
capital, to which his cotenant has no right.
As Parke B pointed out, if the crop had failed, the co-owner would have had
to bear all the loss.An example of this principle closer to the Hong Kong
In Australia this right has been extended to require an account where it is not known
whether a co-owner has received more than his share. See Squire v Rogers 0979) 27
ALR 330.
14 Cap 88, since it is not incorporated into Hong Kong law by that ordinance. See
Wesley Smith 0984) HKLJ 142.
15
Strelly v Winson 0684) 1 Vern 297; Pulteney v Warren 0801) 6 Ves 73 at 77 and 78;
TurnervMorgan (1808) 8 Ves Jun 143 at 143; and Hillv Hickin [1897] 2 Ch 579 at 580
16 Griffies v Griffies (1863) 8 LT 758; and McCormick v McCormick (1921) 40 NZLR 384
17 0851) 17 QB 701 at 720 and 721
13
234
CO-OWNERSHIP
situation today is found in the Australian case of:
Squire v Rodgers (1979) 27 ALR 330
FACTS
The parties were jointly entitled to a lease of land which required them to
develop and keep the land in repair. Mr Squire solely complied with the
covenants and developed the land by building a holiday resort, including
a caravan site which he then rented out. Ms Rodgers, who ceased living on
the land soon after it was acquired, took no part in developing the land nor
in running the resort but subsequently sought an order for sale of the
property and a share of the income Mr Squire had earned.
JUDGMENT
Mr Squire was bound to account to Ms Rodgers for a share of the rental from
the letting of the land, but not for the income derived from services or use
of equipment that he provided.
The duty to account extends only to what the co-owner has actually
received and not to what he ought to have received. So, if one co-owner
manages the letting of property he cannot be made liable if he leaves the
property empty or the rental is less than that which could have been charged
for the accommodation. 18
10.3.1.3
Rental
At common law a co-owner cannot claim rent from a fellow co-owner even
if that fellow co-owner is in sole occupation of the property. Each co-owner
is entitled to possession, and the fact that a co-owner may choose not to
exercise his own right to occupy and so leave his fellow co-owner in sole
occupation is of no consequence. 19
There are, however, a number of exceptions to this general rule.
(a)
Ouster
A claim for rental will succeed if the co-owner in residence has ousted his
fellow co-owner. A modern example of ouster is found in the Hong Kong
case of Tang Yin Ling v Wong Sai 20 and also in the English case of:
18
19
20
Osachuk v Osachuk (1971) 18 DLR (3d) 413; and Thrift v Tbrift (1976) 10 ALR 332
McMahon v Burchell (1846) 2 Ph 127
0994) HCt MP No 2527 of 1992 and see 10.3.1.1
235
HONG KONG LAND LAW
Dennis v McDonald [1982] Fam 63
FACTS
The parties lived together, but were not married, in a house that they held
as tenants in common. The plaintiff left the house because of the
defendant's violence, and she subsequently applied for an order for sale of
the house or alternatively that the defendant pay rent to her.
JUDGMENT
The defendant was liable to pay rent as a result of his violence towards the
plaintiff. She had been effectively ousted from the property, for it was
unreasonable in the circumstances to expect her to live with him.
In the matrimonial or quasi-matrimonial context the courts seem to be
taking a particularly liberal interpretation of ouster. For instance, Purchase
J suggested in Dennis v McDonald 21 that, 'the basic principle ... does not
apply in the case where an association similar to a matrimonial association
has broken down and one party is, for practical purposes, excluded from
the family home.'
In the matrimonial, as opposed to the quasi-matrimonial, context there
may be no need to form an exception to the general rule or to extend the
meaning of ouster because matrimonial legislation does provide an
alternative means by which one spouse can seek rental from the other.
(b)
Matrimonial legislation
A spouse may seek rental from the spouse who is left in sole occupation
of the co-owned matrimonial home through the grant of ancillary relief
under the Matrimonial Property and Proceedings Ordinance, 22 which may
include an order for the payment of rental. 23 On a determination of the
spouses' property rights under the Married Person's Status Ordinance, 24 an
allowance for rent may be achieved by discounting the value of an
occupying co-owner's
share in the property. For instance, in
LeakevBruzzi 25 a husband who was in sole occupation of the matrimonial
home after the break-up of his marriage was not given credit for the
repayment of mortgage interest that he alone had made after his wife had
left him. The court characterised these payments as in the nature of an
occupational rent.
21
22
23
24
25
236
At 638. See also Bernard vjosephs [1982] Ch 391; and Chokar v Chokar[1984] FLR313.
Cap 192
Haroey v Harvey [1982] Fam 83
Cap 182
[1974] 1 WLR 1528. See also Suttill v Graham [1977] 1 WLR 819.
CO-OWNERSHIP
(c)
Agreement
A co-owner may be required to pay rent in pursuance of an agreement to
do so with his fellow co-owners. An example of such an agreement arose
in the case of:
Leigh v Dickeson (1885) 15
QB:06-0
FACTS
The defendant was a lessee of property belonging to the plaintiff and her
fellow co-owner. He subsequently acquired a share in the property so that
he became a co-owner with the plaintiff. The lease expired but the
defendant continued in possession. The parties entered into negotiations
for a new lease, but these broke down and the plaintiff claimed a sum for
the defendant's occupation of the property. The defendant sought to set off
money he had expended in repairs and improvements to the property.
JUDGMENT
_The defendant was liable to compensate the plaintiff for his use of the property,
as his occupation of the property after expiry of the lease was in his capacity
as a tenant and not in his capacity as co-owner. The set-off failed.
( d)
Expenses
If a co-owner seeks an allowance from his fellow co-owner for the cost of
improvements, repairs, or other current expenses then he does so at the risk
of a claim by a non-resident owner for rental in respect of his sole
occupation of the property. The rationale is that if he seeks the assistance
of equity in recovery of sums spent, then he must also act fairly by
compensating his fellow co-owner for his sole use of the property. The
question of whether rental is awarded is, however, within the discretion of
the court who may decide in the circumstances that it is inequitable for the
resident owner to compensate the non-resident owner. The court so
decided in:
0 ---~~---~~;::,i=IIJiic.r;,.i.,,.:~l~ffl
1~1.~!!i;m!@!:w~~~l~i!~m!!!!!iliii~lll;~@im!iL,,Ji•mL'
McMahon v The Public Curator of Queensland [1952] St R Qd 197
FAGTS
The McMahons ran a dairy farm as a partnership. Upon the death of one of
the partners, the plaintiff sought the sale of the farm. The defendant, as
237
HONG KONG LAND LAW
administrator of the deceased partner's estate, claimed reimbursement from
the sale proceeds of the cost of a house built by the deceased for his own
occupation.
JUDGMENT
The defendant should be entitled to reimbursement of the costs of erecting
the house but, as the house only stood on a small portion of the land and
its construction costs had been solely borne by the deceased, his estate
should not be charged with an occupation rent.
10.3.1.4
Improvements
At common law a co-owner is not entitled to recover from a fellow co-owner
any sums he may have expended in the improvement, repair, or maintenance
of the property unless his fellow co-owner agreed to the work or the co-owners
were under an obligation to a third party to carry out the work, for instance
pursuant to a repairing or building covenant in a lease. If this was not the case,
a co-owner may be forced to contribute to work of which he does not
approve. In Leigh v Dickeson 26 the defendant's set-off failed for this reason.
However, a co-owner will not be allowed to benefit from improvements
made by the resident co-owner to which he has made no contribution.
Accordingly, upon the partition or sale of the property he may be required
to make an allowance to the resident owner in respect of these expenses.
This principle was established in:
2 CLR 387
FACTS
The parties were tenants in common of land that was resumed by the
government. A dispute arose as to how the compensation payable by the
government for the resumption should be divided. The appellant claimed
more than .his quarter share, to reflect the· value of houses that his
predecessor in title had built on the land.
JUDGMENT
The appellant was entitled to a lien over the remaining three-quarter shares
equal to three-quarters of the amount by which the improvements carried
out by his predecessor in title had increased the value of the land. There
should be set off against this amount of three-quarters of the rents and
profits received by the appellant, for which he was bound to account.
26
238
See (1885) 15 QB D 60.
CO-OWNERSHIP
The court likened a co-owner's right to reimbursement for improvements
to an equitable charge that was enforceable only when the land was
partitioned or sold. The right is thus in the nature of a passive equity that
lies dormant until the value of the land is realised by sale or distributed
amongst the co-owners on partition.
The Australian courts have clearly identified this right as proprietary in
nature and enforceable against all but a bona fide purchaser without notice.
Likewise, the benefit of the right may pass to a successor in title: for instance,
Mr Brickwood was able to set up the equity although the expenditure was
incurred by a previous owner of the land. But in Canada the courts appear
to have taken a different view, and construed the co-owner's right to recover
the cost of improvements as only a personal right that does not run with the
land to bind a subsequent purchaser. 27
Some doubts have been expressed as to the extent to which the equity
can remain enforceable between joint tenants, given that upon the death
of a joint tenant his interest is extinguished and with it any equity of
reimbursement. 28 There is some difference in opinion as to the amount that
a co-owner can recover in respect of improvements he has made. In
Brickwood v Young 29 it was a sum equivalent to his share of the increase
in the value of the land itself rather than just the cost of the improvements,
but the court in Leigh v Dickeson 30 suggested that recovery should be limited
to the expenses incurred, subject to an upper ceiling of the increase in the
value of the property. 31
It should be noted that the principles of resulting and constructive trusts
that we have already looked at in Chapter 6 may found a claim to a greater
share of the beneficial ownership of the property based upon its improvement.
10.3.2
Unity of Interest
Joint tenants must hold the same interest, but tenants in common may hold
in different shares or proportions. If A, B, and Care joint tenants of a flat,
they hold the whole interest together; but if they were tenants in common
they could each hold one-third shares, or A could hold a half share and B
and C each hold a quarter share, or any other division of the whole property
between them would be permissible. In Hong Kong, where there is a
tenancy in common of a whole building, the division of the shares between
the co-owners can lead to some very large and unusual fractions.
As a result of this requirement of unity of interest, joint tenants are always
equally entitled to any rental or other income from the land and they must
act jointly in any dealing with the whole of the land. They must both enter
into an effective lease, mortgage or sale of the property as a whole. There
27
28
29
3o
31
Ruptash and Lumsden v Zawick [1956] 2 DLR (2d) 145; and Canada Life Assurance Co
v Kennedy (1978) 89 DLR (3d) 397
Re Byrne (1906) 6 SR (NW) 532; and Noak v Noak[19591 VR 137
(1905) 2 CLR 387
(1885) 15 QBD 60
See also In reJones [189312 Ch 461; and McMahon v Tbe Public Curator of Queensland [1952] St R Qd 197.
239
HONG KONG LAND LAW
is however one exception determine a periodic tenancy.
one joint tenant may serve a notice to
Hammersmith and Fulham London Borough Council v Monk
[1992] 1 AC 478
FACTS
The defendant and his girlfriend were granted a joint periodic tenancy from
the council terminable on four weeks' notice. The relationship broke up and
the girlfriend left the flat. The council agreed to rehouse her in another flat
provided she terminated her tenancy with the defendant. The council
informed the defendant that his girlfriend had terminated the tenancy and
when he refused to move out sought possession.
JUDGMENT
The defendant's tenancy had been lawfully terminated. A periodic joint
tenancy continued only so long as all the joint tenants agreed; thus it would
determine if one joint tenant terminated the tenancy by notice to quit.
Thus this apparent exception is in fact an application of the rule. 32 This
principle was relied upon to allow one co-owner to terminate a licence of
co-owned property in the case of:
Annen v Rattee (1985) 273 Estates Gaz 503
FACTS
Ms Annen and her boyfriend bought a flat in London in their joint names
but the relationship broke up before Ms Annen ever lived in the flat. Instead
a number of people occupied the flat, including a Mr Rattee to whom Ms
Annen's boyfriend had given a licence to use the flat. When Ms Annen found
out about Mr Rattee's occupation, she purported to terminate his licence and
subsequently sought possession.
JUDGMENT
The Court of Appeal applied the reasoning applicable to joint tenants
holding that the licence could not continue without the permission of both
joint tenants and that by withdrawing her permission, Ms Annen had
effectively terminated Mr Rattee's licence.
32
240
See also Leek and Moorlands Building Society v Clark [1952] 2 QB 788; Greenwich LBC
v McGrady (1983) 46 P&CR 223, and Parsons v Parsons [1983] 1 WLR 1390
CO-OWNERSHIP
The problem is, however, that the licence granted to Mr Rattee was not
the same as a periodic tenancy granted by both co-owners. It was granted
only by Ms Annen's boyfriend and was for an indefinite period. As a licence
for an indefinite period, it continued until terminated on reasonable notice by
either the licensor or the licensee. It did not continue from period to period
as did the lease in Hammersmith and Fulham LBC v Monk. If the licence was
to bind both Ms Annen and her boyfriend's interest in the flat, it should have
been granted by them both and should likewise have only been capable of
termination by them both. There is, of course, the possibility that Ms Annen
or her boyfriend could have licensed only their own respective interests in the
property: a joint tenant may deal with his interest, but if he does so he risks
destroying the unity of interest so that his relationship with his co-owner can
no longer exist as a joint tenancy. We shall explore this area further when
looking at the destruction of a joint tenancy by severance. 33
10.3.3
Unity of Title
Joint tenants must derive their interest from the same document or act. The
requirement is satisfied if the co-owners acquire their interest under the
same lease, assignment, or other instrument, or if they go in to possession
of land at the same time and establish a joint title by adverse possession.
As a result of this rule, if A, who is a joint tenant of property with B, wishes
to transfer his interest to C to hold as a joint tenant with B, he cannot do
so at common law merely by transferring his interest to C.34 A and Bas joint
tenants should transfer their interest to B and C as joint tenants.
10.3.4
Unity of Time
Joint tenants must acquire their interests at the same time, which they will
usually do as a result of the requirements of unity of title. However, at
common law the unity of title and time could be different where a gift to
the co-owners was contingent, and it would vest at different times, for
instance, if land is granted to A for life with remainder to the heirs of B and
C. The requirement is not satisfied where B and C die at different times, for
their heirs' respective interests will have vested in interest at different times.
However, two exceptions to this rule have emerged: the rule does not apply
to gifts by will nor to a grant made behind a trust.
10.4
Creation of Co-ownership
It is important when deciding whether a joint tenancy or a tenancy in
common has been created always to bear in mind that the ownership of
both the legal estate and the equitable interest in the property must be
considered. Thus, while co-owners may be joint tenants at law, they may
33
31
See 10.5
One wonders ifs 25(2) of the Conveyancing and Property Ordinance Cap 219 might
assist.
241
HONG KONG LAND LAW
hold that legal estate on trust for themselves as either joint tenants or tenants
in common in equity. The reverse result does not, however, follow.
Co-owners who hold as tenants in common at law will hold as tenants in
common in equity, for equity leans in favour of a tenancy in common and
will follow the law in this respect.
In Goodman v Gallant, 35 where the parties had expressly declared that
they were joint tenants in law as well as in equity, the court made it clear
that the declared intention of the parties is conclusive. It was not possible
for the parties to go behind that declared intention and seek to establish that
they held the property as tenants in common. Likewise, if the parties
expressly declare that they are to take as tenants in common and specify
the shares in which they are to take both at law and in equity the court must
give effect to that declaration.
Where the co-owners have failed to state how they hold the property
either at law and or in equity, the court will look to the presumptions that
arise at law and in equity.
In England it is quite common to find an express declaration as to the
co-owners' legal and beneficial interests in the property. This in part may
be due to the imposition of the statutory trust for sale, which emphasises
the divergence of the legal and equitable title. But in Hong Kong it is usual
merely to state that the co-owners hold either as joint tenants or tenants in
common, with no express statement as to the holding of their beneficial
interest. The way is thus open to show that, although the parties took the
property as joint tenants at law, they are in fact tenants in common in equity:
for instance, by reason of their unequal contributions to the purchase price. 36
However, it is to be remembered that where a husband acquires
property as a matrimonial home in the joint names of himself and his wife
he will be presumed to have intended that they are to hold as joint tenants
at law and in equity unless there is anything to rebut the presumption of
advancement made to his wife. 37
10.4.1
Absence of Unities
Before applying the presumptions oflaw and equity it must be remembered
that if one of the unities of interest, time, or title is absent, then the
relationship between the co-owners must be a tenancy in common both at
law and in equity. If all the four unities are present, then whether the .coowners hold as tenants in common or joint tenants will depend on whether
the relationship came into existence before or after the enactment of the
Conveyancing and Property Ordinance on 1 November 1984.
35
36
37
242
[1986] Fam 106
See for example the cases of Chan Shiu-yee Shirley v Chang Kia-Chung Peter 0987)
HCt HCC No A5170 of 1986; Law Ping-wong v Ho Chi-na (1987) HCt HCA No A1652
of 1986; Siu Chun-wah Alice v Malahan Credit Co Ltd 0987) CA Civ App No 63 of
1987; and Liu Kwok-wah v Chung Hang-fai Nancy [1989] 2 HKC 259.
Ho Nga Sheung v Ma Fook Leung [1993] 2 HKC 647 and see also Huntingdon v Hobbs
0992) 24 HLR 652.
CO-OWNERSHIP
10.4.2
At Law
There is a presumption at common law in favour of a joint tenancy. This
presumption is favoured because it facilitates conveyancing by avoiding the
fragmentation of the title that may result from a tenancy in common. The
common law will not, however, ignore an intention to create a tenancy in
common that is displayed by using 'words of severance.' Common words
of severance include the expressions:
•
•
•
'in equai shares'
'equally'
'to be divided between'.
Thus where an instrument is entered into prior to 1 November 1984, the
common law will only presume a tenancy in common if words of severance
are used. If no words of severance are used, the parties are presumed at
common law to hold as joint tenants.
Where an instrument is entered into after 1 November 1984, s 9 of the
Conveyancing and Property Ordinance operates to reverse the common
law presumption, so that even at law co-owners are presumed to hold as
tenants in common even if no words of severance are used. A clear contrary
intention must be expressed in the will, assignment, or other instrument by
which the co-owners acquire their interests in order to create a joint tenancy.
The common law presumption of a joint tenancy continues to operate in
the case of trustees and personal representatives. 38
10.4.3
In Equity
Equity prefers a tenancy in common, for it leans in favour of fairness rather
than conveyancing convenience. Equity will thus impose a tenancy in common
not only where the law would recognise a tenancy in common but also in
instances where, although the legal estate might be held as joint tenants,
equity will presume an intention to create a tenancy in common in equity.
There are three instances where equity will presume a tenancy in common.
10.4.3.1
Unequal Contributions
Where the purchase money for the land is provided in unequal shares, the
parties are presumed to be tenants in common in equity in the shares that
reflect their respective contributions to the purchase price. This presumption may be rebutted by evidence that the parties intended to hold as joint
tenants despite unequal contributions, or that they intended to take as
tenants in common despite equal contributions.
Many of the cases in this area involve the ownership of the matrimonial
or quasi-matrimonial home. We have looked at the principles required to
establish a beneficial interest in the matrimonal home when looking at
resulting and constructive trusts. 39 But once an intention for both spouses
38
39
Section 10(3) of the Conveyancing and Property Ordinance Cap 219
See Chapter 6.3 and 6.4
243
If
HONG KONG LAND LAW
i
or partners to share in the ownership of the home is established, how do
the courts decide the actual shares the parties are to hold? The idea,
favoured by Lord Denning MR, that the courts can determine the parties'
shares by doing what was just and equitable in the circumstances has now
been rejected by the House of Lords in Gissing v Gissing.40 The parties'
intention is the governing principle, but the problem is ascertaining what
the parties' intention is. The court in Cowcher v Cowcher 41 was of the view
that the parties' shares should be fixed at the time of acquisition when the
common intention of the parties must be established, but this approach
could often lead to unfairness for it ignores the actual contributions that the
parties make in support of the common intention. The prevailing view
formulated in Bernard vJosephs 42 is to use the parties' contributions to the
purchase price as a broad guide to their intention as to the proportions in
which they are to share the beneficial ownership of the home, unless there
is other evidence of their likely intentions. Where the home has been
brought with the aid of a mortgage and the acquisition costs have thus been
paid over a long period, this can be a difficult task. It is, however, not to
be conducted as a strict mathematical exercise so that temporary changes
in a party's financial contributions brought about, for instance, by childbearing or the loss or change of a job may be ignored. Where the task
becomes impossible the courts may fall back on an equal division as the
only practical solution.
10.4.3.2
Money Advanced on Mortgage
Where two or more people advance money on mortgage they are
presumed, unless the contrary is shown, to have advanced the loan as
tenants in common. Although as between the borrower and the lenders, the
lenders are usually deemed to be jointly entitled to the loan. 43
10.4.3.3
Business Assets
The concept of survivorship has little place in the business world, and thus
equity will presume a tenancy in common over partnership assets or the
assets of a joint business undertaking, or where premises are held jointly
for several individual business purposes. 44
10.5
Severance
Severance occurs when a joint tenancy is converted into a tenancy in
common. Any act that destroys one or more of the four unities 45 will lead
40
41
42
13
44
45
244
[1971] AC 886
[1972] 1 WLR 425
[1982] Ch 391. See also Young v Young [1984] FLR 375, Risch v McFee (1991) 61 P &
CR 42 and Stokes v Anderson [1991] 1 FLR 391
Section 48 of the Conveyancing and Property Ordinance
Malayan Credit Ltd v jack Chia MPH Ltd [1986] AC 549
The unity of time cannot be destroyed, and destruction of the unity of possession
leads to partition.
CO-OWNERSHIP
to a severance, as will the formulation by the joint tenants of an intention
to exclude the operation of survivorship. The classic statement as to when
a severance occurs at common law is found in Page Wood V-C's judgment
in Williams v Hensman: 46
A joint tenancy may be severed in three ways: in the first place, an
act of any one of the persons interested operating upon his own share
may create a severance as to that share ... Secondly, a joint tenancy
may be severed by mutual agreement. And, in the third place, there
may be a severance by any course of dealing sufficient to intimate
that the interests of all were mutually treated as constituting a tenancy
in common. When severance depends on an inference of this kind
without any express act of severance, it will not suffice to rely on an
intention, with respect to the particular share, declared only behind
the backs of the other persons interested.
10.5.1
An Act Operating on ajoint Tenant's Share
Unlike the other modes of severance identified by Page Wood V-C, this
means of severance may and usually will be unilateral. One joint tenant may
act in such a way that he destroys one of the four unities, or in such a way
that he is precluded from claiming the benefit of survivorship.
10.5.1.1
Total Alienation
A joint tenant cannot leave his interest in a joint tenancy by his will, as the
operation of survivorship defeats the purported gift. But a joint tenant can
transfer his interest in a joint tenancy during his lifetime. However, as a
transfer or assignment will destroy the unities of title and time, an inevitable
result is the severance of the joint tenancy. For instance, if A and B are joint
tenants and A sells his interest to X, B and X will hold the property as tenants
in common in equal shares.
Fig 10.2 Alienation
A
X 1/2
B
Joint Tenants
B 1/2
Tenants in Common
If three parties are involved, the picture is a little more complicated. For
inst~nce if A, B, and C are joint tenants and A sells his interest to X, X will
hold that interest as a tenant in common as to one-third, with B and C
continuing to hold the remaining two-thirds as joint tenants.
46
(1861) 1 J & H 546 at 557
245
HONG KONG LAND LAW
Fig 10.3
A
B
C
Joint Tenants
X 1/3
BC 2/3
Tenant in Common
Joint Tenants
If A, instead of selling his interest to a stranger, X, sold his interest to B,
B would hold one-third as tenant in common and the remaining two-thirds
as a joint tenant with C. If B died before C, one-third would pass to B's estate
and the remaining two-thirds would devolve upon C by the operation of
survivorship, so that the property would be held by B's estate as to one-third
and C as to two-thirds as tenants in common. If, on the other hand, C
predeceased B, B would be the sole owner of the property and
co-ownership is no longer relevant.
Fig 10.4
If B dies first:
ABC
If C dies first:
Joint Tenants
e--~-1BC
Tenant in
common
2/3
B's estate
~
ra
Tenant in
common
Joint Tenants
IBC2/3I
Joint Tenants
B Sole Owner
A severance will also occur if joint tenants purport to exchange their interests,
for instance if A assigns his interest to B and B assigns his interest to A. 47
10.5.1.2
A Partial Alienation
Whether a partial alienation by one joint tenant will effect a severance will
depend upon the nature of the partial alienation. If the alienation destroys
the unity of title or interest of the joint tenants, it will effect a severance; but
if it merely creates an encumbrance over the alienating joint tenant's
interests, the unity of title and interest are unaffected and no severance
results.
47
246
Wright v Gibbons (1949) 78 CLR 313
CO-OWNERSHIP
10.5.1.3
Rentcharge
The creation of a rentcharge, which is a money payment secured on the
land, by one joint tenant will not effect a severance since the rentcharge is
a mere encumbrance which can be met out of the income due to the joint
tenant creating the charge.
10.5.1.4
Lease
It appears that a lease by one joint tenant will effect a severance where the
lease, as is the case in Hong Kong, is granted by joint tenants who hold under
a lease themselves. The alienating joint tenant's interest is then held in
reversion and not possession. The Australian case of Freize v Unger48 contains
a useful review of the old authorities on this topic which, although uncertain
as to the effect of a lease by a joint tenant of the freehold estate, do appear
unanimous that a severance results in the case of a lease by joint tenants of
a term of years. Some doubts are, however, expressed as to whether the grant
of a periodic term (as opposed to a term of years) will effect a severance.
Freize v Unger also considers the effect of a lease by one joint tenant. It
appears that one joint tenant is entitled to grant a lease of his interest in the
property which must be recognised by his fellow co-owners. However, the
lease will only affect his interest and will not prevent the remaining co-owners
from exercising their right to possession of the property or also leasing their
interest. 49 There are, however, suggestions that a co-owner whose fellow coowner has unilaterally leased his interest in the property may be in a position
to claim that there has been sufficient interference with his own possession to
establish ouster. 50 Presumably a disappointed lessee from only one joint tenant
who finds himself forced to share possession with another may claim against
his landlord for breach of the covenant for quiet and exclusive possession.
The case of Annen v Rattee 51 suggests that one joint tenant may also
license his interest without the consent of his co-owner, but as a licence
does not create any separate estate in the land it is doubtful whether a
licence by one co-owner would effect a severance.
10.5.1.5
Mortgage
The grant of a mortgage by one joint tenant will effect a severance at
common law, for a mortgage at common law is created by an assignment
of the borrower's interest to the lender which will destroy both the unities
of title and interest and, as a result, the joint tenancy. However, it is not
entirely clear whether the new form of legal mortgage, the legal charge, will
also effect a severance. The legal charge does not transfer any proprietary
interest to the mortgagee but merely creates a charge or encumbrance over
48
49
50
51
[1960] VR 230 at 242
See Jacobs v Seaward (1872) LR 5 HL 464.
Oates v Oates [19491 SASR 37 at 40
(1985) 273 Estates Gaz 503
247
HONG KONG LANDIA W
the property by way of security for the money advanced. 52 In England,
where a legal mortgage is also usually granted by way of a legal charge, 53
the suggestion is that a legal mortgage by way of charge will still lead to a
severance. The point was at issue in:
First National Securities Ltd v Hegarty
54
[1985] QB 850
FACTS
The Hegartys owned their home as joint tenants. Mr Hegarty forged his
wife's signature in order to mortgage the family home to the plaintiffs to
raise money. He defaulted on the mortgage repayments, and the plaintiffs
obtained a charging order over his interest in the home.
JUDGMENT
The husband's act of mortgaging the property was sufficient to sever the
joint tenancy, although it seems the fraudulent nature of the husband's
conduct contributed to this conclusion.
The Australian courts have, however, taken a different view in:
Lyons v Lyons
FACTS
Mr and Mrs Lyons were joint tenants of certain property. On Mr Lyons' death
the defendants claimed an interest in the property as Mr Lyons' persona(
representatives, on the basis that a mortgage made by Mr Lyons of his
interest prior to his death effected a severance.
JUDGMENT
The mortgage under the registration of title system in Victoria in Australia
took effect by way of charge only. As a mere encumbrance it did not affect
the unity of title or interest of the joint tenancy, and no severance resulted.
The reasoning in Lyons v Lyons may be applied to the legal charge, so
that no severance of the legal estate would result from the mere act of a joint
tenant granting a legal mortgage by way of charge. After all it may be that,
52
53
54
248
See s 44 of the Conveyancing and Property Ordinance Cap 219.
Sections 85-87 of the Law of Property Act 1925.
See also Thames Guaranty v Campbell [1985] QB 210.
CO-OWNERSHIP
like the rentcharge, his portion of the income generated from the property
may be sufficientto satisfy the r~payments due under the mortgage. Perhaps
something more is required in order to effect a severance, such as Mr
Hegarty's dishonesty or the exercise by the mortgagee of his power to
realise the property under the mortgage.
The Hong Kong courts in Siu Chun-wah, Alice v Malahan Credit Co Ltd 55
favoured the severance approach, although the point was not fully argued.
If a legal mortgage of property does not effect a severance, there is a
danger for the lender who takes a mortgage from one joint tenant since his
mortgage will be extinguished by the operation of survivorship should the
joint tenant die first. A lender is thus well advised to ensure that the joint
tenancy is severed using some other method of severance before he lends
funds to one joint tenant.
10.5.1.6
Equitable Alienation
It is sufficient to effect a severance in equity if a joint tenant enters into an
agreement to assign or lease his interest, for equity will look on as done that
which ought to be done and give effect to the agreement. It should be noted
that an equitable mortgage continues to be granted by way of assignment
and will thus lead to severance.
10.5.1.7
Involuntary Alienation
The bankruptcy of a joint tenant will automatically sever the joint tenancy,
for the transfer of the joint tenant's interest in the property to the trustee in
bankruptcy will destroy the unity of title.
The question of whether a charging order will also lead to a severance
is not clear. A joint tenant's interest in land is certainly property to which
a charging order may attach. 56 But as a charge is merely a charge or
encumbrance on the borrower's interest it is arguable that the unity of title
and interest is unaffected and the joint tenancy is not severed. 57
The timing of the bankruptcy may be significant. Where one joint tenant
dies after the act of bankruptcy but before they or their co-tenant are
adjudicated bankrupt the severance, by the operation of relation back, will
nevertheless date back to the act of bankruptcy so that the joint tenancy will
have been severed during the life of the co-owners and the severed share
of the deceased co-owner will fall into their estate ..This is what happened
in:
55
(1987) CA Civ App No 63 of 1987
56
Kung Wong Sau Hin v Jung Kwok-sun (1985) HCt Probate No 2
57
See 10.5.1.5.
249
HONG KONG LAND IA W
Re Dennis
FACTS
Mr and Mrs Dennis owned two properties as joint tenants. On 21 September
1982 Mr Dennis committed an act of bankruptcy by failing to comply with
a bankruptcy notice. On 24 February 1983 his wife died and on 11
November 1983 Mr Dennis was adjudicated bankrupt. His trustee in
bankruptcy claimed the properties were vested in him, Mr Dennis having
acquired full title by the operation of survivorship on Mrs Dennis' death.
JUDGMENT
The severance occurred on 21 September 1982 when Mr Dennis committed
an act of bankruptcy. Thus on the death of Mrs Dennis her share in the two
properties passed to her estate; the right of survivorship did not operate.
Where
insolvent
deceased
operation
10.5.1.8
the joint tenant has died and it is their estate that is declared
there is deemed to be no severance prior to death and the
joint tenant's interest will pass to the surviving tenant by the
of survivorship. 58
Litigation
There is authority for the suggestion that a joint tenant who initiates
litigation that affects the joint tenancy is acting in such a way as to trigger
a severance of his interest. 59 But it may equally be argued that litigation,
which may always be discontinued, is not a sufficiently conclusive act to
supportseverance. 60 The commencement of proceedings inevitably involves
the service of process which may itself constitute a severance notice, and
thus it is more convenient to consider litigation as a method of severance
in this context. 61
10.5.2
By Mutual Agreement
Page Wood V-C's second category provides for severance to be effected by
the agreement of the joint tenants. What constitutes a sufficient agreement
for these purposes was considered by the English Court of Appeal in:
Re Palmer (1993] Ch 72
See Re Drapers Conveyance !1969] 1 Ch 486, Ho Nga Sbeung v Ma Fook Leung (1993] 2
HKC 647 and see also Huntingdon v Hobbs 0992) 24 HLR 652.
60 See In re Wilkes (1891] 3 Ch 59.
61 See 10.5.12.
58
59
250
CO-OWNERSHIP
Burgess v Rawnsley [1975) Ch 429
FACTS
A widower met and became friendly with Mrs Rawnsley. They bought a house
in their joint names, which consisted of two flats. The widower lived in the
downstairs flat and the top flat was empty. He hoped the house would
become a matrimonial home for himself and Mrs Rawnsley, whom he wanted
to marry, but Mrs Rawnsley had other ideas. She just wanted to live in the
upstairs flat. When it became plain that their joint venture could not succeed
there was evidence that it was orally agreed that the widower would buy Mrs
Rawnsley's share for £750, although Mrs Rawnsley subsequently refused to
sell. When the widower died his personal representatives claimed there had
been a severance and that his estate was entitled to a half share in the house.
JUDGMENT
The oral agreement was sufficient to sever the joint tenancy.
The agreement did not have to be in writing, irrevocable or enforceable.
The test is not whether the agreement bound the parties to sever the joint
tenancy or perform some other act that would necessarily involve severance,
but whether it shows a common intention that the joint tenancy be severed.
10.5.3
A Course of Dealings ...
Page Wood V-C's last category has caused the greatest difficulty, and it is
difficult to extract a common view as to what type of dealings will be
sufficient to demonstrate an intention to sever. There is even doubt whether
this category is distinct from the second or merely a means by which the
mutual agreement of the parties may be established.
The greatest difficulties have revolved around, first, negotiations that fall
short of an agreement and, second, whether a unilateral notice by a joint
tenant is sufficient. The effect of negotiations is perhaps the more important
of the two issues, since the question of whether a unilateral declaration to
sever will be effective to sever at common law has largely been superseded
by the introduction of a statutory severance notice.
The effect of negotiations was at issue in the case of:
Nielson-Jones v Fedden [1975) Ch 222
FACTS
A husband and wife were joint tenants of their family home. They separated,
and while contemplating divorce they signed a memorandum agreeing that
251
HONG KONG LAND LAW
the husband would sell the family home and use the proceeds to find an
alternative home. The husband entered into a contract to sell the home and
by agreement the parties took £200 each out of the initial £1,000 deposit.
Both parties wished their financial affairs to be separated and were negotiating
to that end, but the husband died before an agreement was reached. The wife
claimed she was entitled to the house by the doctrine of survivorship.
JUDGMENT
There had been no severance and the wife was therefore entitled to the house.
Walton] dismissed suggestions that the parties' negotiations constituted
a sufficient course of conduct to effect a severance. In his opinion it was
necessary to be able to imply or infer from the negotiations an agreement
to sever. He also rejected the notion that a unilateral declaration that fell
short of the statutory requirements of a severance notice could constitute
a course of conduct capable of severing a joint tenancy at common law.
Walton J's views were subject to criticism by the Court of Appeal in
Burgess v Rawnsley. Lord Denning MR clearly felt that Page Wood V-C's
third category would include negotiations between parties falling short of
a final agreement. Sir John Pennycuick was also of the view that the third
category is distinct from the second, and that the course of dealings need
not demonstrate an agreement but merely a common intention to sever.
Despite these criticisms the courts have shown a reluctance to treat
negotiations that fall short of an agreement as constituting a severence. 62 It
appears that it is not sufficient for the negotiations to show an intention to
deal with the ownership of the co-owned property; they must evince an
intention to sever the joint tenancy.
None of the members of the court in Burgess v Rawnsleywas prepared to
admit that the third category sanctioned severance by an uncommunicated
or oral declaration by a joint tenant. Any unilateral declaration should be in
writing and communicated to the other joint tenant, and thus more than likely
to satisfy the requirements of statutory severance by notice (see 10.5.4).
Examples of 'courses of conduct' that have fallen short of effecting a
severance include the inclusion of property as a partnership asset for tax
reasons 63 and the conversion of jointly owed property into separate units. 64
Severance has, however, been achieved by mutual wills where both joint
tenants enter into identical wills leaving their respective interests to each
other for life and then to a third party in remainder. 65
Gore and Snell v Carpenter(l990) P&CR 456 and McDowell v Hirschfield, Lipson &
Rumney [1992] FLR 126
G3 Barton v Morris [1985] 1 WLR 1257
64 Greenfield v Greenfzeld (1979) 38 P&CR 570
65 In Re Wilford's Estate (1879) 11 Ch D 267
62
252
CO-OWNERSHIP
10.5.4
By Written Notice
The generally accepted view was that severance by notice of a joint tenancy
in land was not possible at common law. However, Havers J in Hawkesley
v May 66 was of the view that Page Wood V-C's first category obviously
included a declaration of an intention to sever by one party. This view was
taken up by Plowman] in Re Drapers Conveyance 67 and Lord Denning MR
in Burgess v Rawnsley, 68 but was criticised by Walton J in Nielson Jones v
Fedden 69 and SirJohn Pennycuick in Burgess v Rawnsley. The issue has now
become largely academic, since s 8 of the Conveyancing and Property
Ordinance provides that a joint tenancy may be severed at law and in equity
by 'a notice served by a joint tenant on the other joint tenants' .70
10.5.4.1
What Notice is Sufficient?
The notice must be in writing: 71 otherwise little guidance is given by the
ordinance. Usually the joint tenant will give a specially prepared notice to
the other joint tenant, but difficulties have arisen over the extent to which
documents served in the course of court proceedings can effect a severance
whether at common law or by notice. There have been a number of cases
that provide some guidance.
t ~ n
~
--••<• ',ii. '•1-
.,C
.,,
~ -•'••
-
~ ,-
'.;:,~,•~·
~ M ~•
.. ,j
Re Draper's Conveyance [1969] 1 Ch 486
FACTS
A couple acquired a family home in their joint names. The wife obtained
a divorce decree nisi and applied under the equivalent of s 6 of the Married
Person's Status Ordinance, 72 asking for an order that the house be sold and '
the proceeds divided equally. Her application was successful, but before it
was implemented the husband died. The wife sought a declaration as to
how she held the property.
JUDGMENT
The joint tenancy had been severed by the wife's service of the originating
summons coupled with her affidavit in support of the summons. Plowman J
also observed that there was no requirement for the notice to be signed.
66
[1956] 1 QB 304
[1969] 1 Ch 486
68
[1975] Ch 429
69 [1975] Ch 222
70
The equivalent English provision is found in s 36( 4) of the Law of Property Act 1925
although its wording differs.
71
See s 62 of the Conveyancing and Property Ordinance Cap 219.
72
Cap 182
67
253
HONG KONG LAND LAW
Plowman J's views were criticised by Walton] in Nielson-Jones v Fedden.
He was of the view that the notice must be irrevocable. The issue of a
summons was a revocable act from which the wife could have withdrawn
at any time prior to the court's decision. But Walton's strict view has not
received support. For instance, Sir John Pennycuik, with the apparent
support of Brown LJ in Burgess v Rawnsley, rejected Walton J's strict view.
In Harris v Goddard 73 the English Court of Appeal considered that the fact
that court proceedings could be abandoned or discontinued at any time was
not fatal but was a factor to be taken into account in deciding whether there
was sufficient intention to severance, and should thus be viewed and
weighed in the light of all other circumstances.
Harris v Goddard also decided that the notice must show an immediate
intention to sever. For this reason a wife's divorce petition, which merely
asked the court to grant such order regarding the ownership of the
matrimonial home as was just, was insufficient to constitute a notice to sever
since it merely showed an intention to bring the existing ownership
structure to an end upon the finalisation of the divorce.
In the Hong Kong case of Ho Nga Sheung v Ma Fook Leung74 an originating
summons requesting a sale of jointly held property under the Partition
Ordinance was held to have severed the joint tenancy, a decision which may
have also been influenced by the fact that the parties had already divorced.
In England there is some uncertainty over whether the actual court order
will be sufficient to establish severance because, although it is a result of the
parties' action, it is not their act but the court's. For instance, Plowman J in
Re Draper's Conveyance clearly avoided relying upon the court order. The
Australian courts have taken a more lenient view, and have held a court
order sufficient to effect a severance where the order alters, as opposed to
declares, the rights of the parties.7 5
The notice must be served in accordance with s 62 of the Conveyancing
and Property Ordinance, but it is not necessary to prove that the notice has
actually been received by the other joint tenant if service satisfies the
requirements of the section. 76
10.5.5
By Unlawful Killing
A person will not, by reason of public policy, be permitted to benefit from
his own wrong. A joint tenant who kills his fellow joint tenant will thus not
be allowed to take the benefits that the operation of survivorship would
have otherwise have awarded him. The precise means by which the law
operates to achieve this result is unclear, as different approaches have been
adopted. One view is that the killing effects a severance.
73
74
75
76
254
[1983] 3 All ER 242
[1993] 2 HKC 647
See, for instance, Re Johnstone [1973] Qd R 347.
See Re 88 Berkley Road NW9 [1971] Ch 648.
CO-OWNERSHIP
FACTS
A husband unlawfully killed his wife and then killed himself. The question
arose as to which estate was entitled to the couple's jointly owned property.
JUDGMENT
The unlawful killing of the wife operated as a severance, so that the property
devolved upon the parties' estates as tenants in common.
The court rationalised the application of severance on the basis that a
joint tenancy implied an understanding that the parties would accept 'the
risks and chances of the natural expectancy of life, '77 which was broken if
one tenant killed the other.
Where three joint tenants are involved, the severance approach leads to
a division of the property in thirds between the three tenants or their estates.
For instance, if A, B, and Care joint tenants and B kills A, there is a severance
as to A and B's shares so that A's estate holds a third, B holds a third, leaving
C also holding a third as tenants in common.
A different approach based upon the imposition of a constructive trust
is found in:
;li"ll\il:'l'l:;;.~:~ii,0,~:~'!!•..il!!!t~~i:.,,:t..ir•~•!!1•2•1!!1'0!if::¾l;".;~I!~
. . . .
. -- -
. - . _ . . _;
Rasmanis v Jurewitscb 0969) 90 WN (NSW) 154
FACTS
The respondent killed his wife, and after he was convicted of manslaughter
the question arose as to the ownership of two properties that they held
jointly. The first was held jointly by the couple alone but the second was
held by them jointly with a third party.
JUDGMENT
There was no severance. After the killing the respondent took the legal title
of the properties by survivorship, but equity would intervene to impose a
constructive trust to prevent the respondent benefiting from his crime.
The first property was thus held by the respondent on constructive trust
to hold one-half for his wife's estate and one-half for himself as tenants in
common. The second property was held by the respondent and the third
party as joint tenants on constructive trust to hold one-third, representing
77
At 149
255
HONG KONG LAND LAW
the wife's interest, for the third party as tenant in common, and the
remaining two-thirds for the respondent and the third party as joint tenants.
It is not clear why the third party should benefit to the exclusion of the
wife's estate. It seems rather a case of making sure the killer does not benefit
than any concern for the victim's estate.
The two approaches only lead to a practical difference where there are
more than two joint tenants.
Fig 10.5 Unlawful killing of A by B:
Severance Approach
Constructive Trust Approach
A B Joint Tenants
A B Joint Tenants
on
constructive
trust
A's estate
1/2
A's estate
1/2
B
1/2
Tenants in Common
Tenants in Common
Severance Approach
ABC
A's estate
1/3
Constructive Trust Approach
Joint Tenants
ABC
B
C
C
1/3
1/3
1/3
Tenants in Common
B
1/2
Joint Tenants
BC
2/3
Tenant in Common Joint Tenants
The constructive trust approach in this context provides greater flexibility
for equity to consider the gravity of the crime. For instance, in Re Public
Trustee of Manitoba and Le Clerc 78 the court allowed the operation of
survivorship where the killer was found not guilty of manslaughter by
reason of insanity.
10.5.6
Purchasers and Severance
A sole surviving joint tenant is able to sell the whole interest in the property
he .holds by showing the purchaser that his fellow joint tenants have died,
and that by the operation of survivorship he has become solely entitled to
78
256
(1982) 123 DLR (3d) 650.
CO-OWNERSHIP·
property. But what happens if he is not a sole surviving joint tenant, because
before his fellow tenant died there had been a severance? In these
circumstances the purchaser will not obtain the whole interest in the property
but merely his vendor's share. The remaining share will be held by the estate
of the deceased tenant. It is thus vital for a purchaser buying from a sole
surviving joint tenant to have proof not only of the death of the other joint
tenant, but also proof that no severance took place before his death.
A number of the methods of severance that we have looked at require
a written instrument of some kind. For instance, an assignment or a lease
of over three years of a joint tenant's interest will require a written
instrument, an agreement to sever also may, be in writing, and a severance
notice must be in writing. Where severance does involve a written
instrument, that instrument should be registered under the Land Registration
Ordinana! 9 in order to bind a purchaser so that the purchaser will know
whether his vendor is a joint tenant or a tenant in common.
But not all the methods of severance require writing: an agreement to
sever need not be in writing, negotiations may be oral, and of course
unlawful killing has nothing whatsoever to do with writing! Section 8 of the
Conveyancing and Property Ordinance seeks to alleviate the· problem of
proof of no severance by conduct by providing that to be effective at law,
a severance must be in writing. It must be either by instrument or by notice.
A severance by any other means will only be effective in equity.
Fig 10. 6 Purchasers and Severance
Severance by Instrument or Notice
A 1/2
1
f-------E
Law
l
• C
Tenants
m
ommonI
I
I
I
I
I
---'--I
A 1/2 e---
__
B 1/2
Equity
Tenants in Common
Severance by Conduct
AB
B--------~
I
I
I
Law
\
Joint Tenants
I
\
I A 1/2 I
\
\
I B 1/2
Equity
Tenants in Common
79
Cap 128
257
HONG KONG LAND LAW
A purchaser will thus only be bound by a severance by conduct if he cannot
establish that he is a bona fide purchaser for value of the legal estate without
notice actual, constructive, or imputed. 80
10.6
Termination
of Co-ownership
Co-ownership will cease when the unity of possession is destroyed, which
may occur in a number of ways.
10.6.1
Sale
If A and B are co-owners of a flat that they then sell to C, C becomes the sole
owner and A and B's co-ownership will cease. If A and B sell to C and another
party D, then a new co-ownership relationship will arise between C and D.
10.6.2
Union in a Sole Owner
Co-ownership will also come to an end if the property becomes vested in
one of the co-owners. This may happen where A and B are co-owners of
property if:
• A transfers his interest to B. If A and B are joint tenants, the transfer
should be effected by way of release of A's interest to B rather than
assignment, as strictly speaking A has no separate interest in the property
that he can transfer to B;
• A and B are joint tenants and A dies, B becomes the sole owner by
survivorship; and
• A and Bare tenants in common, and on A's death his share passes to B
either by his will or intestacy.
10.6.3
Partition
Partition involves the destruction of the unity of possession and occurs
where the co-owned property, whether held jointly or in common, is
physically divided between the co-owners so that each co-owner becomes
a sole owner of part of the property. Thus, if A and B are joint tenants or
tenants in common in equal shares of a piece of land, they may partition
the land so a.s to leave A the sole owner of one half and B the sole owner
of the other half. If A and B were tenants in common in unequal shares, their
division of the land would reflect their respective shares.
10.6.3.1
Voluntary Partition
Partition may occur as a result of the co-owner's agreement. To be effective
at law the partition agreement must be by deed. 81
so See Chapter 2.
81
258
Section 4 of the Conveyancing and Property Ordinance Cap 219
CO-OWNERS
10.6.3.2
~-
Compulsory Partition
At common law a co-owner has no right to demand partition, but as long
ago as 1539 and 1540 a statutory right to partition was granted to joint tenants
and tenants in common. 82 The right to force a sale of the property and division
of the proceeds of sale was longer in corning: it was not until the Partition
Ordinance 83 was passed in 1969 that this right was made available to co-owners
in Hong Kong, although the right was first granted in England a century earlier
by the Partition Act 1868. The Partition Act 1868was repealed in England
by the Law of Property Act 1925 and replaced by provisions giving the
co-owners as trustees under the statutorily imposed trust power to partition
the land, subject to the consent of the beneficiaries, with power for any party
interested to apply to court in default of agreement. 84
The Partition Ordinance grants the court power to:
•
•
•
make a partition order
make an order for sale
refuse to make an order.
The court in considering what order is appropriate in the circumstances
of the case can direct enquiries to be taken, for instance, as to the nature
of the property and the persons interested in the property or any other
matters that are thought necessary; but these enquiries must be directed
before and not at the time the order is made for the power springs from the
court's inherent jurisdiction and not from the ordinance itself. 85
10.6.3.3
Who May Apply?
Section 3 of the Partition Ordinance provides that an application either for
the partition or sale of the property under the ordinance may be brought
by 'any person interested' in the co-owned property.
At common law, only an owner of an interest in possession was entitled
to apply for partition. Despite the wide wording of the section, it appears
that this requirement remains to the extent that a party holding a settled
reversionary interest or an interest in remainder will not be able to claim
partition, for to do so would disturb the tenant for life as the person entitled
to possession. But the requirement will not prevent a landlord applying for
partition of land which is subject to a lease. This was the issue at stake in:
84
Acts 31 and 32 of Henry VIII
Cap 352
See ss 28(3) and 30 of the Law of Property Act 1925.
85
Riseway Investment Ltd v Wong Kwok Chiang & another (1995] 2 HKC 25
82
83
259
HONG KONG LAND LAW
Cromwell Investment Co Ltd v Fook Sun Enterprises Ltd
[1975] HKLR 1
FACTS
The parties owned property as tenants in common, which was let to a tea
house. The respondent applied for the sale of the property under the
Partition Ordinance, which was opposed on the ground that the respondent
was not entitled to apply for partition where they were not in actual
possession.
JUDGMENT
The existence of the sublease did not deprive the respondent of the right
to apply for partition.
Trainor J reviewed the common law authorities and, while accepting that
a reversion on a freehold estate 86 could not apply for partition, was of the
view that the appellant's opposition was misconceived because the
respondent was in possession of an estate, although not in actual occupation.
Protection is afforded to the lessees by the proviso found in sub-s 4(3) that
no order for partition can be made where it would prejudice the interests
of a person who is not a party to the proceedings.
The question of when a mortgagee is entitled to apply for partition under
the ordinance is less clear. Trainor's view would suggest that a mortgagee
could apply even before he is entitled to claim possession of the property,
for he is in possession of an interest. In the Canadian state of Ontario,
however, the courts have interpreted a similar provision as requiring an
immediate right to possession so as to prevent a mortgagee applying for
partition or sale where he does not have an immediate right to possession
of the property. 87 The question may to some extent be academic in the case
of a mortgagee, for he is unlikely to wish to apply under the ordinance until
default has been made under his mortgage when a right to possession of
the property will arise. 88 However, the question does become more
important in the case of a chargee under a charging order, for he has no
immediate or future right to possession but only a right to apply to court
for an order for sale or appointment of a receiver.
In England, under the different regime imposed by the LPA, the
expression 'any person interested' has been given a conveniently wide
interpretation to include any person with a proprietary interest in the property,
which has been held to extend to a chargee under a charging order. 89
For example, a life interest
Re Gamet and McGoran (1980) 117 DLR (3d) 649
88
Sees 15.
89 First National Securities Ltd v Hegarty [1985] QB 850
86
87
260
CO-OWNERSHIP
10.6.3.4
Order for Partition
By ss 4 and 5 of the ordinance the court may order partition, and in doing
so has power to create any necessary rights of way or other easements, and
to apportion between the separate pieces of land any obligations relating
to the land, such as Crown rent. However, where there is a building on the
land, the court cannot partition the land in a way that would leave part of
the building on a partitioned portion, unless that building is self-contained
or is not connected to the rest of the building other than by a party wall or
a common staircase. 90
10.6.3.5
Order for Sale
Instead of partition, the court may order a sale in two situations.
(a)
Partition not beneficial
The court may order sale where the court is of the view that a partition of
the property would not be beneficial to all persons interested by reason of:
• the nature of the land: for instance, a building may be impractical to
partition even if it is divided into self-contained units;
• the number of persons interested or presumptively interested: 'for
instance, if there are a large number of co-owners partition may be
impossible or impractical;
• the absence or disability of some person interested; or
• any other circumstances. 91
The reference to 'any other circumstances' is very wide, but it appears to
be restricted to financial considerations and does not extend to matters of
sentiment. 92
(b)
Application for sale by a co-owner
The court may order sale, if it sees fit, upon an application for sale by a
person interested unless the other persons interested undertake to purchase
the applicant's interest. 93 The court may then obtain a valuation of the share
of the person applying for sale so as to ascertain the price at which his share
will be purchased, although it appears that the party requesting a sale or the
party undertaking to buy may withdraw if the valuation is unacceptable to
either of them. 94 Furthermore, even if an undertaking to buy out is made,
the court may still order a sale under s 6(1) if it is of the view that the sale
is beneficial, for their powers to order sale are independent. 95
94
Section 4(2) of Cap 352
Section 6(1) of Cap 352
Drinkwater v Ratcliffe [1875] 20 LR Eq 528
Section 6(3) of Cap 352
Pitt v Jones (1880) 5 App Cas 651
95
Ibid.
90
91
92
93
261
HONG KONG LAND LAW
Even ifno undertaking to buy out the applying owner is forthcoming,
the court is not bound to order sale. The applying party must still establish
a good reason for ordering a sale. 96
Under the English Partition Act 1868there was a third occasion where
a court could order sale. Upon the applicatioq of a co-owner of one-half or
more of the shares in the property, the court was bound to make an order
for sale unless it was satisfied that there were good reasons not to do so.
This ground is conspicuously absent in Hong Kong, so that there is no
means by whic? a co-owner can insist upon the sale of the co-owned
property. He must be able to prove that t;he sale is beneficial or there is some
reason for preferring a sale over partition. Possibly the fact that the applying
owner holds one-half or more of the shares in the property would be
considered a good reason to order sale.
An attempt was made to limit the court's ability to order sale in:
Pun Jong-sau v Poon
FACTS
The plaintiffs were the majority of the co-owners of a multi-storey building,
and the defendants were the remaining co-owners of the building. The
building comprised four storeys in the front and six storeys in the rear, and had
been valued with vacant possession at HK$20,000,000. The plaintiffs sought
an order for partition or sale, although they preferred a sale because division
of the property would require uneconomic structural alterations. The
defendants opposed the application on the grounds that the ordinance did not
permit the court to order sale where partition was not feasible and practical.
JUDGMENT
The court was empowered and would order sale of the property on the
ground that partition would not be beneficial to the parties.
The defendants' construction of the ordinance was rejected although the
wording of the ordinance appeared to support their construction. The court
looked rather to the purpose for which the ordinance was passed, which
would have been frustrated if a literal construction had been adopted.
When ordering sale the court can impose terms regarding the conduct
of the sale, and it is their duty to order the sale to take place in the manner
most beneficial to the co-owners. 97 The court may impo1>eterms regarding
the conduct of a sale to require the sale of separate properties as if they
constituted a single property. Indeed, it may be necessary in order to
suitably consider the interests of all parties and cater for all the difficulties
96
97
262
Richardson v Feary (1888) 39 ChD 45
Forda Investors Ltd v UOB Finance (HK) Ltd [1979] HKLR 382 and Law Shi Ying v
Law Kam Tai 11994]1 HKC 378
CO-OWNERSHIP
that may arise in the conduct of the sale that directions be given. A plain
order that the premises will be sold will often not be sufficient, directions
dealing with the timing and conduct of the sale will often be necessary. 98
Golden Bay Investment Ltd v Chou Hung & others
[1994) 2 HKC 197
FACTS
The parties were co-owners of four adjoining properties in Mongkok which
were held by them under separate titles. Indeed, their share in the properties
differed, the plaintiff owning 5 shares in one lot, 4 1/3 in another, 4 1/2 in
another and 6 shares in the last lot. The remaining shares were owned by
various of the defendants. The plaintiff applied for an order that they be sold
together having brought evidence to show that a sale of the four lots
together was more beneficial than the sale of the lots individually.
0
JUDGMENT
The Partition Ordinance did not empower the court to amalgamate separate
properties to form a single.property but where the court considered that each
of a number of properties should be sold then it could make directions for the
sale of all the properties as if they constituted a single property under section
6(4) of the ordinance. However, the court would only do so if it appeared in
the legitimate interests of all the co-owners and workable in practice.
10.6.4
Refuse to Make Any Order
In contrast to the Partition Act 1868, the court is granted power to refuse
to make an order for either partition or sale, although not, it appears, to
postpone sale. 99 But when will the court refuse to. make any order? No
guidelines are laid down in the ordinance.
In Canada, where a similar power exists, there has been a divergence
of views over the extent of the court's discretion. The narrow view is that
an owner has a prima facie right to seek partition and the courts will only
intervene if the applicant's request for partition is vexatious or oppressive,
or he has not come to court with clean hands. 100 In the domestic context,
there was a move away from this narrow view to consider the hardship that
might be caused to one of the spouses if their co-owning spouse was able
to obtain partition or sale. 101 However, in MacDonald vMacDonald 102 the
court concluded that only serious hardship should deprive a co-owner of
98
99
100
101
102
Law Shi Ying V Law Kam Tat 11994] 1 HKC 378
Section 2(C) of Cap 352
Re Perkins & Perkins 0972) 31 DLR (3d) 694
Yale v MacMaster 0974) 46 DLR (3d) 167; and Melvin v Melvin (1975) 58 DLR (3d) 98
(1976) 73 DLR (3d) 341.
263
\
HONG KONG LAND LAW
his prima facie right to require partition. In Canada, specific legislation
relating to family property has superseded these developments to limit the
rights of a spouse to force the sale or partition of co-owned family property.
In Australia and New Zealand, there is no power for the courts to refuse
partition, and there is in any event specific legislation to deal with the special
problems that are presented by co-owned family property.
In England, as we have seen, there is a different legal framework for the
ownership of co-owned property, namely the statutorily imposed trust for
sale. A co-owner who wishes to perform that trust and sell the property can
do so with the consent of his fellow co-owners or by applying to court for
an order for sale. 103 The court has absolute discretion as to whether to make
an order for sale, and can take into account all the circumstances of the case.
The parties may not have acquired the property with a view to sale but for
a different purpose, and the court will generally refuse to order sale if this
purpose is still subsisting. 104 In the domestic context where property is
acquired by a couple in their joint names as a home for the family, the court
may refuse to order sale while the property still serves as a home, which
may still be the case as far as the children are concerned, even if the marriage
has broken up. 105 However, where the party applying for sale is the trustee
in bankruptcy or mortgagee of one of the spouses or partners, the interests
of the creditors will invariably prevail over the continued provision of a
home for the children. Only in exceptional circumstances has a trustee in
bankruptcy or mortgagee been refused an immediate order for sale. 106
In Hong Kong, the Partition Ordinance applies to all co-owned
property, whether owned by spouses or unrelated parties. However,
perhaps where the court is exercising its discretion to refuse to make an
order, it should apply different principles where the property is family
property and where it is co-owned by unrelated parties. In this way, in the
case of family property the court can take into consideration the hardship
that a sale or partition might cause. Alternatively, the court might adopt the
approach of the English courts, and look to see whether the purpose for
which the property was acquired is still subsisting.
It should be noted that in the case of matrimonial property the courts also
have power to determine questions regarding the title and possession of
matrimonial property, including its sale, under s 6 of the Married Persons
Status Ordinance 107 and upon the grant of ancillary relief under the
Matrimonial Property and Proceedings Ordinance. 108 Thus it is only where
the marriage is still subsisting, the couple is not married, or the party seeking
sale is not one of the co-owners, that an application for sale under the
Partition Ordinance is necessary.
I
103
104
10s
106
107
108
264
See s 30 of the Law of Property Act 1925.
See Jones v Challenger (1961] 1 QB 176; and Re Buchanan-Wollaston 's Conveyance
(1939] Ch 738 and Abbey National Building Society v Moss (1993] NPC 153
Re Evers Trust [1980] 1 WLR 1327
Re Holliday {1981] Ch 405, Re Citro [1991] Ch 142 and Barclays Bank Plc v Hendricks
(1995) CLY 2365
Cap 182
Cap 192
CO-OWNERSHIP
10. 7
Tenancies by Entireties
Tenancy by entireties is a special form of joint tenancy that existed between
married persons where property was transferred to them in such circumstances
that they would have taken as joint.tenants if they had not been married.
During the marriage neither party could dispose of any interest in the land
without the concurrence of the other, nor could either of the parties sever the
tenancy. The unity of the spouses was complete and could not be broken
during the marriage. However, given the common law limitations on a wife's
ability to hold and dispose of property, the husband under a tenancy by
entireties was alone entitled to possession and the income of the land.
It is unlikely that a tenancy by entireties can now be created in Hong
Kong. In both England and Australia it has been held that the effect of the
Married Woman's Property Act 1882, which recognised the right of a
married woman to hold and dispose of property independently of her
husband, precluded the creation of tenancies by entireties. 109 The relevant
provisions of the Married Woman's Property Act 1882 are found in an
updated form in Hong Kong in the provisions of the Married Person's Status
Ordinance. no However, some room for doubt remains, for in Canada
similar legislation has been held not to be inconsistent with the continued
recognition of tenancies by entireties. 111
10.8
Coparcency
Coparcency arose where a person died intestate and his property passed
to his common law heirs who were female. Coparcency is unlikely to arise
in Hong Kong, for where a person dies intestate his estate will generally pass
according to the provisions of the Intestates Estates Ordinance1 12 and not
according to the common law rules. Certain land in the New Territories is,
however, exempt from the provisions of this ordinance, and whilst it is more
than likely that Chinese customary law will govern the succession to such
land it is conceivable that coparcency could arise if the persons entitled to
the land were not of Chinese race.
Coparcency is a hybrid form of tenancy. It most closely resembles a
tenancy in common in that there is no right of survivorship, and coparceners
hold distinct but undivided shares. Nevertheless, given that coparcency
only arises on intestacy, the four unities are usually, though not necessarily,
present.
Thornley v Thornley [1893] 2 Ch 229; and The Registrar-General of New South Wales v
Wood (1826) 39 CLR 46
no Cap 182
111 Campbell v Sovereign Securities Holding Co Ltd (1958) 13 DLR (2d) 195. But see Re
Demaiter and Link (1973) 36 DLR (3d) 164.
nz Cap 73
I09
265
LEASES
11.1
Introduction
Leases play a central role in land ownership in Hong Kong. If we look at
the ownership of typical residential development on Hong Kong Island or
in Kowloon, we find the Crown ,or, after 1 July 1997, the Government of
the Special Administrative Region of Hong Kong, is the ultimate holder of
the land. The Crown or Government disposes of land by granting a Crown
or Government lease of the land for a term of years to the highest bidder
at an auction. The Joint Declaration between the British Government and
the Government of The People's Republic of China on the Future of Hong
Kong limited the right of the Crown to grant leases extending beyond 2047.
Before the Joint Declaration it was common for the Crown to grant terms
of 75 years together with a right to renew the term for a further term of 75
years. The lessee under a Crown or Government lease, once he has
developed the land into residential .units, may decide to realise his
investn;ient by selling the flats off to individual purchasers, by transferring
or assigning a share in the lease. Alternatively, the lessee may decide to
ret~in the development for investment and, instead 9Lselling tl1e lal)d, grant
short-term leases of individual units for terms of usually about two or three
years. The lessee has dealt with the development by creating new subleases
rather than by the assignment of the existing Crown or Government lease
itsc;If.
These two ownership structures are commonly found not only in
residential developments but also in commercial, industrial, or indeed any
other kind of development.
Whether it is a Crown or Government lease or a short-term tenancy
agreement, the features of the relationship are the same. It must be said,
before examining these features, that the law of landlord and tenant is a vast
subject and in a book of this size we can only deal with it in outline. 1
11.2
Lease Essentials
Not every occupier of land will qualify as a lessee. His occupation must
display certain characteristics in order to qualify, in particular those of:
• exclusive possession of the land; and
• a certain duration.
For a more detailed examination, see Merry: Hong Kong Tenancy Law (Butterworths)
2nd ed 1989.
266
LEASES
11.2.1
Exclusive Possession
In order for occupation to qualify as a lease, the lessee or tenant must be
given exclusive possession of the land. It is exclusive possession that
justifies the recognition of the tenant's occupation as an estate or interest
in the land itself. It marks that degree of physical control over the land that
entitles the tenant to call the land his own and to keep out anyone he does
not wish to enter, including his landlord. If exclusive possession is not
given, the occupier will only enjoy a licence to occupy, which confers no
estate or interest in the land. 2
•
The importance of distinguishing between a lease and a licence is
emphasised by the fact that a lessee enjoys the protection of the rent control
and security of tenure legislation found in the Landlord and Tenant
( Consolidation) Ordinance, 3 while a licensee does not. !A.landlord may thus
be at pains to establish that a right to occµpy is merely a licence, while the
occupier is more likely to seek a lease. There are als~ other distinctions
between the position of a lessee and a licensee that may encourage the
parties to seek the greater protection afforded by a lease or, in rare cases,
a licence.
The distinction between a lease and a licence has been fertile ground
for litigation, not only over the question of whether exclusive possession
has been granted but also over the question of whether the grant of
exclusive possession is the decisive factor in distinguishing between a lease
and a licence) The leading case is:
•■--
Street v Mountford [1985] AC 809
FACTS
The plaintiff granted the defendant a right to occupy two rooms for £37 per
week, subject to termination on 14 days' notice. The terms of the agreement
were set out in a document headed 'licence agreement'. The agreement
gave the defendant exclusive possession of the rooms, but contained a
declaration that the defendant understood the agreement did not protect
her as a tenant. A few months later the plaintiff wanted possession and
sought an order that the agreement was only a licence.
JUDGMENT
The agreement was a tenancy.
The issue at stake in Street v Mounifordwas whether the fact of exclusive
possession was decisive in distinguishing a lease from a licence. Traditionally,
See Chapter 18.
Cap 7
267
HONG KONG LAND LAW
exclusive possession dictated a lease, but in a number of cases 4 the Court
of Appeal in England suggested that the express intention of the parties was
the governing factor in distinguishing a lease from a licence. The fact of
exclusive possession was just one factor to be taken into account in
determining whether the parties' relationship was that of landlord and
tenant or licensor and licensee. Lord Templeman, delivering a unanimous
judgment, firmly rejected this suggestion. A grant of exclusive possession
for a term is decisive. In the words of Lord Templeman:
Where . . . residential accommodation is offered and accepted with
exclusive possession for a term at a rent, the result is a tenancy 5 [and]
If the agreement satisfied all the requirements of a tenancy, then the
agreement produced a tenancy and the parties cannot alter the effect
of the agreement by insisting that they only created a licence. The
manufacture of a five-pronged implement for manual digging results
in a fork, even if the manufacturer ... insists that he intended to
make and has made a spade. 6
Thus if the parties wish to create a licence rather than a tenancy, they
cannot do so by merely calling it a licence. They must do so by ensuring
that exclusive possession for a term is not given.
A clear test has thus now been laid down to distinguish a lease from a
licence, but there is still the problem of ascertaining whether exclusive
possession has in fact been granted. Whether or not exclusive possession
has been granted is a question of fact. It is not, however, synonymous with
exclusive occupation of the premises. Exclusive occupancy may not be
enough where the circumstances reveal that the occupier lacked sufficient
overall control to call the premises his own.
Where there is a written agreement, the terms of the agreement may
point to the degree of an occupier's control of the premises. 7 For instance,
the grant of a right to the landlord to enter and view the premises, or the
prohibition of an occupier's right to transfer his interest, supports the grant
of exclusive possession to the tenant. If no grant of exclusive possession
was made, there would be no need to reserve a right for the landlord to
inspect, nor if there was a personal licence would it be necessary to restrict
the occupier's right to transfer his interest. There is nothing that he is capable
of transferring. However, the descriptive labels or the particular provisions
the draftsman may use are not decisive. The courts will look to the substance
and not the form, and may ignore labels and provisions that do not
genuinely reflect the intended effect of the agreement.
Where the terms of the agreement are inconclusive or there is no written
agreement, the court must look to all the circumstances of the case to
See Marchant v Charters [1977] 1 WLR 1181; and Somma v Hazelhurst [1978] 1 WLR
1041
At 827B
At 819F
See for instance Best Sharp Development Ltd v Lucky Shoe Repairing'& Key Duplication
Centre (1988) CA Civ App No 139 of 1987.
268
LEASES
determine whether the occupier has sufficient control of the premises to
support a claim to exclusive possession.
The House of Lords in Street v Mountford formulated a broad test, but
in doing so they excluded from the leasehold fold a number of exceptional
circumstances in which the grant of possession for a term would not
constitute a tenancy, namely: where the occupier was a lodger or service
occupier; where there was no intention to create legal relations because it
was a family or friendly arrangement; where the parties were vendor and
purchaser; 8 or where one grantor was incapable of granting a lease. It is
perhaps inaccurate to categorise these circumstances as exceptions: they
are, rather, occasions when the possession granted is not truly exclusive.
11.2.1.1
Lodgers
A clear distinction was made in Street v Mountford between a lessee and a
lodger. A lodger may enjoy exclusive occupancy but he cannot call the
premises his own. The landowner retains the overall control of the premises
so there can be no grant of exclusive possession. For instance, the provision
of services to the lodger by the landlord may necessarily interfere with the
lodger's right to use the premises or there may be terms restricting the
lodger's or his visitors' access to the premises at certain times of the day. A
hotel resident or the student of a university hall will thus not qualify as a
lessee. However, the line between a lessee and lodger is sometimes a fine
one, as the following Hong Kong cases illustrate.
Lam Man-yuen v Lucky Apartment [1964]HKLR689
FACTS
The defendant let out rooms to the plaintiff on three floors of a building in
Hankow Road. The rooms were furnished. Amahs cleaned the rooms and
laundered the bed linen. Hot water for tea was provided. Keys to the rooms
were kept at the entrance of the building, and at night it was necessary to
rouse the watchman in order to enter the building. Rooms could be hired
by the day, and new occupants had to fill in a registration card. Although
the management did not generally interfere with the occupants' use of the
rooms, they did display in the hall and each of the rooms a notice containing
'Regulations for Guests', which prohibited the keeping of cats and dogs and
the making of excessive noise after midnight. When the defendant tried to
evict the plaintiff, the plaintiff claimed he was a tenant.
JUDGMENT
The arrangement was a licence.
8
Bretherton v Paton [1986] 1 EGLR 172
269
HONG KONG LAND LAW
However, the result was different in:
May King
Co v Young
[1981] HKLR 280
FACTS
The defendant purchased five flats in a building from the plaintiff. The
purchase was subject to a deed of mutual covenant, which repeated a
Crown lease restriction that the property could only be used for residential
purposes. Four of the flats were subdivided to provide five rooms each with
bathroom facilites but no kitchen facilities. The occupant of each room had
a key to his room and a key to the main door. Each room was furnished,
and bed linen, soap, and water were provided. The defendant's staff
cleaned the rooms and looked after the common areas, as well as dealing
with the checking in and out of individual occupants. The plaintiff claimed
there was a breach of the deed of mutual covenant because, if the occupants
were lodgers, the use would have been commercial rather than residential.
JUDGMENT
The occupiers were tenants and not lodgers.
11.2.1.2 Service Tenancies
Where an employee is required to occupy premises owned by his employer
for the better performance of his duties, the employee is a mere licensee.
His occupation is so connected with his employment that it is an extension
of his employment, and as such regarded as purely personal. It is not
uncommon in Hong Kong to find accommodation provided by an
employer, but that accommodation may not always be classified as a service
tenancy. The occupation must be intended to facilitate the better or more
convenient performance of the occupant's employment rather than being
just coincidental to the discharge of his duties. For instance, accommodation
that is provided as part of a remuneration package will generally not be
sufficiently connected with the employment to qualify as a service tenancy. 9
11.2.1.3 Family Arrangements, Friendship, or Generosity
The courts have been reluctant to find a lease where there is an element of
charity in allowing the occupier use of the land. In Facchini v Byson, 10
Denning IJ identified 'family arrangements, an act of friendship or
generosity' 11 as an exception to the general rule. The House of Lords in Street
9
10
11
270
HA Warner Pty v Williams (1946) 73 CLR 421
[1952] 1 TIR 1386
At 1389
LEASES
v Mountford also excluded an occupier who is 'an object of charity' .12 An
example of exclusion on this basis is found in:
FACTS
The plaintiffs were the personal representatives of a landowner who, as an
act of friendship, had allowed the defendants to live rent-free in a number
of properties that he owned. He indicated to them on a number of occasions
that the last property they occupied would be theirs on his death, but when
he died he had not left the property to them and his personal representatives
sought possession of the property. The defendants claimed that they were
tenants at will and that the plaintiffs action to recover possession was
brought after the ·expiry of the relevant limitation period.
JUDGMENT
The defendants were licensees.
Lord Templeman explained the exclusion of family arrangments or acts
of friendship or generosity on the basis that the parties did not intend to
create legal relations. Alternatively, it may be argued that the occupiers'
possession lacks that vital exclusivity against their benefactor which is the
hallmark of a lease. For instance, in Heslop v Burns Stamp LJ pointed out
that 'The home was not the defendants' castle but the house in which he
[the landowner] allowed them to live' .13
11.2.1.4
Shams
Although the operation of the rent control or security of tenure legislation
cannot influence the court in distinguishing between a lease and a licence,
Lord Templ~man in Street v Mountford indicated that the court should be
alert to frustrate sham devices intended to avoid the effects of this
legislation. A sham, in the words ofMustill LJin Hadjiloucasv Crean, 14 arises
where 'an agreement or series of agreements ... are deliberately framed
with the object of deceiving third parties as to the true nature and effect of
the legal relations between the parties'.
One common device that has attracted the attention of the English courts
is that of shared occupancy. The landlord may seek to prevent exclusive
possession by providing that an occupier is only entitled to share possession
of the premises with another. Prior to Street v Mountford, this device met
12
13
14
Per Lord Templeman at [1985] AC 809 at 818E
At 1247E
[1988] 1 WLR 1006 at 1019E
271
HONG KONG LAND LAW
with a measure of success. For instance, in Somma v Hazelhurst 15 a couple,
who entered into identical licence agreements which granted each of them
a right to occupy premises subject to the rights of occupation of the other,
were found to each enjoy only a licence as neither had exclusive possession.
In Street v Mountford this decision was doubted, and subsequently the
House of Lords has considered two different types of sharing agreements.
'"'ax •"!!:!!';'.!!.'!'::'.:r..111Mr_.
.. -·,•
1
~.!!!.-■11a::i•IJ!!l!-
Antoniades v Villiers [1988] 3 WLR 1205
FACTS
A couple entered into identical but separate licence agreements, with the
plaintiff giving them each a right to occupy a top floor flat containing one
bedroom. The agreements denied that exclusive possession was granted
and purported to reserve a right for the landlord to occupy the flat himself
and to authorise other persons to do so. The landlord subsequently sought
possession.
JUDGMENT
The two agreements were interdependent and should be read together as
a single agreement that conferred exclusive possession on the defendants.
The purported right of the landlord to introduce additional sharers was a
sham. The real intention of the parties was that the defendants should enjoy
exclusive possession for a term. The agreements read together thus
qualified as a lease.
-
----,
-·~ '
AG Securities v Vaughan [1988] 3 WLR 1205
FACTS
The defendants had each been granted, by four separate agreements
entered into between 1982 and 1985 the right to occupy a four-bedroom flat
subject to the other defendants' rights to occupy. The agreements were
entered into at different times and were for different rentals, although they
were each for the same period. When the plaintiff sought possession the
defendants claimed they were joint tenants of the flat.
JUDGMENT
The defendants were licensees and not tenants. Their agreements were
independent. They had been entered into at different times and were for
different rentals, and thus could not be construed as together creating a joint
tenancy of the premises. There was, after all, no unity of time, title, or interest.
15
272
[1978] 1 WLR 1041
LEASES
Therefore, whether or not particular sharing agreements are a sham will
depend on whether they are truly independent, as the parties profess, or
whether they are in fact interdependent. All the circumstances of the case
must be considered in order to determine whether the agreements are
independent or interdependent. For instance, in Mikeover Ltd v Brady 16 two
agreements which were entered into at the same time by two friends to share
a flat were held to be licences because the obligation to pay the rental in each
agreement was a separate and not a joint obligation. The possibility that
separate agreements which fail to display all the unities necessary for a joint
tenancy might nevertheless constitute a lease held by the occupiers as tenants
in common does not appear to have occurred to the courts.
Sharing agreements are not the only sham device that may be employed.
For instance, in Markou v Da Silvaesa 17 a clause that limited the right of
occupation to certain hours of the day and a clause that entitled the landlord
to remove furniture at any time were challenged as shams. It might also be
that services that were never intended to be actually provided could be
attacked as shams. In the business context, a sham may appear in the guise
of a management agreement. For instance, in Wong Kau v Wong Hsienchau 18 the management of a ballroom was alleged to be a tenancy; and in
Dea/mead Ltd v Chin 19 a management or mai toi ( W~
) agreement
of a restaurant was held to be a tenancy.
11.2.2
Certainty of Duration
A lease grants a right to exclusive possession for a defined or certain period
of time. That period may vary from the very short to the very long. In Hong
Kong it is unusual to encounter a lease for less than a week, but there are
Crown leases that have been granted for as long as 999 years.
11.2.2.1
Commencement Date
The commencement date of the lease must be ascertainable. It is usual to state
the commencement date, but if it is not stated it may be possible to infer a date
from the terms of the parties' agreement, for instance the date of taking up
possession or of the agreement itself. However, where such inference is _not
possible, the agreement will fail to create a lease. 20 Where an uncertain
commencement date is specified in an agreement to grant a lease, for instance
'from the date the present tenant vacates', then the agreement may be viewed
as conditional and will be enforceable if the event should occur, ie if and when
the present tenant vacates. 21
The date of commencement of the term may be expressed to pre-date
the agreement, or it may commence at an ascertainable future date. Where
16
17
18
19
20
21
[1983] 3 All ER 618
(1986) 52 P&CR 204
[1964] HKLR 422
(1987) 281 Estates Gaz 531
Harvey v Pratt [1965] 1 WLR 1025
Brilliant v Michaels [1945] 1 All ER 121; and One Queen Co Ltd v Chan Siu-Lan (1989)
CA Civ App No 51 of 1989.
273
HONG KONG LAND LAW
the lease is to start in the future, it is termed a 'reversionary lease'. In contrast
to the situation in England, in Hong Kong there is no limitation on the time
that can elapse between the granting of a reversionary lease and its
commencement. 22 The grant is not subject to the rule against perpetuities
because, prior to the taking up of possession, the lessee does enjoy a vested
interest in the land, known as an 'interesse termini'. Although interesse
termini has been abolished in England, it still operates in Hong Kong. 23 An
interesse termini gives no actual estate in the land, but an interest in the land
that is freely alienable and can be protected by action should a third party
interfere with the lessee's entry into possession when the time comes.
Because an interesse termini gives no estate in the land, no reversion can
exist upon it that can give rise to problems. For instance, L grants T a lease
for ten years, and a year before it is to end L grants Ta new lease for another
five years, to commence on the expiry of the old lease. Then, on the strength
of this lease, T grants a sublease to S for three years. T, because he has not
entered the land to perfect his lease, has no reversion - only an interesse
termini which may affect his or his assignees' ability to take action on the
covenants in the lease unless that action is based upon contract. 24
11.2.2.2
Certainty of Duration
The duration or term of the lease must be ascertainable at the commencement
of the lease. For instance, in Lace v Chantler 25 a grant for the duration of
the war was invalid. A more topical example in present day Hong Kong
would be the lease of premises until the landlord redevelops. Who can tell
when the landlord will redevelop? The grant thus cannot create a lease. It
is easy to avoid falling foul of this requirement if the parties are not sure
when they want their lease to end. They may enter into a lease for a fixed
period subject to one or both parties' right to determine the lease upon the
happening of a certain event, eg a grant for ten years with a right for the
landlord to terminate upon giving one month's notice if he redevelops the
premises.
There are a number of terms that may appear uncertain but are
nevertheless recognised. Periodic terms may continue for an unspecified
period in the sense that, although each period is certain, the automatic
renewal of the periods will continue for a duration that is uncertain until one
of the parties exercises their right to determine the tenancy. It is this power
for either landlord or tenant to serve a notice to determine the tenancy that
prevents the periodic term from being uncertain. An exclusion of one or
both of the parties' rights to serve a notice will render the term uncertain.
22
23
24
25
274
In England, the position is governed by s 149(3) of the Law of Property Act 1925.
In England, the relevant provision is s 149(1) and (2) of the Law of Property Act 1925.
See for instance Lewis v Baker [1905] 1 Ch 46, where distress could not be levied for
unpaid rent.
[1944] KB 368
LEASES
Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386
FACTS
The London County Council, the predecessor in title of the London
Residuary Body, granted a 'lease'· of a strip of land abutting a major road for
£30 per annum until the land was required for road widening. The
agreement became vested in the Prudential Assurance Co Ltd who
maintained that it was a valid yearly lease entitling them to occupy the land
until the landlord served a notice to quit because they required the strip for
road widening. As the London Residuary Body had no road making powers
they would never have been able to serve such a notice.
JUDGMENT
The agreement could not constitute a lease. The term it created was
uncertain as the landlord was effectively unable to serve a notice to bring
the tenancy to an end.
The House of Lords in delivering judgment reaffirmed the very longestablished principle of certainty of duration of leasehold terms although
Lord Browne Wilkinson said he did so reluctantly and expressed the hope
that reform might be on the way.
Perpetually renewable terms also appear to contravene the requirement
for certain!)', although a renewable lease cannot exceed the term out of
which it is granted. Nevertheless, there is no prohibition on such leases in
Hong Kong. 26 A lease for life cannot exist at common law in Hong Kong,
not because its duration is uncertain, but because it is a freehold estate and
as such cannot be created out of a leasehold estate. 27
11.2.3
Rental
After some hesitation it has now been established that rental is not an
essential requirement for a valid lease, although most leases are commercial
transactions and will be made subject to the payment of rental. 28
26
27
28
In England, such leases are converted into terms of 2,000 years. See s 145 of the Law
of ProJx!rtyAct 1925
In England leases for lives take effect as leases for 90 years. Sees 149(6) of the Law of
Property Act 1925.
Ashburn Ansalt Ltd v Arnold [1989] Ch 1.
275
I
HONG KONG LAND LAW
11.3
Types of Leases
11.3.1
Fixed-Term Leases
A fixed-term tenancy may be for any ascertainable period of time: for
instance, a week, a year, 3 years, 21 years, or even 999 years.
11.3.1.1
Creation
As we have seen in Chapter 5, a fixed-term le.ase rnust P½ c:reated by deed if
it is to q11.alify;i_s
a legal estate, unless it is fo~ a term not exce~di11g}lireeye;y-s
at the best rentthat can be reasonably obtained without taking a premium.
We ha~e also seenwnenC()~siderfog thedoctrine in Walsh V Lonsdale 29 that
a lease exceeding three years that is not created by deed may nevertheless
qualify as an equitable lease, provided specific performance of the agreement
to grant the lease is available.
11.3.1.2
Termination
30
At common law, a fixed-term lease will come to an end when the term
expires. There is no need for the landlord or the tenant to take any action.
11.3.2
Periodic Leases
A periodic lease is a lease that runs for successive periods, for instance from
week to week, month to month, quarter to quarter, or year to year. At the
end of the initial period, the term is automatically extended for another
period and so on until either party serves a notice to bring the tenancy to
an end. Each period is treated as part of the original term, which thus grows
as the tenancy continues, so that a yearly tenancy that runs for three years
is regarded in retrospect as a three-year term.
11.3.2.1
Creation
A periodic lease need not be created by deed in order to qualify as a legal
lease, since it falls within the exception for leases not exceeding three years
already referred to. Nor need a periodic lease be created expressly. A
periodic lease will be implied where no intention to create a particular form
of lease has been expressed. The period by which the rental is measured
will determine the periodic term, even if the rent is actually paid according to
a different period. For instance, in Ford Chung v Ho Wai-man3 1 a tenant had
a five-year lease where the rent was paid monthly, and on the expiry of the
lease he remained in occupation at an increased rent. The amount of rent was
calculated by the month, although for convenience it was paid every six
months. The tenancy was a monthly tenancy and not a six-monthly tenancy.
29
30
31
276
See Chapter 6.3.
See Chapter 11.6.
[1959] HKLR 12. See also Alder v Blackman [1953] 1 QB 146.
LEASES
The most common occasion when a periodic tenap.cywill be implied is where
a tenant 'holds over' after the expiry of a fixed-term lease. For example, if L
granted Ta two-year lease at $5,000 per month, and at the end of the two-year
term T remains in possession and continues to pay the rental of $5,000 per
month, then a monthly tenancy arises on the same terms as the expired fixedterm tenancy save for those terms that are inconsistent with a monthly tenancy.
11.3.2.2 Termination
The period of the notice required to bring a periodic tenancy to an end is,
unless otherwise agreed; the same as the period of the lease: eg, for a weekly
tenancy the requisite notice period is one week. The notice period required
to terminate a yearly tenancy forms an exception to this general rule, for half
a year's notice is sufficient to terminate a yearly tenancy provided it expires
on the anniversary of the commencement of the lease. If the yearly tenancy
commences on one of the usual quarter days, being 25 March, 24 June, 29
September, or 25 December, then two quarters' notice is required, although
the period may be more or less than the 182 days that will usually constitute
a half year. For example, if a yearly tenancy commences on 25 March, notice
should be given on or before 29 September (177 days); and if a yearly
tenancy commenced on 29 September notice must be given on or before
25 March (187 days).
It is not possible at the commencement of a periodic lease to say how long
it will last. It will continue until one of the parties serves a notice to terminate
the tenancy. The requirement for certainty of duration does not thus have
direct application to periodic tenancies. It is sufficient that a periodic tenancy
can be brought to an end, even if it is not known when that will be. If one
party is unable to serve a notice to terminate the tenancy, then the
requirement for certainty in the context of periodic tenancies will not be
satisfied. 32 But a restriction, as opposed to a total ban, on a party's ability to
serve a notice is acceptable provided it is only for a specified period. 33
11.3.3
Tenancy at Will
Doubts have been expressed over whether a tenancy at will should really
be classified as a lease at all, for its duration is uncertain. However, it is more
than a purely contractual relationship since the parties acknowledge that
their relationship is one of landlord and tenant. For instance, if the payment
of rental is agreed, the landlord may distrain if it is not paid. A tenancy at
will has been described as a tenure with no estate.
11.3.3.1
Creation
A tenancy at will arises where a person occupies land as a tenant with the
consent of the landlord on the understanding that the tenancy may be
terminated at any time.
32
33
CentaployLtdvMatlodgeLtd[1974l Ch 1
Prndential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386
277
HONG KONG LAND LAW
A tenancy at will may be created expressly or by implication. The
occasions when a tenancy at will may be implied are generally now limited
to transitional situations. 34 For instance, if L grants Ta lease for three years
and after three years T remains in possession with the consent of L, then
T is a tenant at will. If T subsequently pays rental by reference to a period,
he will become a periodic tenant. Another example of a tenant at will might
be a purchaser or lessee who goes into possession before completion of his
purchase or lease.
11.3.3.2
Termination
A tenancy at will is determined by the will of either party, which may be
exercised expressly by the service of a notice, or by implication when either
party dies or commits an act incompatible with the continuance of the
tenancy. For instance, a purported transfer of either party's interest or an act
of voluntary waste will bring a tenancy at will to an end.
11.3.4
Tenancy at Sufferance
A tenancy at sufferance may be called a 'tenancy' but it is not a true lease.
There is neither tenure or estate. The name 'tenancy' has been used because
the occupier was originally a tenant who entered the land with the owner's
permission, and in this respect he differs from a trespasser. A tenant at
sufferance is thus not liable for damages for trespass but for a claim for his
use of the land.
11.3.4.1
Creation
A tenancy at sufferance arises only by operation oflaw, not by express grant,
and occurs where a tenant continues in possession after the expiry of his
tenancy without the express or implied permission of his landlord.
11.3.4.2
Termination
A tenancy at sufferance may be terminated at any time by the landlord suing
for possession or otherwise evicting the tenant.
11.3.5
Tenancy by Estoppel
The doctrine of estoppel may be relied upon to create a tenancy that is
effective between the parties. A landlord must have the capacity to grant a
valid lease. He must, in other words, have an estate out of which he can
grant the lease, and that will constitute his reversionary interest. In Hong
Kong, the landlord's estate is generally itself a lease - either a Crown or
Government lease or a shorter term tenancy agreement. Where a person has
no estate but nevertheless purports to grant a lease, he is estopped from
34
278
Heslop v Bums [1974] 1 WLR 1241 at 1253A
LEASES
denying the tenancy. The tenant also is estopped from denying his
landlord's lack of title. As between the purported tenant and the purported
landl9rd, there is a tenancy by estoppel on the terms of the purported grant
that is as effective and binding between the parties and their successors as
any other lease. 35 A tenancy by estoppel provides no protection, however,
against the true owner of the land. However, ifthe purported landlord becomes
the true owner of the land, the estoppel is fed and the lease perfected. 36
A purported lease over Crown or Government land by anyone but the
Crown or government will not create a tenancy by estoppel. Section 4 of
the Crown Lands Ordinance 37 prohibits the occupation of land other than
under a Crown lease or permit. A lease by anyone else is thus illegal.38
11.4 Relationship of Landlord and Tenant
A lease is essentially the grant of a leasehold estate in land, but invariably the
parties will also agree the terms that are to govern their relationship as landlord
and tenant. In leases these terms are usually referred to as 'covenants'.
Covenants are traditionally agreements entered into under seal, but in the
leasehold context the term is also employed where the lease is entered into
under hand or orally.
Leasehold covenants fall into three categories:
• implied covenants are those terms that are so essential to the relationship
of landlord and tenant that they are automatically implied;
• express covenants are the express terms agreed between the parties; and
• usual covenants are those covenants that will be imposed where an
agreement to grant a lease has provided that the usual covenants are to
be given.
11.4.1
Implied Covenants by the Landlord
The following obligations will be imposed on a landlord even if the lease
is silent.
11.4.1.1
Quiet Enjoyment
There is implied into every lease a covenant that the tenant shall have quiet
enjoyment of the premises. 'Quiet enjoyment' here does not mean lack of
noise but rather freedom from acts by the landlord that interfere with the
tenant's use of the premises. Excess noise might, of course, cause such an
interruption but other actions may also do so.
35
36
37
38
Industrial Properties (Barton Hill) Ltd v Associated Electrical Industries Ltd [1977] QB
580; and Wong Wai-Jong v Chung Ho [1960] DCLR 218
Church of England Building Society v Piskor [1954] Ch 553
Cap 28
Li Wing-sum v Wu man [1978] HKLR 575; and Lo Shun Cheung v Fung Siu Kam [1984]
HKC 107
HONG KONG LAND LAW
Some examples of breach of this covenant for quiet enjoyment include
erecting scaffolding to prevent access, 39 removal of windows and doors, 40
cutting off gas and electricity, 41 harassment, 42 changing the name of a
building let as offices, 43 and the supply of foul air from a centralised
air-conditioning system. 44 Perhaps one of the more extreme Hong Kong
examples is found in the case of:
•
_
~~-~-
~,_il:11~1111111.•
Yeung Wah v Alfa Sea Ltd [1993) 1 HKC 440
FACTS
The plaintiff was the tenant and the defendant the landlord of premises in
Cameron Road, Kowloon. The defendant was anxious to obtain vacant
possession of the plaintiff's flat but the plaintiff, who had security of tenure
under Part II of the Landlord and Tenant Ordinance, did not want to move.
The plaintiff went to work in Beijing but was given leave every three
months, when he would return to his flat in Hong Kong. On one occasion,
when the plaintiff returned to Hong Kong there was scaffolding around the
building and the locks had been changed so he was unable to get into his
flat. When he did gain entry he found the entire front wall of the premises
had been removed and his flat was in a complete mess; in particular the
master bedroom, which accounted for about one third of the flat, was
unusable. When the defendant's renovation works were completed the
whole building had a tempered glass facade and looked more like a
commercial than a residential block. The plaintiff was unable to use the
master bedroom as a bedroom for there was a floor-to-ceiling glass wall
which afforded no privacy or ventilation.
JUDGMENT
The defendant's actions not only constituted a breach of the covenant for
quiet enjoyment but also a trespass which was sufficiently serious to justify
an award of exemplary damages as well as damages for the discomfort and
distress caused to the plaintiff.
Acts that merely cause annoyance or inconvenience to the tenant will not
constitute a breach of quiet enjoyment. For instance, in Brown v Flower 45the
erection of an external staircase outside the tenant's windows that allowed
people to look in was not an actionable interference with the tenant's use
of the premises.
39
40
41
42
43
44
280
45
Owen v Gadd [1956] 2 QB 99
Lavender v Betts [1942] 2 ALL ER 72
Perera v Vandiyar [1953] 1 WLR 672
Kenny v Preen [1963] 1 QB 499
Union Assurance Society of Canton v The Hong Kong Land Co Ltd [1977] HKLR 597 but
this decision has been doubted (1978) 8 HKLJ 230
The World Realty Ltd v Kwan Ngar-nin [1986] HKC 508 and [1987] 3 HKC 148
[1911] 1 Ch 219
LEASES
The landlord is also responsible for interference due to the lawful, but
not unlawful acts, of someone deriving title from him. 46 But the landlord is
not responsible for interference by unrelated third parties or by persons
with a superior title to the landlord, eg the landlord's landlord. 47
11.4.1.2
Derogation from Grant
A landlord's own activities must not frustrate or derogate from the purpose for
which the landlord has granted the land. This principle to a certain extent
overlaps with the covenant for quiet enjoyment, but it also covers cases where
there has been no physical interference. For instance, a landlord may not build
upon adjoining land that he owns in such a way as to frustrate the use of the
leased premises for the purpose for which they were let. In Aldin v Latimer
Clark Muirhead & Co48 premises were let to a tenant subject to a covenant that
they be used as a timber yard. The landlord built on his adjoining property,
and as a result the free flow of air to a shed for the drying of timber, which
formed part of the timber yard, was interrupted. There was no physical
interference as such with the tenant's use of the premises, and after all the
landlord was entitled to build on his adjoining land. But he was not allowed
to build in a way that would frustrate the purpose for which he had let the
property. This he had done, and was thus liable for derogation from his grant. 49
In order to succeed, the contemplated use must be actually interfered
with and not merely rendered more expensive or less desirable. For
instance, in Lam Kwok-leung v A-G 50 the building by the government of a
public lavatory on land adjoining the plaintiff's land, which had the effect
of reducing the size of the building that could be erected on the site, did
not amount to a derogation of grant. The land had been leased by the Crown
for development and it could still be developed, albeit less profitably.
A landlord will also be liable for the actions of persons who derive title
from him.
11.4.1.3
Repair
There is no implied term that the premises will be fit for the purpose for
which they are let at the commencement of the term, nor that they will
remain so throughout the term. The landlord is thus under no implied duty
to keep the premises in repair. The principle is 'caveat emptor' or 'let the
buyer beware'. The tenant is taken to have inspected the premises before
he enters into the lease to make sure that they are fit for his purpose, and
to be satisfied with their state of repair. This is so even in the residential
context, where it is often unrealistic to expect a short-term tenant to be in
a position to assess whether the premises are in good structural condition
of.whether the water or electrical installations are in reasonable repair.
Sanderson v Berwick-upon-Tweed Corporation (1884) 13 QBD 547
Jones v Lavington [1903] 1 KB 253
48
[1894] 2 Ch 437
49
See also Harmer v Ju mil (Nigeria) Tin Areas Ltd [1921] 1 Ch 200.
so [1979] HKLR 145
46
47
281
HONG KONG LAND LAW
In many other jurisdictions, the provision of housing accommodation is
treated differently and an implied duty to repair imposed by legislation. For
instance, in England a duty to repair the structure, exterior, and service
facilities (eg the water, gas, and electricity installations and the sanitation
and heating facilities) is implied into all leases of housing for a terms of less
than seven years. 51 But Hong Kong lags far behind. Implied terms regarding
fitness and quality have been accepted for the supply of other goods that
form the necessities oflife, 52 but not for the supply of housing accommodation.
Only limited inroads have been made in placing some responsibility on a
landlord for the state of the accommodation he provides.
(a)
Implied terms
In Smith v Marrable 53 it was held that a term as to the habitability of the
premises at the commencement of the term should be implied into a letting
of furnished premises. Furnished lettings, however, are not very common
in Hong Kong, and the term will not assist if the premises become
uninhabitable during the period of the lease.
More recently the question of implied terms has been considered in:
Liverpool City Council v Irwin (1977] AC 239
FACTS
The plaintiffs built a multi-storey building in Liverpool, which they let out
to council tenants at low rents. The condition of the building deteriorated
rapidly, in particular the lifts broke down frequently, the stair lighting was
often inadequate or non-existent, the rubbish chutes were often blocked,
and the drainage was defective. Apart from the drainage defects, which
were due to bad design, the deterioration was due to misuse and vandalism.
The council had tried but failed to eradicate these problems. The defendant,
one of the tenants, refused to pay his rent in protest at the condition of the
building, with the result that the council sought possession. The defendant
counterclaimed for damages.
JUDGMENT
The council should take reasonable steps to repair and maintain the common
parts. In the circumstances the council had discharged their liability.
The tenancy agreement between the council and its tenants was silent
as to any right for its tenants to use the common parts of the premises, or
51
52
53
282
See s 11(1) Landlord and Tenant Act 1985
See Sale of Goods Ordinance Cap 26.
(1843) 11 M&W 5
LEASES
as to any obligation on the council to repair the premises or the building.
The case therefore turned on the implication of terms to this effect.
The established test for the implication of terms in a contract is that of
business efficacy, ie was it necessary to give business efficacy to the
transaction to imply such a term? Lord Denning MR in the Court of Appeal
questioned this established test of efficacy. He was of the view that the test
was not one of business efficacy but whether it was reasonably necessary
in all the circumstances to imply such a term. The House of Lords refused
to abandon the business efficacy test, but rather identified other circumstances
in which the court would imply terms. Lord Wilberforce identified, in
essence, two instances. In the case of an apparently complete bilateral
contract, the court would only be willing to imply terms according to the
established business efficacy test; but there may be circumstances, as in the
case in question, where the contract was incomplete and it was necessary
to establish the terms of the parties' bargain. Lord Cross and Lord Edmund
Davies also identified two instances, but classified them in slightly different
terms. First there were the terms the court would imply as a general rule into
all contracts of that type, and second there were cases where the court
would imply a term in order to rectify a particular contract. The business
efficacy test was applicable to the latter type of implication. The test for the
former type appears to be one of necessity.
It was necessary in a tenancy of a unit in a multi-storey building for the
tenants to be granted a right to use the stairs, lifts, and rubbish chutes. It
would be impossible for the tenants to use the flats otherwise. Although an
owner of land over which an easement is exercised is not usually under an
obligation to repair the land, their lordships felt that the common parts of
a multi-storey building was an exception. The common parts afforded an
essential means of access and, unless the obligation to repair was expressly
passed to the tenants, the only practical solution was for the landlord to
undertake the obligation. The standard was, however, to take reasonable
care to maintain and repair the common parts. It was not absolute.
In Hong Kong there are many multi-storey buildings that are owned and
let out by a single landlord, be that the Housing Authority or a private
landlord, and thus the case is particularly relevant to Hong Kong.
The principles in Live,pool City Council v Irwin have subsequently been
applied to imply an obligation on the landlord to repair the exterior of
premises so as to enable the tenant to carry out their express obligation to
repair the interior.
Barrett v Lounova
57 P & CR
FACTS
The plaintiff was a tenant of a house that had fallen into serious disrepair.
The tenancy agreement required the plaintiff to repair the interior of the
house, but was silent as to who was responsible for the repair of the exterior
and the structure.
283
HONG KONG LAND LAW
JUDGMENT
The defendant landlords were required to carry out certain repairs to the
exterior pursuant to an implied term to repair the exterior. It was necessary
to imply such a term to give business efficacy to the parties' agreement, for
the tenant could not perform her obligation to repair the interior if the
landlords did not repair the exterior.
This case is also of particular significance to Hong Kong, because many
tenancy agreements provide that the tenant shall repair the interior but are
silent as to who is responsible for the exterior.
The business efficacy test has also been applied in Hong Kong to impose
upon the Crown an implied term that land leased for development under
a Crown lease will be fit for development in the manner envisaged by the
Crown lease. 54
However, the extent to which terms can be implied based upon business
efficacy or the principles established in Liverpool City Council v Irwin are
limited. For instance, an express term in the agreement may exclude the
operation of implied terms, while the courts appear less willing to imply
terms into contracts that are well documented. 55 Furthermore, the test relied
upon to justify the implication of a term appears clearly to be one of necessity.
Rather surprisingly the courts appear to be more willing to imply terms
in the licence context. For instance, in Wettern Electric Ltd v Welsh
Development Agency 56 the courts implied a term that the premises were fit
for the purpose into a licence to occupy premises. The court distinguished
between the leasehold and licence situations on the basis that a licence was
a mere contract while a lease created an estate in the land. The distinction
does not seem warranted. The relationship of the parties under a lease is often
not just governed by their postion as landlord and tenant, but also by the
covenants contained in their lease. The nature of a lease is thus also contractual
and subject to the same rules for the implication of terms as any other contract.
(b)
Tort
The law of tort may provide a tenant with some redress against his landlord
for the condition of his premises.
For instance, if a landlord has built, renovated, or repaired the premises
he has let and the manner in which he has executed that work was
negligent, the tenant may recover for damage caused as a result of the
defective state of the premises. Recovery in negligence for the defective
state of premises is an area fraught with difficulty, but it appears that a tenant
will be unable to recover for the cost of repairing the premises himself
unless he is in imminent danger to life and limb. The damages that he can
recover will be limited to any personal injury to himself or damage to his
55
Hang Tak Co Ltd v A-G (1986) HCt HCA No 2567 of 1983
Duke of Westminster v Guild [1985] QB 688
56
[1983] 2 WLR 897
54
284
LEASES
property that the defective condition of the premises has caused. 57 In Hong
Kong, a landlord's liability for the defective state of the premises he lets is
founded on the common law of negligence. There is no defective premises
legislation in Hong Kong to impose a statutory duty. 58
Nuisance or the rule in Rylands v Fletcher 59 may also be invoked where
the landlord also owns adjoining property that interferes with the tenant's
enjoyment of his premises. For instance, a blocked or overflowing drain on
the landlord's premises might interfere with the tenant's use either by
causing an unpleasant odour or by overflowing onto the tenant's premises
and causing damage.
(c)
Statute
There is no implied statutory duty regarding the state of repair of tenanted
accommodation, but the Building Authority may take action where premises
have fallen into such a dire state of repair that they are dangerous. The
Building Authority may call upon the lessee of the premises to carry out
repair work or they may carry out the repair work themselves and recover
the cost from the owner. 60 They may also order the closure of a dangerous
building. 61
The Public Health and Municipal Seroices Ordinance 62 also confers a
general power upon the Urban Council or the Regional Council to require
either the occupier or owner of premises to carry out such works as are
necessary to abate a nuisance or to repair or cleanse premises that are a
danger to health. 63
11.4.2
Express Covenants by the Landlord
Implied covenants in Hong Kong are particularly important in view of the
very small number of express covenants by a landlord found in leases in
Hong Kong. The Crown enters into no express covenants in a Crown lease,
and even in shorter term tenancy agreements the landlord rarely gives more
than an express covenant for quiet enjoyment and for the payment of the
Crown or Government rent due under the head Crown or Government lease.
Occasionally a landlord will covenant to repair the exterior and structure
of the building but, if he does, his liability will not arise until he has notice
of the want of repair either because he has actual knowledge or has been
given notice of the need for repairs. For instance, in O'Brien v RobinsorfA
a landlord was held not liable for the collapse of a ceiling due to a latent
D&FEstates Ltd v Cb7JrcbCommissioners [1989) AC 177; Department of the Environment v Thomas Bates and Sons Ltd [1989) 1 All ER 1075; Murphy v Brentwood District
Council [1990) 2 WLR 944; and Sun/ace International Ltd v Meco Engineering Ltd
[1990) 1 HKC 434
ss In England, see the Defective Premises Act 1972.
59 (1868) LR 3 HL 330
60 Section 26 Buildings Ordinance, Cap 123
61 Section 27 Buildings Ordinance Cap 123
62
Cap 132
63 Sections 12-15, 47, and 127
64
[1973) AC 912
s7
285
HONG KONG LAND LAW
defect in its construction of which he had no notice. At one time notice had
to come from the tenant, 65 but the better view now suggests that the notice
may come from some other source, for instance the Building Authority or the
managers of the building. 66 But it is not enough if the landlord could have
discovered the need for repair because he had a right to enter and view the
premises, or because the exterior of premises was clearly in need of repair. 67
11.4.3
Implied Covenants by a Tenant
A Crown or Government lease or a short-term tenancy agreement will
usually contain a number of covenants on behalf of the tenant, but where
the tenancy agreement is oral or is silent on a particular point, it will be
necessary to look at the implied obligations upon a tenant.
11.4.3.1
To Pay Rent
The payment of rental is not an essential requirement for a lease, but if a
rental is reserved there is an implied promise that the tenant will pay it. The
implied obligation requires the rent to be paid in arrears, but most landlords
will prefer the rent to be paid in advance. Thus it is usual to find an express
covenant for the payment of rent in advance.
An obligation to pay rent is often coupled with a right to re-enter for a
failure to pay the rent. A right to re-enter the land for a failure to pay rental
is implied into certain domestic and business lettings by the Landlord & Tenant
( Consolidation) Ordinance. 68
',
I
11.4.3.2
To Pay Rates
There is an implied obligation for the tenant to pay rates and other taxes
on the premises for which the landlord is not expressly liable. Property tax
is usually expressed to be payable by the landlord.
11.4.3.3
Repair
At common law, a tenant is liable to his landlord for 'waste' - an act or
omission that alters the state of the land. Waste is an ancient remedy.
Although the basis for its application to Hong Kong is unclear, it has been
accepted and applied by the Hong Kong courts. 69 In any event, it may be
that there is a distinct obligation owed at common law by every tenant to
65
66
67
68
69
286
Torrens v Walker[l906] 2 Ch 166 at 172 per Waddington J
O'Brien v Robinson [1973] AC 912 at 926 per Lord Morris; and McCrea/ v Wake (1986)
269 Estates Gaz 1254
Torrens v Walker [1906] 2 Ch 166
A covenant is implied into Part II domestic lettings, which are in the main lettings
entered into before 10 June 1983, but not Part IV domestic lettings which cover most
other post-war domestic lettings. See s 53(3), and Tang Bik-ching v Wong Yuet-ying
[1987] DCLR 30 and Ho Waijong v Tang Mei-lin (1987) LT Application No 2690 of
1987. A covenant is also implied into Part V lettings, which are in the main business
lettings of not more than three years. See s 126.
See Lovegrove: Waste and the Ghost of Grievious Americament 0977) 7 HKLJ 259.
LEASES
use the premises in 'a tenant-like manner'. 70 That standard may vary with
the type of the tenant and, in particular, the length of his tenancy in the same
way as the obligation not to commit waste.
There are various categories of waste:
(a)
Equitable waste
Equity will not excuse acts of wanton destruction even if an agreement
purports to exclude a tenant's liability for waste. 71
(b)
Voluntary waste
Voluntary waste is a positive act, which falls short of wanton destruction,
but which nevertheless detrimentally alters the property. All tenants are
liable for voluntary waste unless their liability is expressly excluded, which
will rarely be the case in a lease. An amusing Hong Kong example of
voluntary waste is found in Fu Lam Investment Co Ltd v Mok Cheong-che 72
where a tenant, no doubt somewhat upset by his landlord's decision to evict
him from his business premises, altered the premises in such a way that the
entrance was sealed and the landlord could not get in]
(c)
Ameliorating waste
A positive act that alters the property but in such a way as to improve it
constitutes ameliorating waste. Whether such waste is actionable, except
possibly by way of injunction, is questionable. 73
It can be difficult to draw the line between voluntary and ameliorating
waste where the premises have been altered but in such a way that the
alterations might be considered an improvement. The decisive question
appears to be whether the character of the premises has been altered. The
Hong Kong courts had to consider this question in:
/
Cheung Yeung-kan v Lui-kwan H973-1976] HKC 237
FACTS
The defendant tenant had roofed in a courtyard so as to incorporate it into
the leased premises. Instead of a small flat with a courtyard, the premises
were changed into a large flat with no courtyard.
JUDGMENT
The defendant should reinstate the premises. Even though the court accepted
that the change might be said to be an improvement, the fact that there had
70
71
72
73
Warren v Kean [1954] 1 QB 15
Vane v Lord Barnard (1716) 2 Vern 738
(1983) HCt No 1978 of 1983
See Doherty v Allman (1878) 3 App Cas 709
287
HONG KONG LAND LAW
been alterations that changed the character of the premises was the deciding
factor.
(d)
Permissive waste
Permissive waste is a failure to repair or do some other act that ought to be
done in order to maintain the premises. The duties of a particular tenant vary
according to what type of interest he enjoys, in particular the length of his
term. It appears that a tenant for a fixed term of years is liable for permissive
waste but, in any event, many fixed-term leases will contain an express
obligation to repair that supersedes the duty not to commit waste. Yearly
tenants must keep the premises wind- and water-tight but will not be liable
for fair wear and tear - the gradual deterioration caused by normal use or
the normal action of the weather. 74 Weekly or monthly tenants must keep
the premises in 'a tenant-like manner' by 'doing the little jobs about the
place that a reasonable tenant would do'. 75 For instance, they should clean
the windows, mend a fused light, or clear a blocked sink.
11.4.4
Express Covenants by the Tenant
The express covenants given by a tenant are many and various. It is
impossible to look at all the different types of covenant that may be
encountered, but in the next chapter we take a brief look at the most
common ones that are found in Crown or Government leases and short-term
tenancy agreements.
11.4.5
Usual Covenants
A lease, or more often an agreement for a lease, may provide that the parties
will give the usual covenants. For instance, if the parties agree to the grant
of a lease of premises for a certain term and for a certain rental but do not
specify the covenants to be included in the lease by each party, then at
common law there is an implied term that the lease will contain the usual
covenants.
The usual covenants may be divided into two classes. First are those
covenants regarded as usual in every lease. These include the following
covenants: 76
(1) by the landlord
• for quiet enjoyment
74
75
76
288
Wedd v Porter [191612 KB 91; Warren v Kean [19541 1 QB 15; and Regis Property Ltd v
Dudley [19591AC 370
Per Lord'Denning LJ in Warren v Kean [19541 1 QB 15 at 20
Chester v Buckingham Travel Ltd [19811 1 WLR 96
LEASES
(2) by the tenant
•
•
•
•
to pay rent and rates
to keep the premises in repair
to permit the landlord to enter and inspect where he is liable to repair
a condition for re-entry for non-payment of rent.
1he second class of usual covenant is those held to be usual in the context
of a particular letting. 1his class is not fixed, but varies depending on the area
and nature of the premises and the length and purpose of the lease. For
instance, what is usual for a monthly tenancy of a cubicle in Western will not
be the same as for a five-year lease of factory premises in Kwun Tong.
Nevertheless, some caution is required before assuming that a covenant that
commonly appears in lettings of a particular nature will be classified as a usual
covenant. In particular the courts may be reluctant to imply a covenant as usual
if it qualifies or limits the estate granted to the tenant. For this reason a covenant
against assignment or subletting has not been regarded as usual, n nor a
covenant against carrying on a specifed trade. 78
11.5 Remedies for Breach of Covenants
1he usual remedies for breach of covenant will be available to the parties:
daniages, injunction, or a declaration. For instance, where a lessee has
brehched a covenant to repair, the landlord may be satisfied merely to seek
damages for the breach, which will be measured according to the loss suffered
to his reversion. If the lease has expired or is close to expiry, the damages may
be assessed according to the costs of repairing the breach. A landlord will rarely
be able to obtain a mandatory injunction to force the tenant to carry out the
repairs, because damages will usually be an adequate remedy. By contrast, a
tenant may be able to seek a mandatory injunction for a failure by a landlord
to perform his repairing obligations. A tenant may well not be in a position to
carry out the repairs himself, so that damages will not be adequate.
Where a tenant is threatening to assign or sublet the premises, the
landlord may obtain an injunction to prevent the threatened breach or, if
it is not clear whether the threatened disposal is a breach of covenant, the
landlord may seek a declaration from the court that the disposal does in fact
constitute a breach. Such a declaration, it is hoped, will then dissuade the
tenant from committing what is clearly a breach of covenant.
A landlord, in addition, has a number of unique remedies to pursue
should a tenant fail to perform his obligations under the lease.
11.5.1 ·
Forfeiture
A landlord may forfeit or extinguish a lease for breach of a condition or
where there is a right of re-entry in the lease. A right of re-entry will entitle
77
78
Lady de Soysa v De Pless Pol [1912] AC 194
Propert v Parker (1832) 3 My & K 280
289
HONG KONG LAND LAW
the landlord to bring the lease to a premature end so that he may re-enter
and recover possession of the premises should the tenant fail to perform his
covenants under the lease or upon the occurrence of certain specified
events, for instance the tenant's bankruptcy or liquidation.
All Crown or Government leases contain a right of re-entry for a failure
to pay rent or to perform or observe the other covenants contained in the
Crown or Government lease. A Crown lease that is renewed or extended
under the Crown Leases Ordinance 79 or the New Territories Leases (Exten0 will also include a right of re-entry. Invariably other
sion) Ordinanc<:!'
formal leases will contain an express right of re-entry in terms similar to the
right of re-entry found in Crown or Government leases. As we have seen,
the usual covenants also include a right for the landlord to re-enter for
breach of a covenant to pay rent but not for the breach of other covenants. 81
In addition, a right of re-entry for non-payment of rent is implied into
tenancies governed by Parts II and V of the Landlord and Tenant
(Consolidation) Ordinance. 82
11.5.1.1
Procedure
A right to forfeit is exercised by the landlord physically re-entering the
premises. However, if the re-entry is other than peaceful the landlord will be
liable for forceable entry. 83 It is usual therefore to seek the assistance of the
court by taking proceedings for possession. The service of the writ, provided
the writ contains a demand for possession, is an effective re-entry, but it will
not be until judgment is given that the re-entry is sanctioned and may be
enforced. However, once judgment is obtained, the re-entry dates back to the
service of the writ so that a landlord is entitled to claim rent up to the service
of the writ and mesne profits thereafter. Once a landlord has served the writ
seeking possession and the tenant has accepted his decision the landlord
cannot change his mind. Of course if the tenant does not accept the
forfeiture the landlord may change his mind by simply not going on with
the forfeiture proceedings.
-·
•
I
■ W •M
GS Fashions Ltd v B&Q Pie & others [1995) 1 WLR
FACTS
A tenant under a lease covenanted not to part with possession without the
landlord's consent. With the hope of obtaining the landlord's consent the
tenant allowed a third party into occupation of part of the premises for
storing their stock. The landlord complained and served a writ on the tenant
alleging that the tenant had breached the covenant against parting with
possession and that the lease had been forfeited as a result; the landlord
79
so
81
l
82
290
83
Section 8 Cap 40
Section 7 Cap 150
Sun Hing Co Ltd v Brilliant Investment Co Ltd [1966] HKLR 310
See s 52(3) and 126 of Cap 7
Section 23 of the Public Order Ordinance Cap 245
LEASES
claimed possession and mesne profits from the date of the service of the
writ. The,tenant on receipt of the writ accepted the forfeiture and required
the third party to leave. The landlord had second thoughts and tried to
challenge its. right to forfeit.
JUDGMENT
The landlord had made an immediate election to forfeit the lease and the
tenant's acceptance of the landlord's right to forfeit resolved any dispute that
there may have been as to the landlord's entitlement to forfeit.
Before re-entry can be effected certain formalities must be observed. These
will vary depending upon the grounds upon which the forfeiture is based and
the type of lease to be forfeited.
(a)
Non-payment of rent
A forma/demand must be made by the landlord before he can re-enter for
non-payment of rent, unless either the right of re-entry expressly excludes
a need to do so, or the rent is at least six months in arrears and the value
of the goods on the premises that may be subject to distress would not cover
the cost of the arrears. 84
(b)
Breach of other covenant
Section 58 of the Conveyancing and Property Ordinance requires the landlord
to serve a notice on the tenant before he can commence forfeiture proceedings
based upon the breach of any other covenant than the covenant to pay rent.
A failure to serve a notice will render the purported forfeiture abortive. 85 The
notice must (i) specify the breach complained of, (ii) require the tenant to
remedy the breach (if it is capable of remedy), and (iii) specify any
compensation that the landlord may require for the breach. The tenant must
then be given a reasonable time to consider his position and remedy the
breach, where that is possible, and also to pay any requisite compensation. If
he fails to do so, then the landlord can start proceedings for possession but
subject to the tenant's right to seek relief, which we shall consider shortly.
The question of whether a breach of covenant is capable of being remedied
has caused difficulties. Clearly positive covenants, for instance to repair or to
pay management charges or other outgoings are capable of remedy. A positive
covenant may still be capable of remedy even if the time stipulated for
performance has already passed, provided-that any damage suffered by the
landlord can be compensated or remedied. A breach of covenant against a
specified use will also usually be capable of remedy unless the breach involves
some stigma that continues to affect the property even though the offending
84
85
Section 69(2 of the) District Court Ordinance Cap 336 ands 21G of the Supreme Court
Ordinance Cap 4
The Prudential Enteiprises Ltd v PH Sbek Ltd (1988) HCt HCA No A4911
291
HONG KONG LAND LAW
use has ceased. Breach of a covenant against immoral use has been found to
be incapable of remedy on these grounds. 86 Breach of a covenant against
assignment or subletting has been held to be incapable of remedy. 87 It was
suggested in Scala House & District Properties Ltd v Forbes 88 that the breach
of any negative covenant is incapable of remedy, but this approach has been
rejected by the English Court of Appeal in Expert Clothing Service & Sales Ltd
v Hillgate HouseLtd. 89 The correct approach is to establish whether compliance
(albeit late) together with the payment of compensation, where appropriate,
would effectively remedy the harm the lessors had or were likely to suffer from
the breach. The question is thus to look at the harm the landlord has suffered
rather than looking at the nature of the tenant's conduct.
Even where a breach is incapable of remedy, a notice must be given in
order to serve as a warning to the tenant of imminent forfeiture proceedings
and the need to apply for relief from forfeiture.
11.5.1.2
Relief
The courts of equity have long been prepared in the exercise of their
inherent jurisdiction to excuse a tenant's breach of covenant in appropriate
circumstances by granting relief from forfeiture. 90 However, a tenant's right
to relief is now in most cases statutory.
The right of a lessee, other than a Crown or Government lessee, to apply
for relief differs according to whether the forfeiture is based upon nonpayment of rent or for breach of another covenant.
The courts of equity have regarded forfeiture for non-payment of rent
as little more than security for the rent, and would normally grant relief
provided the rental arrears, interest, and costs are paid. The right to grant
relief is now governed by statute, and differs according to whether relief is
being sought in proceedings in the Supreme Court, 91 the District Court or
the Lands Tribunal. 92 In the Supreme Court relief will be granted if:
•
•
the lessee pays into court the rent arrears and costs before the _timefor
acknowledging the service of the writ expires; or
the lessee pays into court all the rent arrears and costs before the time
stipulated by the court for execution of the possession order, which
must not be less than four weeks from the date of the order, or any
extension of that time granted by the court.
The lessee will continue to hold under the original lease as the forfeiture
ceases but if the lessee fails to pay the arrears and costs in accordance within
these time limits he is barred from all relief.
86
87
88
89
9o
91
92
292
I.
Rugby School (Governors) v Tannahill (1935] 1 KB 87
Scala House & District Property Co Ltd v Forbes [1974] QB 575
Ibid.
(1986] Ch 340
See Shiloh Spinner's Ltd v Harding [1973]AC 691; and Kung Wai-ying v A-G [1974] HKIR 1.
Sections 21F-21H of the Supreme Court Ordinance Cap 4
Section 69 District Court Ordinance Cap 336 which also governs relief in the Lands
Tribunal (see s 8(9) of the Lands Tribunal Ordinance Cap 17.)
LEASES
In the District Court and Lands Tribunal relief will be granted:
• if five days before the hearing, the tenant pays the outstanding rent and
the landlord's costs into court; or
• if a possession order has already been grqnted to the landlord, the court
will delay its execution for four weeks. If-the iessee pays the rental
arrears and costs within the time, the order -~ill not be enforced and the
lessee will continue to hold under the original'lease; ·or
• if the landlord has actually re-entered, the tenant may apply for relief at any
time within six months of the landlord's re-entry and the court has discretion,
according to normal equitable principles, to grant or refuse his application.
If the application is granted the lessee will be deemed to hold under a new
lease.
An underlessee or mortgagee also may apply for relief for non-payment
of rent in the same way as a lessee. 93
'fhe court has been more reluctant to grant relief from forfeiture based
upqn a covenant other than the covenant to pay rent. Section 58(2) of the
Conveyancing and Property Ordinance gives a tenant a right to apply for
relief regardless of whether the landlord has forfeited the lease by taking
proceedings for possession or by peacefully re-entering the premises. 94 The
right will be lost, however, once the landlord has obtained possession
pursuant to a judgment obtained in possession proceedings, subject to any
right to set aside the judgment or a successful appeal. The court may grant
or refuse relief on such terms as it thinks fit in the light of all the
circumstances of the case. The tenant's knowledge and the nature and
seriousness of the breach are clearly relevant, as well as the question of
whether and how quickly the tenant has remedied the breach and the
difference, if any, in the value of the landlord's reversion before and-after
the breach. But attempts to lay down guidelines as to when relief will be
given should be treated with caution, because the court's discretion is wide
and unfettered. 95
If relief is granted, the lease will continue as though the forfeiture and the
proceedings for possession had never taken place·. Where relief is granted
subject to conditions, the forfeiture is suspended and contractual tenancy will
continue until the time for compliance with the conditions has expired. 96
The forfeiture of a head lease destroys not only the head lease but also
any subleases. A sublessee who finds his sublease in jeopardy because of
the forfeiture of his landlord's own lease may also apply for relief. The court
may again grant relief to a sublessee or mortgagee if it sees fit and subject
to such conditions as it sees fit. It appears that relief may be available to the
sub-lessee and a mortgagee under both ss 58(2) and 58(4) of the
Conveyancing and Property Ordinance. 97 The difference between the two
93
94
95
96
97
See United Dominions Trust Ltd v Shell Point Trustees Ltd [1993] 3 All ER 310 and
Escalus Properties Ltd v Robinson [1995] 3 WLR 524.
Billson v Residential Apartments Ltd [1992] 1 AC 494
Rose Spicer, Rose v Hyman [1912] AC 623
Olivesburg Ltd v Volstead Travel Service Co Ltd [1994] 2 HKC 507
Escalus Properties Ltd v Robinson [1995] 3 WLR 524
293
HONG KONG LAND LAW
sections is that if relief is granted under s 58(2) the original lease is deemed
to continue, the forfeiture having ceased. In the case of relief granted under
s.58(4) a new lease is granted directly from the head landlord for a term not
exceeding the sub-lease term and on such other terms as the court sees fit.
The possibility of resort to the court's inherent jurisdiction to grant relief
from forfeiture for a wilful breach of covenant was resurrected in Shiloh
Spinners Ltd v Harding1 8 but after a brief life99 has been once more put to
rest by the English Court of Appeal in: 100
FACTS
The defendants acquired the residue of a lease of furnished service apartments
and immediately started to convert them to self-contained flats. By the terms
of the lease they were not entitled to make any alterations to the premises
without the consent of the landlords but they did not seek the landlords'
consent and ignored the landlords' objections. The landlords served a statutory
notice specifying the breach and requiring it to be remedied. After giving the
defendants 14 days to remedy the breach, the landlords staged a dawn raid
and re-entered the premises peacefully before the tenants' workmen arrived
to continue the alterations. The workmen did regain entry and finished the
alterations but the landlords claimed possession on the basis of the peaceful
re-entry and the defendants counterclaimed for relieffrom forfeiture.
JUDGMENT
Section 146(2) of the Law of Property Act 1925101 provided a complete
statutory code for the grant of relief from forfeiture for breach of covenant
other than for a covenant to pay rent and in so doing extinguished the
courts' inherent equitable jurisdiction to grant relief. By contrast the courts'
inherent jurisdiction to grant relief from breach of a covenant to pay rent
was not extinguished by the statutory regulations that had beeri enacted;
this legislation did not provide a complete code.
11.5.1.3 Waiver
A landlord will be unable to enforce a right of re-entry if he has waived the
breach that gave rise to the right. Waiver may be express, where the landlord
states that he will ignore the breach; or implied, where the landlord, with
knowledge of the breach, peforms some act that recognises the continued
existence of the lease. The most common example is where the landlord
98
99
100
101
294
[1973] AC 691
See for instance Abbey National Building Society v Maybeech [1985) Ch 190
The decision of the Court of Appeal was reversed on another point by the House of
Lords.
Sees 58(2) CPO.
LEASES
distrains or sues for rent or otherwise claims or accepts rent when he knows
of the breach. 102 However, the acceptance of rent by the Crown does not
waive a breach of a Crown lease. 103 Rent that is accepted without prejudice
to a right to seek re-entry may not act as a waiver where the landlord has
no choice but to put up with the tenant's continued occupation because the
tenant holds a tenancy that cannot be brought to an end by forfeiture. For
instance, a tenancy falling under Parts I or II of the Landlord and Tenant
( Consolidation) Ordinance cannot be forfeited: possession can only be
sought on certain limited grounds. However, a tenancy falling within Part
IV of the ordinance may be forfeited, and thus a qualified acceptance of rent
under a Part IV tenancy may still act as a waiver. 104
A waiver will not prevent a landlord from forfeiting the lease where the
tenant again breaches the same covenant. 105 Thus, where the breach is
continuini:e
landlord may rely on a future breach despite an earlier waiver
of the sam breach, unless his act of waiver was such that it condoned the
future as ell as the past breaches, 106 or was so soon after waiver that the
landlord must have known that the breach would still be continuing.
11.5.2
Distress
Distress is an ancient common law remedy that has its origins in the feudal right
of a lord to seise his tenant's goods as security for the performance of services.
Distress is now only available at common law to landlords, and then only
while they remain as such. A landlord will thus lose his right to distrain if
he sells his reversion. If there are any arrears of rental owing at the date of
the sale, the purchaser will also be unable to distrain for these arrears, for
he is not entitled to them as landlord.
A landlord may distrain for up to 12 months' rental, butthe exercise of the
right is now regulated by Part III of the Landlord and Tenant ( Consolidation)
Ordinance. 107 A landlord must apply to the District Court for a distraint warrant,
which directs the court bailiff to go to the tenant's premises and takes sufficient
moveable goods in the apparent possession of the tenant to satisfy the arrears
and court costs stated on the warrant. The bailiff will then execute the warrant
as directed, although the tenant will often pay the rental arrears and court costs
demanded when faced with the threat of seizure of his goods. If the tenant does
not pay the arrears and costs, the bailiff w!ll make an inventory of the goods
he has taken and inform the tenant that the goods will be sold on a certain day
if he does not pay the arrears and costs. If the tenant still does not pay the
arrears and costs, the goods will be sold and the arrears and costs satisfied from
the proceeds, with any balance being given to the tenant.
A tenant cannot dispute the warrant at the time it is made, but after it has
been executed he can apply for its discharge or challenge the right of the
102
103
104
105
106
107
Matthews v Smallwood [1910] 1 Ch 777; The Prudential Ente,prises Ltd v PK Shek Ltd
(1988) HCt HCA No A4911 of 1987
Section 6 of the Crown Rights Re-entry and Vesting (Remedies) Ordinance Cap 126
Liu Ying-wah v Great Mace Trading Co Ltd (1986) CA Civ App No 139 of 1986
Sees 29 of the Conveyancing and Property Ordinance Cap 219.
Chinachem Investment Co Ltd v Chung Wah Weaving and Dyeing Factory Ltd [1978]
HKLR 83
Cap 7
295
HONG KONG LAND LAW
bailiff to take a particular article. A third party can also challenge a bailiffs
right to take a particular article. This right to challenge the distress is
governed by s 93 of the Landlord and Tenant ( Consolidation) Ordinance,
but at common law the tenant also has a right to rescue his goods before
they are impounded or to ask the court for their return where the distress
is illegal. This latter common law right is known by its ancient name of
'replevin'. The tenant can also ask for time to pay if he admits that the arrears
are owing but does not have the means to pay them. On such an application
the court may order such time to pay as it thinks 'just and reasonable', and
the warrant will then be discharged and the goods returned.
11.5.3
Action for A"ears of Rent
A landlord may sue for arrears of rent in the same way as for any other debt.
He cannot, however, sue for more than six years' arrears as his action will
be time-barred.
11.5.4
Damages for Waste
Where there is no express obligation upon the tenant to repair, the landlord
will have to resort to his common law right to seek redress by way of damages
or an injunction if the tenant's activities or inactivity amount to an act of waste.
11.5.5
Tenant's Remedies
The tenant cannot boast such a varied armoury against breach of covenant
as the landlord, but in addition to his general contractual remedies of
damages, injunction, or declaration he can, where there is a breach of a
repairing covenant, take advantage of a common law right to recover the
cost of repairs from future rent. He must, however, first give notice to the
landlord of the need for repair before he carries out the repairs and deducts
the cost from his rental. 108
11.6
Termination of Leases
Where the tenant is in breach of covenant, a landlord may terminate a lease
by exercising his right of forfeiture, which we have already examined. There
are, of course, a number of other ways in which a lease may be brought to
an end.
11.6.1
Eflluction of Time
Fixed-term leases will come to an end automatically upon expiry of the
term. There is no need for the service of any form of notice. For instance,
if premises are let for a period of ten years beginning on 1 January 1990,
108
296
Lee Parker v Izzet [1971] 1 WLR 1688.
'l
LEASES
the lease will expire on 31 December 1999. A tenant who remains in
occupation after the expiry-of his lease becomes a tenant at sufferance until
his landlord withdraws his permission for the tenant to remain on the land. In
certain instances, the landlord will be able to claim double the yearly value of
the premises from the tenant where that tenant has failed to deliver up
possession after the expiry-of the term, and after a demand and written notice
from thp landlord requiring him to do so. 109 Usually, however, the landlord will
simply tely on his right to claim what are known as 'mesne profits'. Mesne
profits are· damages for the tenant's use or occupation of the land, which are
assessed according to the market value of the land. If, after the expiry-of his
fixed-term lease, the tenant remains in occupation and continues to pay rental
that is accepted by his landlord, a periodic tenancy will be implied.
However, we will see in the next chapter how- the parties' relationship
as landlord and tenant may continue in a number of instances following the
expiry- of the initial term.
11.6.2
Notice
A number of leases must be terminated by notice. These include:
• periodic tenancies,
• tenancies at will,
• fixed terms in pursuance of an express term permitting early termination,
and
• certain tenancies subject to statutory- control, eg see Parts IV & V of the
Landlord and Tenant (Consolidation)
Ordinance.
11.6.2.1 Form of Notice
'
'I
The notice must comply strictly with any requirements set out in the lease.
Where no requirements are laid down, the notice must be in writing.11°A
notice to terminate a tenancy pursuant to Part IV of the Landlord and
Tenant (Consolidation) Ordinance must be in the prescribed form, but
otherwise the only requirement is that the notice must be reasonably clear
and certain. It should be addressed to the right person, although a notice
addressed to an occupier by his designation - ie, as tenant- is sufficient. 111
It must properly describe the premises so that they can be ascertained with
certainty. A notice to quit a part of the premises, however, is ineffective for
a landlord cannot be forced to take back only part of his property. The
notice must also be clear as to the date upon which the tenancy will cease.
, I
IlI
109
110
111
I.andlord & Tenant Act 1730, which still applies in Hong Kong. See Item 31 in the
Schedule to the Application of English I.aw Ordinance Cap 88
Section 62 of the Conveyancing and Property Ordinance Cap 219
Section 62(2) ibid
297
HONG KONG LAND LAW
11.6.2.2
Length of Notice
The notice must allow for the correct notice period. However, where an
incorrect date is given but is such that no reasonable tenant could have
possibly thought the date was correct, the notice will be effective. 112 An
exact date does not have to be named provided the date of termination can
be clearly ascertained. 113The correct period in respect of a periodic tenancy
varies according to the length of the period of the lease, and the Landlord
and Tenant ( Consolidation) Ordinance stipulates certain minimum periods
of notice. A tenancy at will ends immediately notice is given, while the
necessary notice period for a right to early termination of a fixed-term lease
will depend upon the terms of the provision sanctioning early termination.
If a tenant fails to vacate after giving a notice to quit, then he may be liable
for double rent if he fails to deliver up vacant possession of the premises
on the appropriate day.114
11.6.2.3
Service of Notice
The notice may be served either personally or by ordinary post. 115
11.6.3
Surrender
A tenant may give up his lease and surrender it to his landlord provided his
landlord agrees. On a surrender, the lease will merge with the landlord's
reversion and be extinguished. A surrender may be express or implied.
11.6.3.1
Express Surrender
A legal lease should be surrendered by deed, 116 while the surrender of an
equitable lease may be effected by writing. 117 However an agreement in
writing complying with s 3 of the Conveyancing and Property Ordinance
will be enforceable in equity as a surrender. Furthermore, a landlord may
be estopped from denying an oral agreement to surrender if the tenant acts
to his detriment in reliance on that surrender. 118 Where the tenancy falls
within Part I or II of the Landlord and Tenant (Consolidation) Ordinance,
the parties must use a prescribed form to effect a surrender, which must then
be endorsed by the Commissioner for Rating and Valuation.
112 Carradine Properties v Aslam [1976] 1 WLR 442
113 Tang Mei-lin v Tsui Lin [1967] DCLR 33; and Leung Chung-ting v Tin Yat Co [1963] HKLR 58
114
Section 18 Distress for the Rent Act 173 7, which still applies in Hong Kong. See Item
115
33 in the schedule to the Application of English Law Ordinance Cap 88.
Section 62 of the Conveyancing and Property Ordinance
116
117
118
298
Section 4 of the Conveyancing and Property Ordinance
Section 5 of the Conveyancing and Property Ordinance
Take Harvest Ltd v Lui [1992] 2 WLR 785. The doctrine of part performance may also
be applied to enforce an oral surrender agreement.
LEASES
11.6.3.2
Implied
A surrender may be inferred from the conduct of the parties. If the parties
act in a way that is inconsistent with their continued relationship of landlord
and tenant, then a surrender will be implied. The basis of implied surrender
is estoppel. Common acts that will constitute an implied surrender include:
• the tenant delivering up vacant possession to the landlord. 119 The
delivery up must be accepted by the landlord. For instance, a mere return
of the keys will not be sufficient, 120 nor will the acceptance of the keys
by the landlord be sufficient if he accepts them not because he intends
to terminate the tenancy but for some other reason, for instance to make
sure the premises are secure. 121
• the grant of a new lease to the tenant during the currency of the existing
lease on different terms from those of the existing lease. 122 A mere
variation of the terms of an existing tenancy may amount to a surrender
if the variation affects the estate granted - for instance, an extension of
the term or the premises - but a variation of the covenants affecting the
estate will not necessarily lead to a surrender if they are minor. For
instance, a change in the rental to be paid will not amountto a surrender.
• the grant of a new lease by the landlord to a third party with the
agreement of the tenant.
11.6.3.3
Effect of Surrender
A surrender releases the parties from future liabilities, but not from past
breaches of covenant or other actions unless the landlord has waived those
past breaches.
A surrender will only affect the lease being surrendered. If a head lease
is surrendered, it does not destroy the sublease: instead the sub-tenant (S)
becomes the direct tenant of the head landlord (L) and must pay his rent
directly to him. It follows, therefore, that S can only surrender his sublease
to T If he purports to surrender his sublease to L, the surrender will operate
as an assignment and L will become T's tenant as well as his landlord!
11.6.4
Merger
A merger will arise when the landlord's reversion and the lease becomes
vested in either the tenant or a third person. Clearly one cannot be a landlord
and a tenant of the same premises at the same time. Merger is similar to
surrender. In both cases the reversion and lease become vested in one
person so as to extinguish the lease. In a surrender, that person is the
landlord - in a merger, it is the tenant or a third party. A merger will not,
119
120
121
122
Chamberlain v Scalley (1992) 26 HLR 26
See, for instance, The World Realty Ltd v Kwan Ngar-nin [1986] HKC 508 and [1987] 3
HKC 148 and Silver Source Development Ltd v Time Century Ltd [1992] 1 HKC 366
See, for instance, Chan v Lau Wai-kwong (1984) HCt HCA No 5062 of 1982.
Take Harvest Ltd v Lui supra
299
HONG KONG LAND LAW
however, occur if the tenant or third party acquires the lease and reversion
in different capacities - for instance, if a tenant acquires the reversion
because he is the personal representative of his deceased landlord.
A merger at law is automatic, but in equity it is dependent on intention
and will not occur unless intended by the person acquiring the lease and
reversion. 123
11.6.5
Disclaimer
A right to disclaim a lease may be granted by legislation. For instance, a
trustee in bankruptcy and a liquidator may disclaim an onerous lease so as
to be released from future liability. 124 Disclaimer may also arise where a
tenant denies his landlord's title.
11.6.6
Frustration
After some hesitation, the courts have accepted that the doctrine of
frustration may apply to leases in the same way as it applies to other
contracts. The court's hesitation arose from the fact that a lease is not just
a contract, but it also creates an estate in the land, and it was argued that
this estate could not be destroyed. But the likelihood of frustration of a lease
being established is remote. 125 In Hong Kong, where landslips and
subsidence are not uncommon, it is conceivable that the land, the subject
matter of the lease, might disappear or be rendered inaccessible so as to
frustrate the lease. 126 Where the premises have not been destroyed but there
has been an interference with the tenant's right to use them, frustration is
more difficult to establish, for the use must become impossible and not just
more difficult. For instance, in National Carriers Ltd v Panalpina (Northern)
Ltd127 the closure of a road giving access to the premises for two years out
of a ten-year term did not amount to frustration. If the lease had been for
a three-year term, then perhaps the result would have been different.
The possibility of frustration is often avoided in short-term tenancies, for
it is common for the parties to cater expressly for an interference with the
tenant's use of the property due to fire, typhoon, or other similar calamity.
Provision is usually made for the abatement of rent if the interference is only
short term, and for termination of the lease if the interference continues for
some time.
123
124
125
126
127
300
In England, merger both at law and in equity
the Law of Property Act 1925.
Section 59 of the Bankruptcy Ordinance Cap
Ordinance Cap 32
National Carriers Ltd v Panalpina (Northern)
See, for instance, Wong Lai-ying v Chinachem
of 1979.
[1981] AC 675
is a question of intention. See s 185 of
6 and s 268 of the Companies
Ltd [1981] AC 675
Investments Co Ltd 0979) PC PApp No 9
LEASES
11.6.7
Repudiation
There has also been doubt as to whether a lease may be repudiated in the
same way as any other contract. The doubts have again arisen because a
lease is not purely contractual, but also creates an estate in land. 128 However,
the courts in Hong Kong have recognised that a tenant's breach of a lease
may be accepted by the landlord so as to bring the lease to an end by
repudiation. The landlord may then sue the tenant for damages arising from
the breach, which will generally be calculated according the difference
between the rental under the repudiated agreement and the rental (if lower)
that the landlord can recover at the date of the breach. 129 A repudiatory
breach must go to the heart of the contract - for instance, abandoning the
premises together with a failure to pay the rent or the refusal by a landlord
to perform an implied covenant to repair which renders the premises
uninhabitable. 130
Total Oil Great Britain v Thompson Garages (Biggin Hill) Ltd [1972] 1 QB 318
James S Lee & Co (Kowloon) Ltd v Kapok Garments Ltd (1984) HCt HCA No 8696 of
1982; Chan v Lau Wai-kwong (1984) HCt HCA No 5062 of 1982; and Hop Woo-cheung
Enterprises Ltd v Intergroup Industries Ltd [1982] HKC 436
no Hussein v Mehlman [1992] 32 Estates Gaz 59
128
129
301
Government Leases and Short Term
Tenancy Agreements
12.1
Introduction
With the essentials of a lease firmly in mind, we need to consider in more
detail the distinctive features of the most common types oflease encountered
in Hong Kong: Crown or Government leases and short-term tenancy
agreements. Almost all land in Hong Kong, except for those areas retained
by the Crown, or, after 1 July 1997, the Government of the Special
Administrative Region of Hong Kong, is held under a Crown or Government
lease. The lessee may have decided that he does not require the land for
his own occupation but, rather than sell it by the assignment of the residue
of his Crown or Government lease term, he may sublease the land. Ifhe does
so he will only enter into a tenancy agreement for a short period of time.
The Hong Kong property market is too volatile for landlords to wish to
commit themselves to lease for too long a term, although there is no
legislation that prevents them from doing so.
12.2
Crown and Government
Leases
Despite promises that freehold grants would be made to the early settlers
of Hong Kong, the Crown's policy since the territory was established has
been that only Crown leases would be granted. The notable exception is
St John's Cathedral, where a freehold grant has been made, but subject to
a stipulation that the site remains a place of worship. 1
The policy of making leasehold, rather than freehold, grants has proved
so successful that it is unlikely that the change of administration in 1997 will
lead to any change in this policy. Indeed, the Joint Declaration on the Future
of Hong Kong does not anticipate any change. It is proposed to use the
expression 'Government lease' in this chapter to refer to a grant made either
by the Crown or the Government of the Special Administrative Region of
Hong Kong.
The distinctive feature of Government grants is the interface between the
public function of government and its role as a private landlord. The courts
have steadfastly maintained that, in its capacity as a private landlord, the
government retains the same powers and discretion as any other private
landlord. Yet in reality the government does not exercise its powers and
discretion in the same way as a private landlord, who would generally act in
his own personal interests. The government acts in the interests, as it sees it,
of the territory at large.
See Church of England Trust Ordinance Cap 1014.
302
LEASES
12.2.1
Creation
Most land in Hong Kong has been and continues to be disposed of by the
government by auction to the highest bidder. The funds raised have played
an important part in balancing the budget! But the government has been
concerned not just to raise revenue but to ensure that the land sold is
developed for the overall benefit of the territory. The purchaser of Crown
land is thus required not only to pay the premium for the land, but also to
develop the lot in the manner specified by the government. In order to
ensure that the land is developed, the purchaser is not granted his
Government lease at the auction or even when he pays his premium.
Instead, he enters into an agreement with the government, commonly
known as 'Conditions of Sale', whereby the government agrees to grant him
a Government lease once he has complied with his obligations to develop
the land in accordance with that agreement. To further encourage fulfilment
of the Conditions of Sale, the lessee is usually not allowed to dispose of the
site until he has complied with the Conditions of Sale.
At one time, upon the lessee's performance of the Conditions of Sale, he
would be granted a formal Crown)ease executed by deed by the Crown.
However, in recent years the formalities for the grant of the Crown lease
itself have not been completed. The lessee was content to rely on the
Crown's agreement to grant a Crown lease provided the Crown would
acknowledge by a certificate, known as a 'letter' or 'certificate of compliance', that the lessee had complied with the conditions set out in the
Conditions of Sale. The lessee had, in effect, an equitable lease under the
doctrine of Walsh v Lonsdale. 2 He had the benefit of an agreement by the
Crown to grant a Crown lease, which the certificate of compliance indicated
was capable of specific performance.
Since the enactment of s 14 of the Conveyancing and Property
Ordinance in 1984, the distinction between the older legal Crown leases
and the more recent equitable Conditions of Sale has been removed. The
Government lease is deemed issued and the legal estate in the lease deemed
granted upon the lessee's compliance with the conditions upon which the
grant is made. All Conditions of Sale entered into befor~ 1January 1970 were
automatically ;;nverteci into Crown leases ~hen trie ?/a..~~ei/ir1c:ing_r:ft14
f:LQJ]?rtyOrdin.an.c:e_:wa~_pa~:,~<:;LQnl.,Nm.:ember
.1.2&L.AlU::iJ:~r
Conditions
of Sale are deemed complied with upon the registration of acertificatio11 of
compliance at the Lanc:LQffice. •
·-· • •
Occasionally Government leases are granted otherwise than by auction.
Privately negotiated Conditions of.Grant may be made for public purposes, for
insta~ce, for a school. Where land is exchanged for other land, which is quite
common where an old site is being redeveloped, it may ije convenient for the
lessee to surrender his old Government lease and obtain°'a new grant where,
for instance, he wishes to change slightly the boundaries of the site or where
evidence of his title is rather fragmented. In this case, Conditions of Exchange
are i~sued. Conditions of Exchange will also be issued where the premium for
See Chapter 6.3.
303
HONG KONG LAND LAW
a site has been settled by the tender of land exchange entitlements, commonly
known as 'letters A and B', which were issued by government to compensate
land owners in the New Territories for the compulsory resumption of their
land. These entitlements give the holder a right to a grant of land in the territory
that he may submit in satisfaction of premium at certain specially organised
tenders of Government land. 3 The Conditions of Extension may be issued
where an additional area of land is granted as an extension to, and on the same
terms as, an existing site. These other types of agreement for a Government
lease are also governed bys 14 of the Conveyancing and Property Ordinance.
The Government lease will be deemed issued upon compliance with the terms
of the agreement, where the agreement was made after 1January 1970. Earlier
agreements have been automatically complied with and the Government
lease issued.
When the New Territories was incorporated into Hong Kong, block
Crown leases of a village or area were granted to the indigenous population
in order to replace the existing titles they held from the Chinese emperor.
Instead of granting a lease to each landholder within the area, a block
Crown lease grants a lease of all lots within the area covered by the lease.
The details of the lots and the original Crown lessee of each of the lots are
set out in a schedule to the block Crown lease together with details of the
rental and use of the land. Unfortunately, the area of the lots given in some
block Crown leases is not as accurate as it might be, and calls have been
made for a re-survey of the land covered by these leases. 4
12.2.2
Standard Covenants
The terms of Government leases are tailored to each site, but although there
are individual differences certain terms are standard. There is also a
variation between the terms of the other formal Crown leases and the terms
of the more recent Conditions.
12.2.2.1
Term
The Government lease terms are generally for a fixed period, which may
vary from as long as 999 years in older leases to 99 years and, more recently,
to 75 years coupled with a right to renew for a further 75 years. The Joint
Declaration between the British Government and the Government of The
People's Republic of China on the Future of Hong Kong provides that the
Hong Kong Government cannot grant Government leases that will run
beyond 30 June 2047, 50 years after Hong Kong's transition to a Special
Administrative Region of China. Existing Government leases, however, that
extend beyond 2047 will continue to be recognised under the Basic Law of
the Hong Kong Special Administrative Region. 5
See Yau Fook-hong Co Ltd v A-G (1985) CA Civ App No 136 of 1984 and [1988] HKLR
196 for details of these tenders.
See, for instance, Man Kam-tong v Man Lin-tai [1984] HKLR 181.
See Annexure III of the Joint Declaration.
304
12.2.2.2 Rental
Where the Government lease is sold at auction the lessee will have to pay
a premium for the grant of the lease, which is generally a very substantial
figure. By contrast, the annual rental that a Government lessee will have to
pay is usually a modest figure. The Joint Declaration on the Future of Hong
Kong indicates that after 1997 rentals will be based upon three per cent per
annum of the annual rateable value of the land from 1 June 1997.6 Crown
grants entered into after the Joint Declaration that extend beyond 1997 now
provide for this level of Crown rental from 30 June 1997. The rental of
Government leases renewed under the Crown Leases Ordinance 7 is also
based on three per cent of the rateable value.
The ownership of a Government lease lot may be divided up into smaller
portions, either by the physical sectioning of the lot into smaller pieces of
land or by its fragmentation into undivided shares. Where a Government
lease lot is divided up in either of these ways, the new lessees will usually
agree between themselves as to how they are going to share the liability of
paying the rent. The agreement that they come to will not bind the
government, which is not a party to their agreement, but there is provision
in the Rent and Premium (Apportionment) Ordinance3 for the formal
apportionment of the rent, which becomes known as the 'determined rent'.
It is interesting to note that, upon the determination of the rent where the
land is carved up into sections, each section of the Government lease lot
is deemed held under a separate Government lease. 9 This is_not the case
where the rent is determined in respect of a lot that has been fragmented
into undivided shares.
12.2.2.3
Use
The older Crown leases often do not limit the use of land except to prohibit
a number of offensive trades. The standard term is:
... shall not ... use, exercise, or follow ... the trade or business of a
Brazier, Slaughterman, Soap-maker, Sugar-baker, Fellmonger, Melter
of tallow, Oilman, Butcher, Distiller, Victualler, or Tavern-keeper,
Blacksmith, Nightrnan, Scavenger, or any other noisy, noisome or
offensive trade or business whatever.
A number of these trades have clearly fallen into disuse, and one wonders
to what extent the restriction on 'victuallers' would prevent the operation
of a restaurant, or the restriction upon 'oilmen' would restrict the use of the
land as a petrol station! It appears that when considering if a trade is
'offensive' the court will not consider whether the trade is capable of being
6
7
8
9
See Annexure III of the Joint Declaration.
Cap 40
Cap 125
Section 8 of Cap 125
305
JONG KONG LAND LAW
offensive but rather whether in the circumstances of the case it was
conducted in an offensive fashion. 10
A number of the older Crown leases of residential sites also contain a
restriction on the number of dwellings that can be built on the lot. For
instance, a restriction requiring use as 'a private dwellinghouse', 'a
residence', or 'a villa residence' does not permit the erection of a block of
flats. 11 It would appear, however, that a restriction requiring use as 'one
house of European type' would not rule out the building of a block of flats. 12
The more modern Government leases have been developed by the
government as a most effective means of planning control. The leases
specify, often in strict terms, the use of the land. The broad use of the land
will usually be specified - for instance, residential, commercial, or
industrial and godown. 13 In addition, the terms may restrict the height or
density of the building, or dictate the provision of certain facilities or the
infrastructure either within the site or even on adjoining land. For instance,
it is common to find provision for car parking in a residential site, or for the
formation of a road giving access to the lot if it does not front onto an existing
street.
The use description in the schedule of a block Crown lease, however, is
not a use restriction: it is merely a description of the use of the lot at the time
of the grant, 14 but the classification in the schedule or the Crown rent roll may
be helpful. 15All block Crown leases, whether for agricultural or building land,
contain a building covenant which requires government approval for the
erection of any building or structure. This covenant is not a user covenant as
such but requires approval of the design and structure ofany building for safety
and heath reasons. 16 Thus in the case of agricultural or garden land held under
a block Crown lease the consent of government by way of a building licence
is required to waive the user restriction, and where the land is classified as
building land no licence is required but government approval to the design
and structure of the building is required.
The government is prepared to consider the variation of a use restriction
where to do so is consistent with its planning policy for an area, but these
variations or modifications are matters of private contract between the
government and the lessee and the government is entitled to charge what
premium it considers fit.17
10
11
12
13
14
15
16
17
306
Niceboard Development Ltd v China Light & Power Co Ltd 0993) LT MP No 14 of 1991 •
which considered whether a concrete batching plant was 'offensive'.
Wong Bei-nie v A-G [1973] HKLR 582; Loi Po Investment Co Ltd v Real Reach Co Ltd 0985)
HCT MP 1430 of 1984; and TS Cheng & Sons Ltd vA-G (1986) HCt MP 1595 of 1986
Winfield Investment Co Ltd v Henry Fok Estates Ltd [1966] HKLR 399
See Mexx Consolidated (Far East) Ltd v AG [1987] HKLR 1210; and Cavendish Property
Development Ltd v A-G [1988] HKC 480 for the meaning of 'industrial and godown
purposes'.
AG v Melhado Investment Ltd [1983] HKLR 327
Niceboard Development Ltd v China Light & Power Co Ltd (1993) LT MP Ref No 14 of
1991. This case also provides a helpful review of planning controls over
New Territories land.
Niceboard Development Ltd v China Light & Power Co Ltd supra
Hang Wah-chong Investment Co Ltd v A-G [1981] 1 WLR 1141
LEASES
12.2.2.4
Repair
A Government lessee is required to enter into full covenants to keep the
whole of the property in repair. The government, however, does not usually
rely on these covenants to require Government lessees to maintain their
property: they enjoy wider statutory powers to force owners to repair
buildings that have become dangerous under the Buildings Ordinance. 18
12.2.2.5
Alienation (Assignment and Subletting)
A Government lessee is generally free to assign the whole of the residue of
his Government lease or to sublease the premises for a shorter term
provided the Government lease has been issued or is deemed to have been
issued under s 14 of the Conveyancing and Property Ordinance. Prior to
compliance with the terms upon which the Government lease is granted,
the Government lessee will generally only be allowed to dispose of his
interest in the land if the government agrees to the disposal. Consent will
normally only be given to certain transactions that facilitate the development of the land and fulfilment of the conditions upon which the grant is
made. For instance, a building mortgage that secures sums advanced to pay
for the development of the land, or the sale of the property on the
completion of the development under the stringent terms of the Consent
scheme 19 are generally permitted.
12.2.3
Termination
The methods of termination that we looked at in the last chapter all apply
to Government leases, but there are certain distinctive features affecting
Governmeqf leases.
12.2.3.1
Effluction of Time
The government will rarely insist upon taking back a Government lease lot
on the expiration of the Government lease unless the site is required for
some public purpose. The Government lessee will generally continue in
possession, either because he has a right to renew his lease or because he
is able to obtain a re-grant of the land from government.
Many Government leases have been granted with a right for the lessee
to renew his term. A grant of 75 years together with a right to renew was
the most common form of grant prior to the Joint Declaration. A right of
renewal in a Government lease is automatically renewed under the
provisions of the Crown Leases Ordinance. 20 The renewed Government
18
19
2
°
Cap 123. Power also exists under the Demolished Buildings (Redevelopment of Sites)
Ordinance Cap 337 for the government to require the owner of certain pre-war
buildings to redevelop the site.
See S. Nield, 'Sale of Uncompleted Buildings' (1990) Law Lectures/or Practitioners 285.
Cap 40
307
HONG KONG LAND LAW
lease is on the same terms as the old, save for an increase in the rent and
the exclusion of a further right of renewal. It is interesting to note that where
the Government lease lot has been divided into sections, each section is
deemed held under a new Government lease upon a renewal under the
ordinance. 21
The Joint Declaration provides that all Crown leases expiring before 30
June 1997 may be re-granted by government without the payment of
premium for terms expiring on or prior to 30 June 2047. Terms expiring after
30 June 1997 will be dealt with in accordance with the laws of the Hong
Kong Special Administrative Region. 22 The terms of the Joint Declaration do
not give an individual a right to demand a regrant without the payment of
premium, for it is an international agreement between the British Government
and the Government of the People's Republic of China. 23 But in respect of
New Territories leases, the terms of the Joint Declaration have been
incorporated into Hong Kong law by the New Territories Leases (Extension)
Ordinance. 24 This extends most New Territories leases, which were all due
to expire on 27 June 1997, until 30 June 2047. Leases for a special purpose,
or for a term of seven years or less, or where the lessee objects, are not
extended. The extended leases are on the same terms as the existing lease,
save for an increase in rental to three per cent of the rateable value from
27 June 1997.
12.2.3.2
Forfeiture
Government leases are specifically excluded from the requirement to give
notice under s 58 of the Conveyancing and Property Ordinance prior to the
exercise of a right of forfeiture. The forfeiture of Government leases is
separately governed by the Crown Rights (Re-entry and Vesting Remedies)
Ordinance. 25 The government is only required to register a notice at the
Land Office in order to exercise its right of re-entry. No notice or court
proceedings are necessary, although in practice the government will
generally give a lessee notice of an alleged breach and give him time to
remedy the breach.
A Government lessee's right to relief is also separately governed by the
Crown Rights (Re-entry and Vesting Remedies) Ordinance, 26 which grants a
right for the Government lessee to apply to the court or petition the Governor
for relief. 27
The principles of waiver of a right of re-entry apply to Government
leases as they do to any lease, but the acceptance of Government rent does
not operate as a waiver of the government's right of re-entry. 28 In practice
21
22
23
24
25
26
27
28
308
Section 5(2)
See Annexure III of the Joint Declaration.
Tbe Home Restaurant Ltd v A-G [1987] HKLR 237; and Tang Ping-hoi v A-G [1987]
HKLR 324
Cap 152
Cap 126
Cap 126
Section 8. See, for instance, Kun Wai-ying v A-G [1975] HKLR l; and Chan Hung-kay v
A-G[1981] HKLR 171.
See s 3 Crown Rights (Re-entry and Vesting Remedies) Ordinance Cap 126.
LEASES
the government has developed guidelines for the waiver of certain types of
breaches. For instance, the breach of a building covenant to develop the
land in a certain manner within a certain time may generally be waived by
the extension of the building covenant period upon the payment of a
specified premium. However, these guidelines are a matter of private
contract between the government and the lessee and do not give rise to any
right to a waiver. 29
12.2.3.3
Resumption
30
The government has certain legislative powers to resume land for public
purposes, although in such circumstances the Government lessee has a
right to compensation. The primary ordinance governing resumption is the
Crown Lands Resumption Ordinance, 31 but there are others. 32 'Public
purposes' is very widely defined to, in effect, include any purpose that the
government may decide to be a public purpose. 33 The Land Development
Corporation, which is charged with the task of facilitating urban renewal,
is also able to recommend that the government exercise its powers to
resume land, under the Crown Lease Resumption Ordinance, where it has
failed to acquire by agreement a site that is necessary to its development
proposals for an area. 34
12.3
,I
Short-term Tenancy Agreements
Short-term tenancy agreements abound in Hong Kong. Many people cannot
afford to buy their own accommodation, despite the increase in owner
occupation. They must rent accommodation, from either the government
or a private landlord. From the landlord's perspective, property is still a very
popular form of investment in Hong Kong. The high cost of accommodation
has assured good returns, which even the volatility of the market has not
tarnished. Some might say that investment in the property market is just
another form of one of Hong Kong's favourite pastimes - gambling!
The distinctive feature of short-term tenancy agreements is the unequal
bargaining power of the parties. The landlord is very often in such a
predominant position that he can dictate the terms of the agreement: the
attitude is often very much 'take it or leave it'. Furthermore, as we have seen,
there is little protection for the tenant at common law. Even where the
29
30
31
32
33
34
Lok On Co Ltd v A-G (1982) HCt MP 561 of 1982; and Shun Shing-hing Investment Co
Ltd v A-G [1983] 2 HKC 314. See also Chapter 15.5 for principles
governing the modification and extinguishment of covenants.
See G.N. Cruder: Land Compensation and Valuation Law in Hong Kong, Singapore
(Butterworths) 1986
Cap 124
See, for instance, Land Acquisition (Possessory Title) Ordinance Cap 130, Road (Works
Use & Compensation) Ordinance Cap 370, and MTR (Land Resumption & Related
Provisions) Ordinance Cap 276.
See s 2(d) Crown Lands Resumption Ordinance Cap 124 and In Re Koy Investment Co
Ltd [1983] HKLR 28.
Sees 15 Land Development Corporation Ordinance Cap 15.
309
HONG KONG LAND IA W
property market is.weak and there is a reasonable supply of accommodation,
landlords are reluctant to agree to relax the terms of the agreement itself.
They prefer to offer the tenants concessions that do not appear on the face
of the agreement itself but are agreed as an informal collateral agreement.
For instance, a rent-free period or, in the case of commercial accommodation,
a fitting-out period may be offered.
12.3.1
Creatiow 5
The creation of short-term tenancy agreements will depend on the length
of the term to be granted. Where the term is to take effect.in possession, is
for not more than three years, and is for the best· rent without taking a
premium, the tenancy may be created orally or in writing. Longer terms
should be created by deed if they are to qualify as a legal lease, although
as we have seen, a lease for over three years that is not created by deed may
be recognised in equity either under the doctrine in Walsh v Lonsdale or the
doctrine of part performance.
12.3.2
Standard Terms.
Short-term tenancy agreements cover all types of accommodation, from
government housing to a luxury Peak house, from a factory unit in Tsuen
Wan to the offices of an international company in Central. Accordingly, their
terms may differ widely. Oral short-term tenancies will generally depend
solely on the implied terms that we looked at in the last chapter, since other
terms that may have been orally agreed may be difficult to prove. The terms
of agreements that are created in writing or by deed vary widely. The
landlord, who is usually responsible for preparing the agreement, may have
merely purchased a short printed form either in English or Chinese that is
on sale at some stationary shops; or he may have instructed his estate agent
or solicitor to draw up a formal agreement. Where a solicitor has drawn up
the agreement, he will usually employ one of a number of standard forms
or precedents-which
one will depend on the type of accommodation that
is being let. Needless to say, the general rule is that the more expensive the
accommodation the longer the agreement.
Despite the wide variety of agreements, there are common areas which
are covered. These include:
12.3.2.1 Terms
The terms encountered may vary widely, and generally depend on the type
of accommodation being offered. For instance, a serviced apartment may
be let for as short a time as a week; and monthly or yearly periodic tenancies
are often found for lower-cost accommodation, whetherthat be residential,
commercial, or industrial. Terms of two or three years are common for
higher-class residential accommodation.
Office and commercial
35
310
Chapters 5.1, 5.4 and 6.2 and 6.3
LEASES
accommodation is also often let for two or three years, but may be let for
longer terms because of the often high capital outlay of fitting out shop or
restaurant premises. Even so, it is rare to find terms that exceed ten years.
12.3.2.2
Rental
Generally no premium is charged for the grant of a short-term tenancy
agreement: the rental alone will reflect the consideration for the lease. The
amount of rent is for the parties to agree. However, in times of shortage of
domestic accommodation, the government has stepped in to control the
amount of rent a landlord can demand from his tenant. The present policy
is to phase out such controls, but they still apply to certain pre-war domestic
premises as well as certain post-war domestic premises where the lease was
originally granted prior to 10 June 1983.36
These controls are found in Part I, in respect of pre-war premises, and
Part II, in respect of post-war premises, of the Landlord and Tenant
( Consolidation) Ordinance. 37
The permitted rental of certain pre-war premises is somewhat complicated,
and is calculated by applying a multiplier to a nominal standard rent, which
is the rent payable for the premises on Christmas Day 1941, or a percentage
of the 'prevailing market rent', whichever is the greater. Increases in rental are
permitted in a number of circumstances, including where the landlord
provides furniture or additional services or has carried out certain improvements
to the property, or where the landlord must pay an increase in rates.
The rental of certain post-war premises that were first let prior to 10 June
1983 may be increased with the agreement of the landlord and tenant,
where the landlord carries out certain improvements or has to bear an
increase in rates. But the most significant justification for an increase is
where the Commissioner for Rating and Valuation is prepared to certify an
increase in rent because the current rent is below a nominal figure known
as the 'prevailing market rent'. In such circumstances, the Commissioner
will certify an increase that is the difference between the current rent and
the prevailing market rent, subject to a maximum increase of 30 per cent
of the current rent, provided that the new rent is at least 85 per cent (before
1 July 1996) or 90 per cent (after 30 June 1996) of the prevailing market rent.
This rather complicated formula, in the majority of cases, will lead to an
increase of 30 per cent of the current rent. It is only where the current rent
is very low or is close to the prevailing market rent that the rather more
complicated aspects of the formula will come into play.
A well-drafted tenancy agreement will make some provision for the
suspension of rent where the premises for some reason become uninhabitable
or, bearing in mind the mountainous terrain of Hong Kong, inaccessible.
Such a term helps to overcome the somewhat uncertain application of the
doctrine of frustration to leases.
36
37
See Appendix 4 of N.Bacon, Tenancies in Hong Kong, Hong Kong, Longman (1990)
for a summary of those tenancies subject to Parts I and II.
Cap 7. For a detailed examination see M. Merry: Hong Kong Tenancy Law (2nd ed),
Hong Kong, Longman, (1990).
311
HONG KONG I.AND I.AW
12.3.2.3
Outgoings
It is also common for a tenant to be required to pay the various outgoings that
an occupier of property must pay. There are the general rates payable to the
government and, if the property forms part of a multi-unit development, there
will be the management charges, payable under the deed of mutual covenant
for the repair, maintenance, and general upkeep of the building. Even where
the landlord is the sole owner of the premises, he may require the tenant to
pay a service charge in addition to the rental in order to cover these costs.
12.3.2.4
Use
Short-term tenancy agreements will usually restrict the use of the premises.
There will generally be a broad use restriction to reflect the use covenants
contained in the Government lease, deed of mutual covenant, and the
requirements of any relevant planning legislation, for the landlord will not
want to contravene any of these restrictions. However, the use of only part of
the premises for a purpose not permitted by the lease will not necessarily
amount to a breach of a use covenant. It is a question of degree. For instance,
occasional use for business purposes of one small room in a flat may not
contravene a requirement that the premises be used for domestic purposes. 38
Many landlords, particularly of expensive commercial or residential
premises, will also be concerned to preserve the value of their premises in
order to protect their investment, and will place a string of limitations on
what the tenant can and cannot do. For instance, in a residential lease there
may be restrictions on a tenant keeping pets or making any noise late at
night, while in a lease of a shop in a high-class shopping area there may
be restrictions on the opening and closing time of the shop or on how the
tenant may fit out the shop.
12.3.2.5
Repair
In a short-term tenancy agreement for a whole building such as a house,
the tenant will usually be responsible for repairing both the exterior and
interior. But in a lease of a unit in a multi-storey building, the tenant will
usually only be responsible for repairing the interior of the property. The
common parts and exterior will be the responsibility of the landlord as sole
owner of the building, or of the co-owners of the building if the ownership
has been divided. A proportion of the cost of repairing and maintaining the
common parts and exterior will, however, usually be recovered from the
tenant through the payment of management fees.
A tenant may be obliged by the terms of the lease also to put the premises
in good repair if they are in a poor state when he takes them over. A
covenant may state that the tenant must put and keep the premises in good
repair, but an obligation to keep or leave in good repair will also require
a tenant to put the premises in good repair, the logic being that he cannot
38
312
Shields v Chan [1972] HKLR 121
I
LEASES
keep or leave the premises in good repair until they are put in good repair.
There are many different expressions for the standard of repair required
- eg, 'good tenantable repair', 'well and substantial repair', and 'perfect
repair', but they all boil down to a similar standard. In determining whether
the standard of repair is satisfactory it is necessary to consider the locality,
character, and age of the property at the start of the lease. For instance, the
standard of repair required of a recently built house on the Peak will differ
from that of a pre-war shop in Wanchai. 39
It is common to find an exception in a repairing covenant for 'fair wear
and tear'. Such an exception will relieve a tenant of liability for damage or
deterioration caused by the ordinary use of the premises or by the operation
of natural forces. 40
To ensure that a tenant carries out his obligation to repair, a landlord will
usually reserve a power for the landlord to enter the premises to inspect the
state of repair and to require the tenant to carry out repairs that he finds
necessary. Should the tenant fail to carry out the necessary repairs, the
landlord will usually also reserve a right to carry· them out himself at the
tenant's expense.
12.3.2.6
Alienation (Assignment and Subletting)
A landlord under a short-term tenancy agreement will not usually allow his
tenant to assign, sublet, or even license the whole or part of the premises.
Whatever the type of covenant against alienation, the terms are restrictively
construed by the court. Thus a covenant not to assign does not prohibit
subletting, nor does a covenant against subletting prohibit assignment. 41 A
covenant not to assign or sublet the whole of the premises does not prohibit
the assignment or subletting of part. 42
The covenant may be absolute or it may be qualified, ie, subject to the
consent of the landlord. Unlike the landlord in England, the landlord in
Hong Kong is quite entitled to withhold his consent on any grounds
whatsoever unless it is expressly stated that his consent shall not be
unreasonably withheld. 43 Even if a landlord consents to a change of tenant,
it is very unusual for that change to be effected by an assignment of the
tenancy agreement. The landlord will generally prefer to take a surrender
of the outgoing tenant's lease and to enter into a new agreement with the
new tenant.
12.3.2.7
Deposit
A landlord will often want a more practical remedy against a tenant for a
failure to pay the rent or perform his other covenants than a right to forfeit
39
40
41
42
43
Brew Brothers Ltd v Snax (Ross) Ltd [1970] 1 QB 612
Regis Property Co Ltd v Dudley [1959] AC 370
Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699
Cook v Shoesmith [1951] 1 KB 752. But see Field v Barkworth [1986] 1 WLR 137, where
a restriction on subletting part was held to prohibit a subletting of the whole.
In England, s 19(1)a of the Landlord & Tenant Act 1927 provides that the consent of
the landlord must not be unreasonably withheld.
313
HONG KONG LAND LAW
the lease or sue for the recovery of the rent or damages. It is thus common
for a landlord to insist that the tenant pay him a deposit, which he may forfeit
in the event of the tenant's breach. The usual deposit in Hong Kong is two
months' rental.
Termination
12.3.3
The common law rules regarding termination may be modified in the case
of short-term tenancy agreements by the agreement of the parties or by the
impact of the statutory controls found in the Landlord and Tenant
(Consolidation) Ordinance. 44 This ordinance must be one of the most
complex and mystifying pieces of legislation to be found in the Laws of
Hong Kong, and a detailed scrutiny of its provisions is beyond the scope of
this book. 45 Its security of tenure provisions are considered only in outline.
12.3.3.1
Options and Rights to Renew
An option or right to renew a tenancy may arise as a result of the agreement
of the parties, or under Part IV of the Landlord and Tenant ( Consolidation)
Ordinance.
(a)
Express options to renew
It is common for the parties to agree that the tenant should have an optioff
to renew his tenancy agreements for a further term. The right or option will
generally stipulate how and when it may be exercised - for instance, it
usually provides that it is exercisable within a certain period before the end
of the lease by the tenant giving a written notice to the landlord. If nothing
is stated, no notice is necessaryand if the tenant stays in occupation and
continues to pay the rent, he may be deemed to have exercised the option. 46
The terms of an option, like any other agreement, must be certain. If nothing
is stated in the option or right of renewal, it will be presumed that the parties
intended the renewed term to be on the same terms as the old save for the
exclusion of the right of renewal. 47 If the right of renewal were to be
included, a perpetually renewable lease would result! 48 If the parties want
to vary any of the terms, then the variation must be specified in the right
of renewal. Generally the renewal is expressed to be on the same terms as
the old terms, save for a recalculation of the rental to reflect any fluctuation
in the level of the market rental, and an exclusion of the right to renew.
It is also not uncommon in Hong Kong for a tenant or a landlord to be
given a right to bring the lease to a premature end. From the tenant's point
of view, this 'break right' is desirable because it gives him some flexibility
44
45
46
47
48
314
Cap 7
Cap 7. For a detailed examination of the Landlord and Tenant (Consolidation
Ordinance) see M. Merry, Hong Kong Tenancy Law (2nd ed) Hong Kong, Longman,
0990).
Gamer v Blaxill [1960] 1 WLR 752
Lewis v Stephenson (1898) 78 LJ QB 296
Caerphilly Concrete Products v Owen [1972] 1 WLR 372
LEASES
should he wish or be forced to move. From the landlord's point of view, it
is desirable because he may wish to be able to evict the tenant on the
happening of a specified but uncertain event, :,uch as a wish to redevelop.
(b)
Part IV
Part IV gives certain tenants a right to demand a new tenancy provided they
are prepared to pay the prevailing market rent. As time goes by, more and
more tenancies are becoming subject to Part IV since it applies to domestic
tenancies of:
• buildings that were completed and occupied on or after 19 June 1981;
• buildings whose rateable value exceeds $30,000 as at 10 June 1983; and
• all new tenancies created on or after 10 June 1983.
Lettings that are protected under Parts I and II of the ordinance are
excluded, as are certain lettings for terms of over five years and for less than
a year. 49
There is a somewhat complicated procedure 50 to follow to exercise this
right to a new tenancy. First the tenancy must be formally terminated. This
can be effected either by the landlord serving a notice terminating the
tenancy, or by the tenant serving a notice requesting a new tenancy. These
notices cannot be given more than seven months nor less than six months
before the contractual end of the tenancy, and must be in a specified form.
The notice can only take effect on or after the contractual end of the tenancy.
The parties must then respond to the other's notice. For instance, if a
landlord has served the notice, the tenant must indicate if he will give up
possession or seek a new tenancy. If the tenant has served a notice, the
landlord must indicate whether or not he will oppose the application for a
new tenancy. The tenant then has a right to apply to the Lands Tribunal for
a new tenancy at the prevailing market rent, which he must exercise before
the end of his tenancy. The landlord can only oppose this application on
certain specified grounds, which are:
• the tenant has failed to pay the rent or has committed a breach of
covenant that would give rise to forfeiture;
• that the landlord reasonably requires the property as a residence for
himself or a member of his close family, provided he has owned the
property for at least 12 months;
• that the landlord intends to rebuild the premises;
• the tenant has caused unnecessary annoyance, inconvenience, or
disturbance to others;
• the tenant has used the premises for illegal or immoral purposes; and
• the tenant has sublet the premises without occupying any of the
premises himself.
49
See Appendix 4 of
N
Bacon, Tenancies in Hong Kong, Hong Kong, Longman (1990).
so See Appendix 5 of N Bacon, Tenancies in Hong Kong, Hong Kong, Long=~~
for a summary of this procedure.
1
, • .
.
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1
URBAN
CUUiiit~i..L
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A nrno
315
(
HONG KONG LAND LAW
i
Where the landlord has no right to oppose a new tenancy, the parties
more often than not will agree on the terms of the renewal without the need
to go to the tribunal, or they may agree to go to the tribunal merely to settle
the amount of the prevailing market rent.
The prev~iling market rent is the amount, exclusive of rates, at which the
premises might reasonably be expected to be let on the terms of a new
tenancy. Where the tribunal assesses the prevailing market rent, it will be
primarily influenced by evidence of the rental agreed for other similar
premises, known as 'comparables'. Other factors may also be taken into
account: for instance, the reluctance of a tenant to move or a landlord's
desire to keep a good tenant might persuade a tenant to agree a higher rental
or a landlord a lower rental than if a new letting was being agreed.
If the tenant decides that he does not like the terms of a new tenancy
ordered by the tribunal, he may reject the new tenancy provided he does
so within one month. He then has two months in which to move out and
find new accommodation, during which time he must pay the prevailing
market rent.
12.3.3.2
Statutory Continuance
The Landlord and Tenant ( Consolidation) Ordinance 51 has the effect of
statutorily continuing a tenancy to provide a measure of security of tenure
to tenancies that fall within Parts I, II, IV, and V. Where the tenancy is
continued under the ordinance, the passing of the contractual date of
termination will have no effect. The tenancy can only be brought to an end
in the manner specified by the ordinance.
(a)
Part I
We have seen that Part I applies to certain domestic pre-war premises. It
provides that a tenancy subject to Part I will continue unless terminated in
the manner specified by Part I. These means are similar to those applicable
to Part II tenancies. 52
(b)
Part II
Again we have seen that Part II applies to a dwindling number of post-war
domestic premises as more and more of these premises become subject to
Part IV. Under Part II the tenancy will continue unless it is brought to an end
in the manner specified by Part II. The principal ways in which a tenancy
can be brought to an end under Part II are: the landlord is able to obtain
a possession order, or the tenant agrees to give up possession - either as
a result of an agreed surrender or of his service of a one-month notice
51
52
316
Cap 7
See Appendix 4 of N Bacon, Tenancies in Hong Kong, Hong Kong, Longman 0990),
for a summary of those tenancies falling within Part V. For a more detailed account of
the methods of termination under Part I, see M. Merry, Hong Kong Tenancy Law,
Hong Kong, Longman, (1990).
I
LEASES
terminating the tenancy. The grounds for possession are similar to the
grounds upon which a landlord can oppose the grant of a new tenancy
under Part IV of the ordinance, but there are two additional grounds: a
failure by the tenant to fulfil a promise to surrender, and a subletting in
breach of the contractual tenancy.
(c)
Part IV
We have already looked at those tenancies that fall within Part IV, and seen
that under Part IV a tenant may serve a notice to terminate formally the
tenancy with a view to renewing the tenancy, or a landlord may do likewise
with a view either to renewing the tenancy or to obtaining possession. If
no notice is served before the expiry of the contractual term, the Part IV
tenancy continues by the operation of the ordinance until:
• the landlord serves a notice of not less than six months nor more seven
months with a view to obtaining possession or renewing the tenancy
because, for instance, rentals have increased;
• the tenant serves a notice of not less than six months nor more than seven
months with a view to obtaining a new tenancy because, for instance,
rentals have fallen;
• the landlord and tenant agree to a renewal;
• the tenant gives a one-month notice to quit, to expire on or after the
contractual tenancy ends;
• the landlord and tenant agree that the tenant may surrender the
premises; or
• the landlord exercises a right of forfeiture.
(d)
Part V
This part applies to tenancies that fall outside the other parts of the
ordinance. In the main, these are tenancies of business premises for terms of
less than three years. A tenancy subject to Part V can only be terminated by
the landlord by a six-month notice to quit, to expire on or after the contractual
termination of the tenancy. If the landlord fails to serve a notice, the tenancy
is extended. For instance, if a shop is let for two years and the landlord fails
to serve a notice until the contractual period expires, the tenant will be
entitled to remain in the premises for a further six months. The landlord
should have served a notice not later than 18 months into the tenancy.
A tenant, on the other hand, may terminate a Part V tenancy by giving
a one-month notice to quit, to expire no earlier than the expiry of the
contractual term.
317
Easements
13.1
Introduction
,· An easement is a right enjoyed over the land of another person. A tenant's
right to use the lift in order to get to his flat, an landowner's right to use the
water pipes running under his neighbour's land, or a shop owner's right to
erect a sign on the building next door - these rights may all exist as
easements provided they satisfy certain conditions) If one of these conditions
is not satisfied, the right cannot qualify as an easement. In that case, it will
be a mere personal permission or licence enforceable only between the
parties. An easement, on the other hand, is an interest in land. It will be
enforceable by the owner for the time being of the land that benefits from
the right, 'the dominant tenement', against the owner for the time being of
the land over which the right is exercised, 'the servient tenement'.
, Easements may be positive or negative in nature. A positive easement
confers a right that is exercisable over the land of another person - for
example, the rights of way, drainage, and to erect a sign, that have already
been mentioned, are all positive easements. Whilst a positive easement may
to some extent interfere with the servient owner's use of the servient land,
it does not directly prohibit any particular activity by the servient owner on
his land. A negative easement, on the other hand, doe,s confer a right to stop
a servient owner from using his land in a particular way; Examples of negative
easements include a right of support for buildings on the dominant land and
rights to light and air to the dominant land over the servient land. Such rights
prohibit the servient owner from either removing the support provided by the
servient land, or from building upon or otherwise using the servient land in
a way that would interfere with the flow of light or air to the dominant land.
Negative easements bear a close similarity to covenants (see Chapter 15).
I
!'
13.2
Characteristics of Easements
The leading case that illustrates the characteristics of easements is:
Re Ellenborough Park [1956] Ch 131
FACTS
The original owners of Ellenborough Park were also the owners of the
adjoining land on which they built a housing estate. When the houses in the
estate were sold, the purchasers were given a right to use Ellenboro ugh Park
as a garden subject to payment of a proportion of the maintenance costs.
Some years later, during the Second World War, Ellenborough Park was
requisitioned by the government so that the owners of houses on the estate
318
EASEMENTS
could no longer use it. A dispute arose as to who was entitled to the
compensation the government paid forrequisitioning the park. Was it just
the owners of the park or also the owners of houses on the estate because
they too were holders of an interest in the park?
JUDGMENT
The right of the owners of houses on the estate to use the park was an
easement. Accordingly they were also entitled to compensation.
The court identified four essential characteristics of an easement, namely:
• there must be a dominant and servient tenement;
• the owners of the dominant and servient tenement must be different
persons;
• the right must accommodate the dominant tenement; and
• the right must be capable of forming the subject matter of a grant.
13.2.1
There Must Be a Dominant and Seroient Tenement
An easement, as a right over a piece of land - the servient tenement, must
be enjoyed by another piece of land - the dominant tenement. 1 It cannot
exist in isolation, but must be attached to and benefit a dominant tenement.
For instance if D, the owner of a piece of land that has no direct access to the
public road, has a right to pass over the land owned by S, which lies between
D's land and the public road, D clearly has a right that is of benefit to his land,
for it gives his land access to the public road. D is the owner of the dominant
tenement, which has a right of way over the servient tenement owned by S.
Fig ]3.1
-------
--
-
---------
PUBLIC ROAD
,
Servient
Land
-----~------
i
0
-,
London & Blenheim Estates Ltd v Ladbrooke Retail Parks Ltd [1994] 1 WLR 31 and Voice
v Bell (1993) 68 P&CR 441
319
HONG KONG IAND IA W
The same benefit would not arise ifS merely gave one of his friends, who
owns no land, a right to use the road because, for instance, it afforded a
more convenient access to the sea. This right to use the road may be
convenient to S's friend, but there is no land to which the right can attach.
It is thus not an easement but a mere personal right or licence.
This need for two pieces of land distinguishes an easement from a public
right of way. Everyone has a right to use the public roads, but that right is not
an easement because the right benefits everyone regardless of whether they own
any land. A public right of way is not attached to the ownership of any land but
springs from the rights of all individuals to enjoy land dedicated to public use.
13.2.2
Tbe Owners of the Dominant and Seroient Tenement Must
Be Different Persons
An owner of land cannot exercise an easement against his own land. As the
owner of the land he is entitled to use the land anyway Thus if D acqmres
the servient land from S, he can use the access road to the public highway
as the owner of servient land. He no longer needs the easement he enjoyed
as the owner of dominant land, and thus it is suspended.
It is perhaps more accurate to describe this requirement not as a
requirement for separate ownership of the dominant and servient tenement,
but as a requirement for separate occupation. It is possible for a tenant to
enjoy an easement over other land belonging to his landlord. For instance,
if a landlord is the Crown lessee of a whole block of flats, his tenants holding
leases of units in the building will enjoy an easement over the lifts,
passageways, and other common access ways that are retained in the
ownership of the landlord. Similarly, a landlord may retain an easement
over the leased premises during the period of the lease. For instance, the
owner of the multi-storey building may wish to retain a right to receive water
through water pipes running through a flat that he has let.
13.2.3
Tbe Easement Must Accommodate the Dominant Tenement
The easement must not only be appurtenant to the dominant land. It must
also be sufficiently connected with the normal enjoyment of the dominant
tenement to be of benefit to the dominant land rather than merely a personal
advantage to the current owner.
In Re Ellenborough Park 2 it was alleged that the house owners' rights to
use the park did not satisfy this requirement. In his judgment Lord Evershed
MR emphasised that it was not sufficient to show that the right increased the
value of the !and, hut it bad also to be caooecred wirb rbe nanual enjoyment
of the property. The question turned on the nature of the land and the nature
of the right granted. A right for a flat owner to go to the Happy Valley or Shatin
race courses free of charge, for example, would undoubtedly be valuable, but
it would not enhance the enjoyment of the flat as a flat. Such a right would
thus not qualify as an easement. A right to use a garden, on the other hand,
the court felt, was sufficiently connected with the use and enjoyment of the
houses as a place to live to qualify as an easement.
320
[1956] Ch 131
EASEMENTS
Where the land is used for business purposes, a right that benefits the
particular business conducted on the land may accommodate the dominant
tenement. An example of business benefit is found in:
Moody v Steggles (1879) LR 12 Ch D 261
FACTS
The plaintiff owned a public house and claimed that he had a right to fix
a signboard to the wall of the defendant's house. The defendant challenged
the right on several grounds, one of which was that the right was not capable
of existing as an easement as it did not benefit the land but the business
conducted on the land.
JUDGMENT
The right to hang a sign could exist as an easement. The fact that it benefited
the business conducted on the land was no objection.
However, a right that confers a mere commercial advantage cannot be
claimed as an easement. The classic example of this limitation is:
Hill v Tupper (1863) 2 H&C 121
FACTS
A company that owned a canal leased land on the bank of the canal to the
plaintiff and granted him the sole and exclusive right to put pleasure boats
on the canal. The defendant also put pleasure boats on the canal. The
plaintiff tried to bring an action for interference with his right, which he
claimed was an easement.
JUDGMENT
The plaintiff was not entitled to sue the defendant as his right was not an
easement but a purely contractual right against the owners of the canal.
The court's reasoning is not as clear as it might be from the reported
judgment. The basis for the judgment appears to be that the right claimed
was unconnected with the use of the leased land, which comprised a house
and boathouse. It might be argued a connection could exist, as a boathouse
is of little use if there is no right to put the boats it houses on the water by
which it is built. A house also could be said to benefit from a right to put
boats on a river or canal in the same way as it benefits from a right to use
a garden. But the plaintiff was asserting a sole and exclusive right to use the
canal, and he was thus seeking to protect his business rather than enhance
321
40NG KONG LAND LAW
his use .of the land. It was a case of the land accommodating the right, not
the right accommodating the use of the land.
Hill v Tupper illustrates the sometimes narrow distinction between a
right that merely confers a personal or commercial advantage and one that
can be said to benefit the dominant tenement as such. This question is
perhaps all the more difficult to resolve where accommodation of the land
arises from a benefit to the business conducted on the land, for a benefit
to the business will invariably be of a commercial nature.
A practical consequence of the requirement that an easement must
accommodate the dominant tenement is that the dominant and servient
tenements must be physically close to each other, although not necessarily
adjacent. In Re Ellenborough Park 3 some of the houses surrounded the
park; others were not quite so close but nevertheless were close enough to
benefit from the park. By contrast, a right to put up an advertising sign in
Causeway Bay may benefit a business in Yuen Long but it cannot be said
to benefit the land upon which the business is conducted. It cannot
therefore qualify as an easement.
13.2.4
Tbe Right Must Be Capable of Forming the Subject Matter of a Grant
No right can be claimed as an easement unless it is capable of being granted
by deed. It is sometimes said that all easements 'lie in grant'. A number of
conditions flow from this ,requirement.
13.2.4.1 Certainty
The right must be sufficiently certain to permit accurate definition. For
example, a right to light through a defined channel is capable of being an
easement but a general right to light or to a view is not. Likewise a right to
air through a defined channel is capable of being an easement, but a general
right to air is not. A covenant that prohibits building on a piece of land may,
however, achieve the result that an unrestricted right to light or air cannot.
The need for certainty also dictates that the dominant and servient
tenements be accurately identified at the time of the grant. It was for this
reason that attempts to extend an easement to land that was to be identified
in the future failed in both London and Blenheim Estates Ltd v Ladbrooke
Retail Parks Ltd 4 and Voice v Bell.5
13.2.4.2 No Positive Burden on Servient Owner
A right will not be admitted as an easement if it requires the servient owner
to incur any expenditure or take any positive action. The role of the servient
owner is essentially passive. He must allow the dominant owner to exerdse
the easement and he must refrain from taking any action that would
interfere with the easement. A servient owner cannot therefore be required
to repair the subject matter of the grant - for instance, the roadway where
f
j
4
322
Ibid.
[1994] 1 WLR 31
(1993) 68 P&CR 441
EASEMENTS
the right is a right of way, or the pipes where the right is a right to drainage. 6
A servient owner may, however, separately expressly or implicitly agree to
repair the subject matter ofthe easement. 7
The one exception to this rule is the obligation to maintain a fence,
which will require the servient owner to bear the cost of repair. 8
13.2.5
No Exclusive or Joint Occupation
A right will not qualify as an easement if it in effect excludes the servient
owner from occupation of the servient land or constitutes joint occupation
of the servient land. A right to park cars on a small area can cause problems
for this reason:
Copeland v Greenhaif[l952] Ch 488
FACTS
The plaintiff was the owner of an orchard and adjoining house. Access to
the orchard was by a strip of land upon which the defendant parked cars
that he repaired as part of his business. The defendant claimed an easement
through long use to park cars on the strip of land, subject to the plaintiff's
access to the orchard.
JUDGMENT
The court considered that the defendant's claim amounted to a claim not for
a mere easement, but for ownership of the strip and as such the claim failed.
This limitation is most keenly felt in relation to rights of storage. In
Copeland v Greenhalf, as we have already seen, the courts rejected a claim
for storage of cars; but in Wright v Macadam 9 a right to store coal in a shed
was accepted as an easement. However, the difficulties presented by rights
of storage was noted in Grigsby v Melville 10 where Brightman J d,oubted
whether a right of storage could succeed where it amounted to exclusive
use of the whole of the servient tenement. The question is thus essentially
one of degree, and it must be considered in the light of the facts of each
particular case. Similar considerations apply in relation to the grant of a right
to park cars on the whole or part of the servient land, which right has
received a more positive response from the courts. 11
6
8
9
10
11
Rance v Elvin (1985) P & CR 65
Although this agreement is not part of the easement, it may nevertheless be
enforceable against subsequent servient owners as a land covenant under the
principles relating to covenants including leasehold covenants, for in Hong Kong all
easements must be created for a term.
Jones v Price [1965] 2 QB 618
[1949] 2 KB 744
[1972] 1 WLR 1355
London and Blenheim Estates Ltd v Ladbrooke Retail Parks Ltd [1993] 1 ALL ER 307 at
314-317 not overruled on appeal at [1994] 1 WLR 31
323
HONG KONG LAND LAW
13.2.5.1
Capable Grantor/Grantee
There must be a person capable of granting the easement and a person
capable of receiving the easement. For instance, if a company is granting
an easement, it must be authorised to do so by the powers set out in its
memorandum. Furthermore, an easement cannot be granted by or to the
inhabitants of a town or other fluctuating body. They do not qualify in a
collective capacity as capable grantors and grantees.
13.2.6
Nature of New Easements
The class of rights that the courts may recognise as easements is not closed.
Changes in our mode of living requires the law to be sufficiently flexible to
accommodate new rights. Cars, swimming pools, and television have all
become part of everyday life in the 20th century and with them comes the
need to consider whether a right to use a parking space, or the swimming
pool or a TV aerial can exist as an easement. However, the courts have
shown reluctance to recognise as easements rights that are significantly
different from those traditionally accepted as easements. No doubt this
innate conservatism arises from a justifiable reluctance to create too many
potential burdens over land. In particular, the courts have stated that it is
unlikely that an extension of negative easements would be justified. The
purpose that a negative easement serves is often more conveniently
achieved by the use of a restrictive covenant. The court's attitude to new
negative easements is illustrated in:
------■
Phipps v Pears [1965] 1 QB 76
FACTS
The plaintiff and defendant owned adjoining properties, which were built
very close together although they were in fact detached. Because of the
close proximity of the properties, the wall of the plaintiff's house that
adjoined the defendant's property had not been rendered properly against
the weather. The defendant's house fell into disrepair and he was required
to demolish it by the local council. As a result of the demolition, the wall
of the plaintiff's house was exposed to the weather and suffered damage
which the plaintiff sought to recover from the defendant on the ground that
he enjoyed an easement of protection from the weather.
•
JUDGMENT
The plaintiff was not entitled to recover damages, as a right to protection
from the weather was not a right the law would recognise given its entirely
negative nature.
324
EASEMENTS
Common Easements
13.2.5
By way of illustration of the characteristics of easements just examined it
may be helpful to list some of the more common rights that have been
recognised as easements:
•
•
•
•
•
•
•
rights of
rights to
rights to
rights of
the right
rights to
the right
13.3
way
water and drainage
light and air through a defined channel
support of buildings
to fence
use facilities, eg washing lines/poles, 12 toilets, 13 letter box; 14
to use a sign. 15
Acquisition of Easements
,.,
1Jier~ are a pumber of ways in which easements can be acquired. These fall
into two ma_incategories: express grant and implied grant, which may be
summarised as follows:
• •••
Fig 13.2 Acquisition of Easements
Acquisition of Easements
.--I
Express
---I
I
By deed
7
Presumed Prescription
Bys 16 CPO
By enforceable
agreement
Necessity
13.3.1
--
Implied .
Common
Law
Common
Intention
Lost
Modern
Grant
Prescription
Act
1832
Wheeldon v
Borrows
Express Grant of Easements/Reservations
Where an owner grants a right over his land in favour of neighbouring land,
an easement is created. Where an owner sells off a piece of his land, he may
wish to retain a right to pass over the part of the land sold for the benefit
of the land which remains in his ownership. Again an easement is created, but
12
13
14
15
Drewell v Towler (1832) 3 B & Ad 735
Miller v Bemer Products Ltd [1956J Ch 304
Goldberg v Edwards [1950] Ch 247
Moody v Steggles (1879) LR 12 Ch D 261
325
f
HONG KONG LAND LAW
'
in this instance it is termed a 'reservation' because the owner has not granted
the right but instead has disposed of his interest in the servient land subject
to the reservation of a right for the benefit of the retained dominant land. For
example, A is the owner of two pieces of land, Lot 1 and Lot 2. Lot 1 fronts
onto the public road but Lot 2 does not, and access is obtained by passing over
Lot 1. If A sells Lot 1 to B, he will need to reserve a right of way in favour of
Lot 2. A, as the continuing owner of Lot 2, the dominant tenement, has a
reservation over Lot 1, the servient tenement. If A had sold Lot 2 rather than
Lot 1, he would need to create an easement over Lot 1 in favour of Lot 2. Thus
easements and reservations are the same interest: it is their method of
creation which differs.
At common law it is not possible for a dominant owner to sell the servient
land subject to a reservation. Previously the right had to be created by way
of re-grant by the purchaser of the servient tenement. Accordingly the
assignment of the servient tenement had to be executed by the purchaser
and the right itself would be construed against the purchaser, according to
the principle that a right is construed against the grantor. Section 24 of the
Conveyancing and Property Ordinance now provides that a reservation of
rights can be made directly in the assignment so that no re- rant is
necessary. t lS t us C ear t at a purchaser does not have to execute the
assignment - however, it is not clear whether the section will also reverse
the rule of construction of the right against the purchaser. 16
Fig 13.3 Easements and Reservations
13.3.1.1
By Deed
Public Road
Lot 1: B
~➔ ~====+.
Public Road
:;,:I
i
Lot 1: A
~
Reservation I
~
Public Road
Easement
Lot 1: A
326
16
St Edmundsbury & Ipswich Diocesan Board of Finance v Clarke (No 2) [1975] 1 WLR 468
EASEMENTS
All legal easements must be granted by deed. 17 As all land in Hong Kong
is leasehold, a legal easement must also be created for a term of years. The
term of the easement must not exceed the period of the lease of either the
dominant or servient land. Thus if the lease of the dominant land is 999 years
and the lease of the servient land is only 75 years, the easement cannot be
granted for longer than 75 years. The same would be the case if the lease
of the servient land was for 999 years and the lease of dominant land was
75 years. An easement for another period than a term of years, for instance
for life, cannot exist at law but only in equity.
13.3.1.2 By Writing or Other Means
By the application of the rule in Walsh v Lonsdale, a grant of an easement
in writing may be upheld in equity where specific performance of the
agreement is available. Where the grant is made orally, equity may again
recognise the grant of an equitable easement if the grantee can rely on part
performance 18 or estoppel. 19
13.3.2
By s 16(1) of the Conveyancing and Property Ordinance
Section 16(1) states:
Unless the contrary intention is expressed in the assignment, an
assignment shall operate to assign with the land, all rights; interests,
privileges, easements or appurtenances in, over, belonging or
appertaining to that land or at the time of the assignment used, held,
occupied or enjoyed with that land ...
The object of this section, which is similar to s 62 of the Law of Property
Act 1925, is to ensure that on the sale or other disposal of land, all rights
and privileges appurtenant to the land, not just formally granted easements,
would automatically pas~ to the purchaser or other grantee without the
need for express mention. Before the section was passed on 1 November
1984, it was usual to expressly insert similar words in an assignment in order
to achieve this result. 20
However, the section may have the effect of elevating a licence enjoyed
by mere permission into an easement. Its effect in this respect is illustrated
by the case of :
17
18
19
20
Section 4 of the Conveyancing and Property Ordinance Cap 219
McManus v Cooke (1887) 35 Ch D 681
ER Ives Investment Ltd v High [1967] 2 QB 379
The clause was known as 'the general words clause'.
327
HONG KONG LAND LAW
FACTS
The plaintiff was a weekly tenant of two rooms on the top floor of the
defendant's house. The defendant gave the plaintiff permission to use a coal
shed in his garden. A couple of years later the defendant granted the plaintiff
a new tenancy of the two rooms plus another room, but no reference was
made to the coal shed in the new tenancy agreement. The plaintiff
continued to use the coal shed until the defendant demanded payment for
its continued use.
JUDGMENT
The plaintiff's right to use the coal shed was an easement which passed
under s 62 of the Law and Property Act 1925 on the grant of the new
tenancy. The new lease qualified as an assignment for the purposes of the
section and operated to pass all existing rights, including those that were
held by mere permission of the servient owner.
The section does not operate just to pass the right as a mere permission.
The right becomes appurtenant to the land, and as such is elevated to the
status of an easement. It may be argued that this elevation is not justified
on the wording of the section, but the English authority against this
argument is strong and well established. 21 In support for existing authority
it might be argued that the informality of the original permission is being
'cured' by the formality of the assignment, although this justification ignores
the possibility that the parties may have originally intended the right only
to be permissive or personal.
We now look more closely at the provisions of s 16.
13.3.2.1
Assignment
There must be an assignment for the section to operate. Assignment is
defined in s 2 of the Conveyancing and Property Ordinance and includes
a lease, mortgage and 'every assurance or conveyance of land by any
instrument'. This last head has been held to qualify the rest of the definition.
Thus an oral lease does not qualify because it is not an instrument, 22 and
an agreement to assign or lease also does not qualify because, while it is
an instrument, it does not itself qualify as an assurance. 23 An assurance must
operate to transfer or create the interest. Although an agreement under the
21
22
23
328
International Tea Stores Co v Hobbs [1903] 2 Ch 165; and Goldberg v Edwards [1952]
Ch 247
Rye v Rye [1962] AC 496
Borman v Griffith [1930] 1 Ch 493. But a lease for a period not exceeding three years
that is created or assigned in writing will qualify for a written instrument and is
effective to create or assign the lease at law. See Wright v Macadam [1949] 2 KB 744.
\
EASEMENTS
doctrine of Walsh v Lonsdale 24 may have the effect of creating or transfer
an interest in land in equity, it is not the agreement itself that does so but
the fact that equity looks on as done what ought to be done - but only
where the agreement is specifically performable.
13.3.2.2 All Rights, Interests, Privileges, Easements, or Appurtenances
The right must be capable of existing as an easement. As Lord Denning
noted in Phipps v Pears:25
~
A fine view, or an expanse open to the winds, may be an 'advantage'
to a house, but it would not pass under section 62. Whereas a right
to use a coal shed or to go along a passage would pass under section
62. The reason being that these last are rights known to the law,
whereas the others are not. A right to protection from the weather
is not a right known to the law. It does not therefore pass under
section 62.
13.3.2.3
Over, Belonging, or Appertaining to that Land
There is a need for diversity of occupation of the dominant and servient land
at the time of the assignment, since the right rpust be enjoyed as· an
appurtenance to the land being sold and not because of ownership of the
servient tenement. This requirement was established in:
Long v
177
FACTS
The common owner of two riverside properties, Lot 1 and Lot 2, used to pass
over Lot 2 in order to cut weeds and repair the bank of the river, although
there was no path as such over Lot 2 to the river bank. Lots 1 and 2 were
sold to separate purchasers, and the purchaser of Lot 1, the plaintiff, claimed
he had a right to pass over Lot 2 to repair the river bank and cut the weeds.
JUDGMENT
SargantJ rejected the plaintiff's claim. The common owner of Lot 1 and Lot
2 had not repaired the bank and cut the reeds in exercise of a right
appurtenant to Lot 1. He had done so by virtue of his ownership of Lot 2.
The decision did attract some controversy as it appeared contrary to the
earlier decision of Broomfield v Williams26 where no diversity of occupation
24
25
26
See Chapter 6.3.
[1965] 1 QB 76 at 84
[189711 Ch 602
329
r.
HONG KONG LAND LAW
was required for a right to light to pass under the section. Sarjant J
distinguished this earlier decision as confined to rights to lig1ttwhich formed
an exception to, rather than a basis for, the general rule. The House of Lords
in Sovmots Investments Ltd v Secretary of State for the Environment 27 have
followed Long v Gowlettand approved the need for diversity of occupation.
Where there is no diversity of occupation the right may, however, pass
under the rule in Wheeldon v Burrows, which we shall look at shortly. 28
As a result of this need for diversity of occupation, the operation of s 16
is largely confined to the landlord and tenant context. If an owner sells off part
of his land, there is no diversity of occupation before he does so; but if a
landlord renews a lease of land, which is adjacent to land he also owns and
over which the tenant enjoys some right or privilege, there is diversity of
occupation between the dominant land, which is subject to the lease, and the
landlord's adjacent servient land. A sale of the landlord's reversion of the
dominant land to the tenant will also provide an opportunity for the operation
of s 16. For instance, if L lets a propertyto T and allows T to cross over his
adjoining property as a short cut to the public road, s 16 may operate, in the
event that L either renews T's lease or sell his reversion to T.
Although the right must be appurtenant to the land assigned, it does not
have to be appurtenant to the exact estate in the land that is assigned. Thus,
in Graham v Philcox 29 a purchaser of the freehold of an old coach-house was
able to claim the benefit of a right of way that he had enjoyed as a tenant of
part of the coach-house. In Hong Kong the different estates will not be a
freehold and leasehold, but could be different leasehold estates. For instance,
a tenant of a shop who, on the renewal of his lease, wishes to expand his
operations and thus takes a new lease of his original shop plus another unit
could claim the right in respect of both units and not just the original shop.
13.3.2.4 At the Time of the Assignment
The right must be exercisable at the time of the assignment. A right that is
extinguished prior to the assignment will not be resurrected by the section.
For instance, a right in a lease that is surrendered or otherwise terminated
before the lease is renewed will not pass. 30 This result will flow even if there
merely has been a delay in completing the renewal of the lease so that there
is a time gap between the expiry of the old lease and the completion of the
renewal. It is the date of the renewed lease, late though it may be, that is
decisive. 31
This requirement provides an escape route for owners who do not wish
to elevate permissive rights. If the right is terminated just prior to the
assignment, it cannot pass to a purchaser under the section. The section also
gives way to a contrary intention.
27
28
29
30
31
330
[1979] AC 144
See 13.3.3.1
[1984] QB 747
MRA Engineering Ltd v Trimster Co Ltd (1987) The Times 22 October
Goldberg v Edwards [1952] Ch 247
EASEMENTS
13.3.3
Implied Grant
We have seen that an owner cannot have an easement over his own land.
But where an owner has been accustomed to using one part of his land in
a particular way, which is of benefit to the rest of his land, his use is
cgmmonly termed a quasi-easement. All the elements of an easement are
present except the diversity of occupation of the dominant· and servient
tenements. On the sale of part of the land, there is diversity of occupation
and the right may develop into an easement displaying all the characteristics
we have examined. For instance, where A owns two lots of land and it is
necessary to pass over one lot in order to get from the road to the other lot,
the right to pass over the lot abutting the road cannot exist as an easement,
for the dominant and servient tenements are in the ownership of only one
person. But if A then sells the lot furthest from the road to B, the right of
way will ripen into an easement.
The implication of an easement in these circumstances is based upon the
presumed common intention of the parties. In order to give effect to the
transaction contemplated hy the parties, it may be necessary to imply an
easem&t where the parties have failed to mention the right expressly. For
instance, if no easement is implied in our example, the land sold by A will
have no right of access to the public road. It will then be of little use and
the reason for B's purchase is frustrated.
As implied easements are based upon the presumed common intention
of the parties, they will give way to an express contrary intention displayed
by the parties.
There are three instances when a grant of an easement may be implied
on the sale of the quasi-dominant tenement:
• under the rule in Wheeldon v Burrows;
• easements arising by necessity; and
• easements of common intention.
l
13.3.3.1 The Rule in Wheeldon v Burrows
The rule is one of intention, which is based upon the principle that a man
cannot derogate from his grant. The elements of the rule were identified by
Thesiger LJ in the case of Wheeldon v Burrows as being:
... on the grant by the owner of a tenement or part of that tenement
as it is then used and enjoyed, there will pass to the grantee all those
continuous and apparent easements (by which, of course, I mean
quasi-easements) or, in other words, all those easements which are
necessary to the reasonable enjoyment of the property granted, and
which have been and are at the time of the grant used by the owner
of the entirety for the benefit of the part granted. 32
32
(1878) 12 Ch D 31 at 49
331
HONG KONG LAND LAW
The rule provides that a quasi-easement may develop by implication into
an easement, provided the user satisfies three elements:
(i)
(ii)
(iii)
it must be continuous and apparent;
it must be reasonably necessary for the enjoyment
sold; and
• ••• .
it must be in use at the time of the sale.
ofthe property
·•
In Wheeldon v Burrows requirements (i) and (ii) are expressed as
alternatives, but there is some suggestion that both limbs must be satisfied
or that, at the very least the first limb must be found.
Ward v Kirkland (1967] Ch 194
FACTS
For many years prior tO 1928, the plaintiff's cottage and the defendant's
farrriliouse had been owried by the church: In 1928 the cottage was sold to
the plaintiffs predecessor-In title, together with a right to use the adjoinin'g
farmhouse yard for unloading coal. In 1942 the defendant became a tenant
of the farmhouse. From 1942 to 1954 the plaintiffs predecessor in title
entered the farmyard in order to maintain the wall of the cottage. There was
no other way of maintaining the cottage. The plaintiff bought the cottage
in 1954 and converted it. From 1954 to 1958 the plaintiff also entered the
farmyard in order to maintain the cottage. In 1958 the defendant bought the
farmhouse and refused to allow the plaintiff to enter the farmyard to
maintain the wall.
JUDGMENT
The right to enter the farmyard to maintain the cottage could exist as an
easement, but it could not pass to the plaintiff under the rule in Wheeldon
v Burrows as it was not continuous and apparent. The right did, however,
pass under s 62 of the Law of Property Act 1925 33 to the plaintiffs
predecessor in title who acquired the property in 1928.
Ungoed Thomas J in his judgment considered whether the easements
that were reasonably necessary for the enjoyment of the property sold
formed a separate category from those rights that were continuous and
apparent, and noted that there was no case in which a positive easement
falling within the rule had not been continuous and apparent. The question
of whether the two requirements were alternatives or concurrent requirements
was also raised, but not finally settled, before the English Court of Appeal
in Squarey v Harris-Smith. 34 The court decided, without holding that it was
332
33
See s 16 of the Conveyancing and Property Ordinance.
34
(1981) 42 P&CR 118 at 124
EASEMENTS
an essential requirement, that the right of way in question was reasonably
necessary to the enjoyment as well as being continuous and apparent.
(a)
Continuous and apparent
The right does not have to be continuous in the sense that it is constantly
being used. A right of way, for instance, does not need to have someone
always passing day and night over the road or pathway. 'Continuous' has
instead been given the wider meaning of permanent.
Even if a right is not continuously being used, its existence must be always
apparent. !here must be some feature on the servient land, ascertainable from
a careful inspection by a person conversant with such matters, that discloses
the existence of the easement. For instance, a roadway or a distinct path would
point to a right of way; 35 and a drain, or in the case of a submerged drain a
manhole cover, would indicate a right to drainage. 36 It was on this basis that
the right to enter the farmyard to repair the cottage did not succeed in Ward
v Kirkland, since there was nothing apparent from an inspection of the
farmyard to show that a quasi-easement arose.
i
i
(b)
Reasonably necessary
Again this requirement is not applied in the strict sense that the right must
be so necessary that without it the property cannot be used, but rather that
the right facilitates the reasonable enjoyment of the property.
13.3.3.2
Wheeldon v Burrows and s 16
The similarity betweens 16 of the Conveyancing and Property Ordinance
and the rule in Wheeldon v Burrows is striking, but there are a number of
distinctions:
• Section 16 operates where there is diversity of occupation before the
sale. It therefore does not apply to quasi-easements. Wheeldon v
Burrows, by contrast, operates in just this situation.
• Section 16 operates only where there is a formal assignment or lease of
the property but Wheeldon v Burrows will apply where there is an
agreement to assign or lease. 37
• Section 16 will pass rights that are not continuous or apparent or
reasonably necessary for the enjoyment of the property. 38 In both cases,
however, the right must be enjoyed at the time of the lease or assignment.
• Section 16 and the rule in Wheeldon v Burrows both give way to a
contrary intention expressed by the parties. However, whereas Wheeldon
v Burrows is based upon the presumed intention of the parties so that
a right cannot arise unless it is within the implied contractual rights of
35
36
37
38
Hansford vjago [1921] 1 Ch 322
Pyer v Carter (1887) 1 H&N 916; and Schwaan v Cotton [1916] 2 Ch 120 & 459
Borman v Griffith [1930] 1 Ch 493
Ward v Kirkland [19691 Ch 194
333
HONG KONG LAND LAW
the grantee, s 16 may operate to create an easement to which the grantee
had no right under the contract by which he acquired his interest in the
land.
13.3.4
Easements of Necessity
An easement of necessity is a right that is so essential to the enjoyment of
the land that the land would be useless without it. The classic example is
the right of way to land-locked property. A property is not land-locked if
there is access by water, thus access by water will exclude an easement of
necessity by land to the property. 39
It had been thought that the basis for implication of easements of necessity
lay in public policy. It is clearly not in the public interest, particularly in Hong
Kong where usable land is so scarce, that land should become useless.
However, this view was rejected in Nickerson v Barraclough. 40 The doctrine
is based rather on the implied intention of the parties at the time the premises
are sold, and is thus subject to a contrary intention.
The extent of easements implied by necessity is strictly limited to the use
of the land at the time of the grant and may be exercised to maintain that
purpose but no other.
13.3.5
Easements of Common Intention
Easements may also be implied to give effect to the common intention of
the parties. That intention may arise because the right is necessary for the
use of the land contemplated by the parties, or because surrounding
circumstances are such that the parties must have contemplated such a right.
An example of the implication of a right on the basis of common intention
is found in the case of: 41
Wong v Beaumont Property Trust
1 QB 173
FACTS
A lease of a cellar required the lessee to use the premises as a restaurant and
to use his best endeavours to develop the business, to control and eliminate
all smells, and to comply with the health regulations for the time being in
force. The parties did not appreciate that the existing ventilation did not
satisfy health regulations. The plaintiff acquired the residue of the lease and,
in order to comply with regulations, wished to fix a bigger duct onto the
outside of the building. The defendant, the original landlord's successors in
title, refused to allow him to do so.
39 Manjang v Drammeh 0990) 61 P&CR 194
334
40
[1981] Ch 426
41
See also Stafford v Lee (1992) 65 P&CR 172
EASEMENTS
JUDGMENT
The Court of Appeal was unanimous in its view that an easement should
be implied. 42 The terms of the lease could not be performed unless the right
could be implied. Indeed, as Salmon LJ observed, the plaintiff also could
not lawfully carry on the business, for to do so would breach the health
regulations then in force.
It is interesting to observe that it was accepted, in particular by Lord Denning
MR,that at the time the lease was granted the parties did not intend that a bigger
duct be erected. They were under the impression, mistakenly as it transpired,
that the existing ventilation system was adequate. It appears therefore that the
test is not so much what the parties actually intended but what their presumed
intention would be if they were in full possession of the facts.
13.3.6
The courts are more reluctant to uphold the implication of a reservation in
favour of the grantor where the quasi-servient tenement is sold, because a
grantor should not be allowed to derogate from his grant unless the
circumstances are clear to the grantee. An easement may be implied,
reserved in favour of the grantor on the basis of necessity, or due to the
common intention of the parties; but the courts will adopt a stricter test than
in the case of the implication of a grant in favour of the quasi-dominant
tenement. An example of the court's stricter attitude to the implication of
an easement based upon common intention is found in:
Re
808
FACTS
The defendant was the lessee of a building. He occupied the ground floor
and sublet the rest of the floors to the plaintiff. At the time of the initial
sublease, there were two advertisements on the walls of the upper floors
sublet to the plaintiff. After ten years the defendant renewed the plaintiffs
sublease. Neither the original or new sublease reserved-to the defendant a
right to maintain the advertisements.
JUDGMENT
The defendant had no right in the absence of express reservation to
maintain the advertisements. The mere fact that the tenant knew at the date
of the sublease and did not subsequently object to the landlord using the
walls of the premises for advertising was not sufficient to establish the
42
I'
I
Implied Reservation
I
!I
Reference was made to easements of necessity, but it is clear that an easement was
not necessary in tbe strict sense, but was necessary in order to give effect to tbe
parties' intention displayed in tbeir lease.
335
HONG KONG LAND IA W
required intention to imply an easement. If the landlord wished to establish
an implied right, the onus was on him to show that the facts were not
reasonably consistent with any other explanation.
It is not possible to imply a reservation under the rule in Wheeldon v
Burrows. In fact, this was the point at issue in the case.
D 31
FACTS
Mr Wheeldon and Mr Burrows acquired adjoining pieces of land from the
same vendor. Mr Burrows purchased his land after Mr Wheeldon, so that
any rights he enjoyed over Mr Wheeldon's land would have had to have
been reserved by the common vendor. Mr Wheeldon died and his wife, who
had inherited the land, put up a hoarding that obstructed the light passing
to a workshop on Mr Burrows' land. Mr Burrows claimed that a right to light
arose in his favour by implied reservation.
JUDGMENT
Mr Burrows was not entitled to a right to light by implication. The common
vendor had failed to reserve expressly a right to light in his sale of the quasiservient land to Mr Wheeldon, and it would be to derogate from his grant to
Mr Wheeldon to imply a right in the absence of an express limitation.
It is interesting to note that Mr Burrows may well have succeeded if
he had acquired his land at the same time as Mr Wheeldon, for the rule
in Wheeldon v Burrows has been applied to simultaneous disposals. 43
In Tang Tim-fat v Chan Fok-kei 44 the court even suggested that the
automatic and simultaneous renewal of many New Territories leases in
1973 by the operation of the New Territories (Renewable Crown Leases)
Ordinance 45 could have led to many implied grants under the rule in
Wheeldon v Burrows.
13.3.7
Prescription
Prescription is the acquisition of an easement by long use. If a right has been
exercised for a sufficient period of time, the law will presume the valid
original grant of that right as an easement.The period of long user must be:
• since time immemorial which is taken to be since 1189; or
• 20 years or more in order to establish the fiction of a lost modem grant.
43
44
336
45
Scbwann v Cotton [1916] 2 Ch 120
[1993] 2 HKLR 373
Cap 152
EASEMENTS
In the 18th cent~ry the courts evolved the fiction of lost modem grant
to overcome the obvious problems of establishing user since time
immemorial. If user could be established for a period of 20 years or more
a formal grant was presumed to have been made but subsequently lost
so that it now cannot be produced. The fiction is so well established that
it cannot be rebutted by evidence that no such grant was made; 46
• either 40 years for rights other than the right to light or 20 years for rights
to light under the Prescription Act 1832. This legislation was intended
to ease some of the difficulties of establishing prescription since time
immemorial or by lost modem grant but it is so poorly drafted that it
merely complicates the position further.
Prescriptive user must be user 'as of right' or, in other words, the use must
have been exercised as if the right had been properly granted. The use must
not be secret or by force or with permission. Furthermore, the exercise of
the right must be continuously asserted.
But prescription is of little, if any, application in Hong Kong. It is an
established feature of prescription at common law that the right must be
acquired by a fee simple owner of the dominant land against the fee simple
owner of the servient land. 47 The leasehold nature of land in Hong Kong
thus excludes prescription at common law. This position has now been
confirmed by the courts in:48
Tang
[1993] 2 HKLR 373
FACTS
The defendant claimed a vehicular right of way over the plaintiff's land by
reason of the exercise of the right since the 1960s. The plaintiff conceded
that the defendant was entitled to an easement of necessity by foot over the
land but disputed the defendant's claim to a vehicular right.
JUDGMENT
User since time immemorial had no application in Hong Kong given the
history of the Territory. Presumed modem grant also had no application in
Hong Kong for there were no grounds for modifying the English common law
requirement that this doctrine was only applicable between fee simple owners.
The Prescription Act 1832 did not assist. Although incorporated into Hong
Kong law by the Application of English ww Ordinance the act did not alter
the common law requirement that prescription only applies to freehold land.
46
47
48
Dalton v Angus & Co (1881) 6 App Cas 740
The principle has been re-established in England in Simmons v Dobson [1991] 1 WLR 720.
There had been some suggestions that prescription should apply in Hong Kong, see
Delaney 0958) 74 LQR 82, Kneebone (1977) 7 HKLR 373 and Pang Kwan-lung v Ma
Choi-hop [1989] 2 HKC 449.
337
HONG KONG LAND LAW
The only remaining role for prescription in Hong Kong is the possibility
of acquiring a right to light after 20 or more years user under the Prescription
Act 1832. Section 3 of the act does not require the right to light, in contrast
to the acquisition of other rights under s 2, to be exercised 'as of right', which
leaves a very narrow chink through which a right to light over leasehold
land might be admitted. However, the court in Foo Kam-shing v Local
Printing Press 49 rejected even this possibility. 1
13.4
Extent of Use
The nature and extent of an easement will depend on whether it is created
expressly or impliedly.
13.4.1
Express Grant
The extent and nature of an express easement will depend primarily upon
the words of the grant. A right may be general, which will confer a right that
may be exercised at any time and in any way; or it may be limited, where
the right is restricted in the times or the manner in which it may be exercised.
For instance, a right of way may be restricted to passage by foot only, or
may be exercised only during the daylight hours.
Where there is difficulty in construing the terms of the grant, the
surrounding circumstances at the time of the grant may assist construction.
But the terms of the grant will ·not be cut down by the surrounding
circumstances where the extent of the easement can be adequately defined
from the terms of the grant. 50
An example of the court looking to the surrounding circumstances to
construe the terms of the grant is found in:
V
FACTS
The plaintiff sold some land to the defendant. The land surrounded a church
and churchyard, but was sold subject to a right of way to the church. Access
to the church was by a path, part of which was only four-and-a-half feet
wide, made up of sand and gravel and covered with leaves. The question
arose of whether the right of way over the path was on foot only or extended
to vehicles.
49
50
338
(1953) 37 HKLR 208
Keefe v Amor [1965] 1 QB 334
EASEMENTS
JUDGMENT
The right of way was a right on foot only. The grant was expressed merely
as a grant of 'a right of way', but the physical characteristics of the path
dictated that it could not have been intended for vehicles.
Where the court cannot find a clear answer in their task of construction
from the terms of the grant and the surrounding circumstances, they must
construe the grant against the grantor.
The extent of an express grant is not confined to the purposes for which
the right was originally intended at the time of the grant, unless there is a
clear intention to that effect. An often-quoted example is provided by the
case of White v Grand Hotel East borne Ltd,51 where a right of way granted
when the dominant tenement was a private dwelling house was held to
extend to business purposes when the house was converted to a hotel.
However, while a change of use of the dominant tenement may increase
the burden placed on the servient land, it must not lead to such an increase
in use as would unreasonably interfere with the rights of others. For
instance, in Jelbert v Davies 52 where agricultural land was converted to a
caravan site for 200 caravans, the court decided the increased use was
excessive despite the general terms of the grant. But in Hong Kong the
increased use of a right of way resulting from the redevelopment of a single
residence into 72 flats was not considered excessive. 53
The right must be used for the enjoyment of the dominant tenement.
Thus the use of a right of way for the purpose of access to land adjoining
the dominant tenement is precluded. 54
But, unless there are express words to the contrary, the right may be used
by anyone expressly or impliedly authorised to use it, provided their use
accommodates the dominant tenement. Thus a suggestion that a grant in
favour of a dominant tenement on which a business is conducted is limited
to the owners of the business and excludes their customers is unacceptable. 55
13.4.2
Implied Grant
An implied grant is limited to the purpose for which it was used at the time
the right arose. Thus a right of way of necessity to a property for agricultural
purposes would not extend to access to a factory that the dominant owner
may wish to erect on the land. An increase in use is not precluded, however,
unless it is so excessive as to pose an unreasonable interference with the
rights of others entitled to the grant.
51
52
[1913] 1 Ch 113
[1968] 1 WLR 589
53
Winfield Investment Co Ltd v Henry Fok Estates Ltd [1966] HKLR 399
Harris v Flower (1905) 74 LJ Ch 127
55 Woodhouse & Co Ltd v Kirkland (Derby) Ltd [1970] 1 WLR 1185
54
339
HONG KONG LAND LAW
587
FACTS
In 1847 the railway company laid a track that cut off the access to some fields
except by way of a crossing that had been constructed by the railway
company. For many years the fields were used by campers and caravaners,
but the numbers had grown substantially and the railway company tried to
limit the use of the crossing. The respondent claimed an easement by
prescription.
JUDGMENT
The plaintiffs admitted that the fields could be used for caravans, but claimed
the increase in use was unacceptable. The Court of Appeal did not agree.
13.4.3
Remedies
Normally an aggrieved party, whether he be a dominant owner claiming the
unjustified interference with an easement or a servient owner claiming
excessive use, will seek redress by one of the usual methods - action either
by way of damages, injunction, or declaration. But in order for an
interference to be actionable it must be substantial. For instance, the
dominant owner can only take action if an obstacle impedes the reasonable
exercise of his rights. In addition to the normal methods of seeking redress
by action, a dominant owner may abate the interference himself by
removing the obstruction. But he must exercise abatement cautiously and
should make sure that he gives notice to the servient owner, and causes the
least disruption .and no unnecessary damage. 56
13.5
13.5.1
Termination of Easements
By Ej]luction of Time
All easements in Hong Kong must be granted for a term of years, which will
generally be for the shorter of the terms created by the Government leases
of the dominant and servient land. At the end of the term for which the
easement is granted, it will simply expire by effluction of time - although
where there is a statutory renewal or extension of the Government lease
term of the servient land, the grant may also be deemed to continue. 57
56
57
340
Navigation Co v Lamberg Bleaching Dyeing & Furnishing Co Ltd [1927] AC 226 at 245
See s 15 Crown Leases Ordinance Cap 40 and s 7 New Territories Leases (Extension)
Ordinance Cap 150.
EASEMENTS
13.5.2
Unity of Ownership
There must be diversity of ownership of the dominant and servient
tenement for an easement to arise. Where the ownership of the dominant
and servient tenements becomes vested in the same person, the easement
will cease. The extinction of the easement will be permanent where
ownership vests in the government, but the easement will merely be
suspended where the dominant and servient tenements become vested in
the same lessee, be that a Government lessee or a lessee under a shorter
term lease. Any easement attached to the lease of the dominant land will
be suspended during the period of common ownership of the leases of the
dominant and servient tenements. The easement will revive if the lease of
either the servient or dominant tenement is assigned or expires so that the
ownership of each tenement is once again separate.
13.5.3
Release
A release may be express or implied. An express release, to be effective at law,
must be by deed, 58 although equity may recognise a release effected by less
formal means. An implied release may arise by the deemed abandonment of
the right. The mere failure to exercise an easement is not decisive evidence
of abandonment; for instance in the case of Benn v Hardinge 59 non user for
175years did not imply abandonment. Non-use willonly constitute abandonment
if it is explicable only on the assumption that the dominant owner intended
to give up the right. The point is clearly illustrated by:
Moore v Rawson
3 B&C 332
FACTS
The plaintiff enjoyed a right to light to certain windows. He demolished the
wall in which the windows were situated and rebuilt the wall with no
windows. Fourteen years later the defendant erected a building which
would have obstructed the light to the old windows. Subsequently the
plaintiff made a new window where one of the old windows had been, and
objected to the obstruction.
JUDGMENT
The alterations to the wall, and not just the plaintiffs non-use, demonstrated
an intention to abandon the right.
58
59
Section 4 of the Conveyancing and Property Ordinance Cap 219
(1992) 66 P&CR 246
341
HONG KONG LAND LAW
In Snell & Prideaux Ltd v Dutton Mirrors Ltd,60 where it was alleged that
the dominant owner had abandoned a right of way for vehicles but not on
foot, the Court of Appeal in England accepted that it was possible to imply
the partial release of an easement although on the facts of the case there
had been no abandonment in whole or part.
13.6
Easements and Similar Rights
Easements must be distinguished from a number of other similar rights
which may affect land.
13.6.1
Natural Rights
Natural rights exist as a natural incident to the ownership of land. Unlike
easements they arise automatically, as an incident of ownership. Examples
of natural rights include the right to support of the land (but not any buildings
erected on the land) and the right to surface water flowing through a defined
channel. But the law has not recognised a right to light as within the scope
of natural rights. A right to light can only be acquired as an easement.
13.6.2
Public Rights
Public rights, as their name implies, are exercisable by anyone. Unlike
easements they are not appurtenant to any dominant tenement. Common
public rights include the right to use the public highway, to use navigable
waters, and fish in the sea; but these rights are frequently regulated by
ordinance. For instance, the right to use the public highway for the purposes
of a demonstration or protest march is limited by the Public Order
Ordinance. 61
13.6.3
Customary Rights
A customary right is a right that is enjoyed by a particular community.
Customary rights differ from easements in that they are not attached to a
dominant tenement; and they differ from public rights in that their
enjoyment is limited to a particular community and not enjoyed by the
public at large. At common law a customary right can arise only if it is
ancient, certain, reasonable, and continuous. Under the common law of
England, a right is considered ancient if it has been enjoyed since 1189 or
it has been enjoyed within living memory, unless there is evidence that it
arose after 1189. An application of such a test in Hong Kong would clearly
rule out the existence of any customary rights. It might be argued that in the
light of the history of the territory the application of the English common
law rule is inappropriate, and that custom should be accepted if it has been
exercised since establishment of the territory. However, the question is
342
6o
[1994] EGCS 78
61
Cap 245
EASEMENTS
unlikely to arise since land in the New Territories, where the question of
custom is more likely to arise, is governed by Chinese customary law rather
than the English common law. 62
13.6.4
Statutory Easements
Easements may be created by statute. In Hong Kong we have, for example,
the Electricity Network (Statutory Easements) Ordinance, 63 which permits
the creation by statute of certain easements necessary for the establishment
of an electricity network by the power companies.
13.6.5
Profits
A profit is a right to take some part of the natural produce, soil, or minerals
of the servient tenement, whilst an easement merely confers a right to the
use of the servient tenement in some way. A further distinction lies in the
fact that a profit may exist in gross whereas an easement must be attached
to a dominant tenement. In the light of the declining importance of
agriculture in Hong Kong, profits are not commonly encountered.
13.6.6
Licences
A licence confers a permission to perform an act that would otherwise be
a trespass. Licences and easements thus overlap, but the ambit of licences
is wider, for they need not conform with the characteristics.of easements
examined earlier in this chapter. A licence may extend to a right of
occupation and it need not be appurtenant to or accommodate a dominant
tenement. A licence may be created with the minimum of formality, whereas
an easement must at law be created by deed. An easement creates an
interest in land that is capable of binding third parties, whereas a· licence
falls within the sphere of mere personal rights that will not, in the normal
course, be capable of affecting third parties.
13.6.7
Covenants
A covenant affects the manner in which an owner of land may use his own
land, whereas a positive easement grants the dominant owner a right
exercisable over someone else's land. A negative easement, however, bears
a closer resemblance to covenants because it also impedes a servient
owner's free enjoyment of his ownership .of land. Negative easements are
confined to a small number of existing rights while covenants, provided
they relate to land, may cover a wide range of activities. Covenants and
easements bear a similarity in their need for two tenements to support and
bear the right. Covenants are creatures of equity and must be created by
agreement or deed. Easements, on the other hand, may exist at law as well
as in equity and may be created expressly or impliedly.
62
63
Section 13 New Territories Ordinance Cap 97
Cap 357
343
Leasehold Covenants
14.1
Introduction
We have looked at the type of covenants commonly found in leases in Hong
Kong. Now we consider the extent to which these covenants may affect
someone to whom a tenant may transfer his lease, on the one hand, and
someone to whom the landlord may transfer his reversion, on the other.
14.1.1
Assignment
Where a lease or a leasehold reversion is assigned, the original lessee or
lessor, as the case may be, for all practical (but not necessarily all legal)
purposes drops out of the picture and ceases to be concerned with the
property. His assignee steps into his shoes. There remains only one lease
affecting the land: it is the parties to the lease that change.
14.1.1.1
Assignment of the Leasehold Term
A lessee who disposes of his lease by way of assignment transfers the whole
of the term he enjoys to the purchaser. When one speaks of land being 'sold'
in Hong Kong, what is referred to is the residue or balance of the
Government lease term that is being assigned by the Government lessee to
the purchaser. For instance, an owner, who holds a Government lease of
land for 75 years of which there are 65 years still to run, will sell that land
by assigning the 65-year residue of his Government lease to the purchaser.
He then has no further interest in the land. The assignment of short-term
leases is less common, for most of these leases will contain a covenant
prohibiting the tenant from assigning his interest.
14.1.1.2
Assignment of the Leasehold Reversion
A landlord may also wish to dispose of his interest in a piece of land. This
does not arise in the case of Hong Kong's largest landlord, ie, the Crown,
or, after 1 July 1997, the Government of the Special Administrative Region
of Hong Kong. But a Government lessee who has let his property may wish
to do so. A lessee, in these circumstances, holds his Government lease in
reversion consequent upon the short-term lease he has granted. When he
sells his interest in the land he will assign his Government lease term, which
he holds in reversion, subject to and with the benefit of the short-term lease.
The assignment of a leasehold term and a leasehold reversion can be
depicted in the following way:
344
LEASEHOLD COVENANTS
Fig 14.1 Assignment
Leasehold Term
Leasehold Reversion
Landlord (L)
Landlord
assignment
(L)
lease
lease
Tenant ~--------Tenant's
(T)
assignment
14.1.2
(LA)
Landlord's
Assignee
Tenant (T)
Assignee(TA)
Subletting
In contrast to the assignment of a lease, the lessee remains in the picture
when he sublets. He is on the one hand a lessee under his own 'head lease',
and on the other a landlord under the sublease. There is not one estate but
two, with their respective rights and obligations.
14.1.2.1
Sublease on a Leasehold Term
A lessee may decide that he does not wish to sell all his interest under his
Government or other lease. Perhaps he requires the property for his own
occupation in the future or he wishes to use the property to generate income
by way of rental. A disposal for a period shorter than the residue of the term
of the lease creates a new lease that is a separate interest or estate from the
lease out of which it is created. The rental, term, and covenants are distinct and
need not be the same as the terms of the head lease. For instance, if a lessee
holding a Government lease of 75 years wishes to allow another to have
possession of the land for only 5 years of his 75-year term, he will create a
sublease giving the right to exclusive possession of the land for 5 years. At the
end of the 5-year term, possession of the land will revert to the Government
lessee who may take up possession himself or grant another sublease.
Most subleases in Hong Kong are created consequent upon the
Government lease and are for considerably shorter terms than the Government lessee himself enjoys. The reason for the short length of subleases is
purely economic. In the volatile Hong Kong property market, landlords
often prefer to retain the freedom that shorter terms afford.
14.1.2.2
Concurrent Leases
It is possible, but not common, for a landlord to grant a sublease of his
reversion. Such a disposal is known as a 'concurrent lease'. A concurrent
345
HONG KONG LAND LAW
lease passes the right to receive rent and the other rights and obligations of
a landlord under the lease to the concurrent lessee during the subsistence
of the initial lease. The length of the concurrent lease may be longer or
shorter than the first lease. If it is longer, or the initial lease for some reason
is brought to an end prior to the natural expiry of its term, the concurrent
lease will fall into possession and the concurrent lessee will become entitled,
to occupation of the property.
A sublease and a concurrent lease may be depicted in the following way:
Fig 14.2 Sublease/Concurrent
Lease
Leasehold Reversion
ie Concurrent Lease
Leasehold Term
L
L~--------T
L____
lease
T
sublease
Concurrent Landlord
(CL)
OR
L---------T
Sub-tenant
L ___________
CL
What is the effect of either an assignment or a subletting upon the
obligations of the landlord and the tenant contained in the lease? There are
a number of different situatic;ms to consider:
• Is the original lessee still bound by his contractual obligations set out in
the lease even after he has disposed of his interest?
• Can the original lessee still enforce his contractual rights against the
landlord even after he has disposed of his interest?
• Is a new assignee of the lease or sublessee bound by the covenants the
original lessee entered into?
• Can the new assignee or sublessee enforce the covenants the landlord
gave to the original tenant?
• Is the original landlord still liable for breach of the contractual
obligations he entered into under the lease even after he has disposed
of his interest?
• Can the original landlord sue for rental or for the performance of any
other covenants made for his benefit even after he has disposed of his
interest?
346
LEASEHOLD COVENANTS
• Is a new landlord as assignee of the reversion able to sue for the rental,
or otherwise directly enforce the covenants made by the tenant?
• Can a new landlord, as an assignee of the reversion, be required to
perform the covenants given by the original landlord in the lease?
When considering these questions it is important to bear in mind the dual
nature of a lease: it is both the grant of an estate in the land to the tenant
and a contract between the original landlord and tenant, which defines their
respective rights and liabilities throughout the period of the estate granted.
14.2
The Original Parties
There is between the original landlord and the original tenant privity of
contract. This privity continues despite the fact that either or both of them may
dispose of their interest in the land. Accordingly, at common law the original
parties remain bound by and entitled to enforce their respective covenants. It
does not matter if the original parties have not been personally responsible for
the breach of covenant. They have agreed to observe and perform the
covenants throughout the leasehold term, and this liability continues even
though the terms of the original covenant may be varied. For instance, in
Centrovincial Estates Plc v Bulk Storage Ltd 1a tenant became liable to pay the
higher rent agreed by a subsequent assignee under the rent review. The
original landlord or tenant, therefore, cannot escape liability at common law
by assigning their respective interests. They may step out of the picture for all
practical purposes, but legally their contractual responsibilities continue. They,
in effect, become sureties for the continued performance of the covenants by
subsequent assignees. It is thus prudent for a landlord or tenant to try and
check the financial standing of their assignees. However, it appears that where
the lease is continued by the operation of statute, for instance under Part IV
of the Landlord & Tenant (Consolidation) Ordinance,2 the liability of the
original parties may not extend to the renewed or extended term, at least not
unless the terms of the original lease so provide. 3 It is the precise terms of the
parties' contractual bargain which govern their liability. In addition, statute
may have a role to play in the limitation of liability.4
14.2.1
The Tenant
On the one hand, the tenant will have the burden and be liable for the
breach of the covenants that he has given to his landlord; on the other hand,
he will enjoy the benefit and be entitled to enforce the obligations that his
landlord has agreed to perform and observe.
(1983) 46 P&CR 393 and Selous Street Properties Ltd v Orone! Fabrics Ltd (1984) 270
Estates Gaz 643
Cap 7
City of London Corporation v Fell [1993] 3 WLR 1164 and Herbert Duncan Ltd v Cluttons
[1993] 3 WLR 1164
In England, the recently enacted Landlord& Tenant (Covenants) Act 1995 effects far
reaching changes in the enforcement of leasehold covenants.
347
HONG KONG LAND LAW
14.2.1.1 Liability for Breach
There are a number of ways in which a tenant may seek to protect himself
from liability for a breach of covenant committed by someone to whom he
has assigned his interest.
(a)
Contractual exclusion of liability
A tenant may seek expressly to provide in the covenants he gives to his
landlord that his liability should be limited to breaches committed while he
is the tenant. Unfortunately, a landlord rarely will agree to such a limitation
of liability. Certainly Government leases in Hong Kong contain no such
limitation.
(b)
Chain of covenants
Alternatively the tenant may require the person to whom he assigns the lease
to promise to perform and observe the covenants. If the new tenant in tum
assigns his interest, he will also require his assignee to give a similar covenant,
so that a chain of covenants is built up to protect the original tenant and pass
on liability to the party who is guilty of the breach of convenant. The practice
of giving such covenants has become so widespread that, in the case of the
assignment of a Government lease, they are automatically implied. 5
(c)
Section 41(8) of the Conveyancing and Property Ordinance
This section provides:
l
... that a covenant shall not bind a person after he has ceased
to have any estate or interest in the land affected by that covenant
except in respect of a breach of that covenant committed by him
before that cessation.
l
I
l
l
l\
The intention is clearly that a lessee who assigns his leasehold term
should cease to be liable on the leasehold covenants once he has ceased
to have any connection with the land, save only for breaches that were
committed while he still held the lease. However, s 41 only applies to
covenants that fulfil the conditions set out in sub-s 41(2). We will look at
these conditions more closely when considering the enforceability of land
covenants. 6 Suffice it to say at this stage that the leasehold covenants given
by a lessee should be capable of satisfying these conditions so as to release
an original lessee from liability for any breach committed after he has
disposed of his interest. 7
6
7
348
See s 35(1)a and Part I First Schedule of the Conveyancing and Property Ordinance
~~
I
See Chapter 15.
In England, s 5 of the Landlord & Tenant (Covenants) Act 1995 releases a tenant,
under a lease entered into after 1 January 1996, from liability for breach of any
leasehold covenants committed after their assignment of the lease.
LEASEHOW COVENANTS
(d)
Disclaimer
The trustee of a bankrupt or the liquidator of a company may disclaim
onerous property. A lease, particularly where the rental is high and the
tenant cannot escape the obligation to pay that rent because of a prohibition
on assignment or sub-letting in the lease, may well be considered onerous
and a target for the trustee or liquidator'-s power to disclaim. The effect of
a disclaimer on the original tenant's liability to pay the rent and perform the
other covenants in the lease will depend upon whether the lessee who is
seeking to disclaim is the original tenant or an assignee of the original
tenant. Where the tenant is the original tenant the disclaimer will indeed
extinguish the tenant's liability to pay the rent or perform the other
leasehold covenants. The effect of the disclaimer is to determine the lease. 8
However, where the tenant is not the original tenant but an assignee, the
disclaimer will not extinguish the liability of the original tenant under their
contractual liability to pay the rent and perform the other covenants. The
disclaimer operates to terminate the liability of the assignee to the landlord
and under any chain of indemnity covenants to the ·previous tenant or
. tenants. The lease itself continues to exist and with it the liability of the
original tenant to the lease. 9
14.2.1.2
Right to Sue
A tenant, once he has disposed of his leasehold term, will generally have
no wish to rely on the covenants given to him by the landlord: after all, he
is unlikely to suffer any damage upon which to base a claim when he has
no connection with the land. But a tenant may wish to sue in respect of a
breach that occurred before he assigned his lease. His right to do so is
unaffected bys 41(8) of the Conveyancing and Property Ordinance and will
continue despite his subsequent disposal of the lease.
City & Metropolitan Properties Ltd v Greycroft Ltd
[1987] 1 WLR 1085
FACTS
The plaintiff acquired the residue of lease of a flat. The landlord, the
defendant, was in serious breach of its covenant to repair. After the plaintiff
failed in his attempts to resell the property, the plaintiff forced the defendant
to carry out the needed repairs. The plaintiff then assigned the lease at a
profit but sought damages for breach of covenant against the defendant,
including the lost costs of his earlier attempts to sell.
Stacey v Hill [1901] 1KB 660
Hindcastle Ltd v Barbara Attenborough Associates Ltd [1994] 4 All ER 129
349
HONG KONG LAND LAW
JUDGMENT
The plaintiff was entitled to seek recovery of damages against the defendant
despite his disposal of his interest in the lease.
Where the breach of covenant continues after the date of the assignment,
there appears to be a possibility that both the tenant and his assignee may
have a right to sue in respect of the same breach.
14.2.2
Tbe Landlord
An original landlord also continues to be affected by privity of contract after
he has assigned his leasehold reversion. Similar que"Stions arise as to
whether he will be liable for a breach of the landlord's covenants or may
rely on the benefit of the tenant's covenants, once he has no further interest
in the property.
14.2.2.1
Liability for Breach
At common law a landlord will remain liable on his covenants even after
he has assigned his reversion, 10 but he too can limit his liability by using the
same methods as the tenant. Indeed, it is far more common to finp a
contractual limitation of a landlord's liability than it is of a tenant's liability. n
14.2.2.2
Right to Sue
A landlord will be unable to sue in respect of breaches that have occurred
after he has disposed of his reversion because he will suffer no damage, but
he. may wish to continue to be able to sue in respect of breaches that
occurred before he disposed of his reversion. It is now well established that
the effect of s 31 of the Conveyancing and Property Ordinance 12 is to
deprive the original landlord of his right to sue his tenant for breach of
covenant once he has assigned his reversion, regardless of whether the
breach was committed before or after the assignment. The leading case is:
!_~Jf!:li'!"!li"I,!'
".
...
•
~ ,..,.\l!!"iJll!ll!l!!ll1,@i'jiij!:liirii
1r..ii1-.,--
..."'!'2'!!!!1,_,::_,
.. , ..
Re King [1963) Ch 459
FACTS
Mr King was entitled to a lease of a factory. The lease required him to keep
the premises in repair, to insure the premises and lay out any insurance
monies in the rebuilding of the premises, and to make good any deficiency
°
1
11
12
350
Ce/steel Ltd v Alton House Holdings (No 2) [1987] 1 WLR 291
In England, a landlord under a lease entered into after 1 January 1996 may apply to
be released from liability under the landlord's covenants-see ss 6,7 & 8 Landlord &
Tenant (Covenants) Act 1995.
The equivalent of s 141 of the Law of Property Act 1925
LEASEHOLD COVENANTS
as required. During the Second World War the factory was destroyed by fire,
and could not be rebuilt due to building restrictions. After the war the land
was resumed and redeveloped as a housing estate, and Mr King's estate
sought directions from the court as to whether they remained liable for
breach of covenant to the original landlord despite the resumption.
JUDGMENT
The original landlord's right to take action ceased on his assignment of the
reversion.
The reasons given by the English Court of Appeal judges for their
decision differed. Lord Denning MR was of the view that the section was
merely declaratory of the common law, while the majority felt the section
amended or at least clarified the law. The majority view of the Court of
Appeal has been approved in England in London & Country (A&D) Ltd v
Wilfred Sportsman Ltd, 13 where the right of an assignee to claim arrears of
rental accrued prior to the assignment was at issue. The court declined to
follow the case of Flight v Bentley, 14 and held that an assignee, and not the
landlord, was entitled to recover the arrears. They were of the view that the
section had changed the law to pass the right to sue for arrears of rent to
the purchaser upon the assignment of the leasehold reversion. 15
14.3 Assignees
16
There is no privity of contract between a landlord and a tenant's assignee,
nor between a tenant and a landlord's assignee, but there is 'privity of
estate'. Privity of estate arises where the relationship of landlord and tenant
exists between the parties. When a landlord assigns his reversion, his
assignee steps into his shoes and becomes the landlord in his place.
Likewise, when a tenant assigns his leasehold term his assignee steps into
his shoes and becomes the tenant in his place. A landlord and tenant and
their respective assignees are thus all affected by the same estate, namely
the lease. They are said to be in privity of estate. In the diagram below, the
dotted lines show the relationships of privity of estate. Thus:
13
14
15
16
[1971] Ch 764
(1835) 7 Sim 149
See also Arlesford Trading Co Ltd v Servansingh [1971] 1 WLR 1080
See Lord Templeman's judgment in City of London Coiporation v Fell [1993] 3 WLR
1164 at 1167 for a clear explanation of the doctrine of privity of estate.
351
HONG KONG LAND LAW
Fig 14.3 Privity of Estate
I
I
I
I
I
I
I
•
T
L&T
TA
- enjoy privity of contract and estate
L&TA }
LA & T
- enjoy privity of estate alone
LA&TA
The concept of privity of estate is central to the enforceability of
leasehold covenants. It looks beyond the strict contractual relationships,
and determines liability according to the parties' relationship to the estate
created by the lease. Whereas the parties to the lease contract do not
change, the parties affected by the leasehold estate may do so. Accordingly,
whilst we have seen that the contractual liability of the original parties to
the lease continues throughout the term unless limited in some way, the
liability of the parties based upon privity of estate only lasts so long as they
are affected by the estate. When they cease to come within the landlord and
tenant relationship, their liability ceases too.
We now consider how privity of estate affects the enforceability of
leasehold covenants, both where the tenant assigns his lease, and where the
landlord assigns his reversion.
14.3.1
Assignment of T's Lease
A lease will contain both covenants made by the tenant and covenants made
by the landlord. Therefore it is necessary to look at the two sides of the same
situation, namely:
•
•
352
can L take action on the tenant's covenants against TA ('the burden')?; and
can TA take action on the landlord's covenants against L ('the benefit')?
LEASEHOLD COVENANTS
14.3.1.1
Burden -
Can L Take Action Against TA?
Fig 14.4 Burden
L
''
''
''
''
''
''
''
''
''
''
''
''
T
Can L take action against TA?
''
''
'
TA
It was decided as long ago as the 16th century in Spencer's case 17 that
a landlord can take action against an assignee of the lease provided a
number of conditions are satisfied. 18
(a)
The covenant 'touches and concerns' the land
We will look more closely at this concept later, as it is common to the
enforcement of leasehold covenants. 19
(b)
The covenant is intended to run with the land
Sections 39 and 40 of the Conveyancing and Property Ordinance now
presume an intention that the benefit and the burden of all covenants relating
to land are intended to run with the land unless a contrary intention exists.
Spencer's case did draw a distinction between covenants relating to
things in existence (in esse), for instance a covenant to repair a wall, and
things not yet in existence (in posse), for instance a covenant to build a wall.
The latter were only enforceable against assignees if assigns were expressly
referred to in the covenant, but s 40(2) of the Conveyancing and Property
Ordinance has now removed this distinction.
(c)
Privity of estate
The running of covenants under the principle in Spencer's case is dependent
on privity of estate. We have already seen that there is privity of estate
between a landlord and a tenant's assignee. This will be so even if the tenant
17
18
19
(1583) 5 Co Rep 16a
In England, the effect of Spencer's case is now found in statutory form in relation to
leases entered into after 1 January 1996-see s 3 Landlord & Tenant (Covenants) Act
1995.
See 14.3.4.
353
HONG KONG LAND LAW
assigns only part of the land comprised in the lease. His assignee will then
be liable on those covenants in the lease that relate to his part of the
leasehold property. The tenant and his assignee in these circumstances will
generally agree on an apportionment of the rental liability under the lease,
but this apportionment will only bind the landlord if he is party to the
apportionment. If the landlord is not a party to the apportionment, 20 he can
continue to recover the whole rent from either the lessee or his assignee,
although the party who is forced to pay more than his apportioned share
may seek recovery from the other lessee in quasi-contract. 21
(d)
The lease and its assignment are recognised at law
The doctrine in Spencer's case is limited to leases that are recognised at law,
either because they are made under seal or are created orally or in writing,
for a period not exceeding three years. The fact that a lease created in
writing or orally might be recognised in equity under the rule in Walsh v
Lonsdale does not give rise to any estate in the land, and thus no privity of
estate. This traditional view is illustrated by:
tl!ll!im;ra~·•ir:
~~,e~mg:~li~iiii
Purchase v Lichfield Brewery Co [1915] 1 KB 184
FACTS
The plaintiff agreed in writing to grant a lease, but the formalities were never
completed. The original tenant assigned his lease by way of mortgage to the
defendant. The plaintiff sought to enforce the terms of the lease against the
defendant.
JUDGMENT
The defendant was not bound by the covenants, for there was no privity
of estate.
However, this traditional distinction between legal and equitable leases
is inconvenient and has been subject to considerable criticism. For instance,
Denning LJ in Boyerv Warbey 22suggested that, since the fusion of law and
equity, '[T]he distinction between agreements under hand and agreements
under seal has been largely obliterated. There is no valid reason nowadays
why the doctrine of covenants running with the land should not apply
equally to agreements under hand as to covenants under seal. '23 There is
also some authority in other jurisdictions that the running of covenants may
20
21
22
23
354
The formal apportionment of Crown rent is governed by the Crown Rent and
Premium (Apportionment) Ordinance Cap 125.
On the assignment of a Crown lease an express covenant is implied. See s 35(1)a and
Part I First Schedule of the Conveyancing and Property Ordinance.
[1953] 1 QB 234
At 246
LEASEHOLD COVENANTS
be applied where the lease is equitable. 24 Denning L]'s views, whilst
attractive, are not without difficulty. The recognition of a lease in equity is
dependent on a claim for specific performance. If there is no right to specific
performance, there is no lease and the question of who is liable under its
terms becomes futile. A right to claim specific performance of a contract may
be assigned, but a claim for specific performance will fail if it is against the
assignee of a contract, since the burden of a contract cannot be assigned.
It has been suggested that Purchasev LichfieldBrewerymay be distinguished
as the case involved the liability of a mortgagee who was not in possession
of the property. Where an assignee goes into possession and pays rent and
is generally accepted by the landlord as the new tenant, it may be possible to
argue that there is a new contract, or even a new periodic tenancy, between
the landlord and the tenant's assignee so as to create direct privity between
these two parties. 25 Similar problems arise where it is the assignment of the
lease that is equitable, for instance where an assignment of a lease for more
than three years is in writing rather than under seal.
In any event, a landlord under an equitable lease, or a legal lease that has
been assigned only in equity, may take other action. He may still exercise
a right of forfeiture. Furthermore, the language of s 41 of the Conveyancing
and Property Ordinance, which we shall look at more carefully in
Chapter 15, may be relied upon to admit an action by the landlord against
an assignee under an equitable lease, since leasehold covenants qualify as
land covenants and are enforceable as such.
14.3.1.2
Benefit -
can TA Take Action Against L?
Fig 14.5 Benefit of Tenant's Assignee
L
~,
''
''
''
''
''
''
''
''
''
''
''
T
Can TA take action against L?
''
''
'·TA
The principles of privity of estate established by Spencer's case 26 also permit
a tenant's assignee to claim the benefit of the covenants given by the landlord. 27
24
25
26
27
See De Luxe Confectionery Ltd v Addington [1958] NZLR 272.
RJ Smith [1978] CLJ 98
[1583] 5 Co Rep 16a
In England, the effect of Spencer's case is now found in statutory form in relation to leases
entered into after 1 January 1996-see s 3 Landlord & Tenant (Covenants) Act 1995.
355
HONG KONG LAND LAW
Privity of estate, being based on the relationship oflandlord and tenant,
will cease when that relationship ends. Thus the liability of an assignee will
cease when he ceases to have any interest in the land. Likewise an assignee
is not liable for any breach of covenant that occurred prior to his acquisition
of the lease.
14.3.2
Assignment of L's Reversion
Again there are two sides to consider, namely:
• can T take action on the landlord's covenants against LA ('the burden')?
and
• can LA take action on the tenant's covenants against T ('the benefit')?
The rationale of privity of estate and Spencer's case extends also to the
assignment of the landlord's reversion, although the rights of the landlord's
assignee have been based on statute, initially in the Grantees of Reversions
Act 1540 and latterly in ss 31 and 32 of the Conveyancing and Property
Ordinance.
14.3.2;1 Burden -
Can T Sue LA?
Fig 14.6 Burden of Landlord's Covenants
L ~-----------/~-LA
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
T /
Can T sue LA?
Section 32 of the Conveyancing and Property Ordinance, which is identical
to s 142 of the Law of Property Act 1925, 28 provides:
The obligation under a condition or a covenant entered into by a
lessor with reference to the subject-matter of the lease shall, if and
as far as the lessor has power to bind the reversionary estate
28
356
In England, s 3 of the Landlord & Tenant (Covenants) Act 1995 supersedes s 142 of
the Law of Property Act 1925 in relation to the running of the burden of landlord's
covenants in leases entered into after 1 January 1996.
LEASEHOLD COVENANTS
immediately expectant on the term granted by the lease, be annexed
and incident to and shall go with that reversionary estate, or the
several parts thereof, notwithstanding severance of that reversionary
estate, and may be taken advantage of and enforced by the person
in whom the term is from time to time vested by assignment,
devolution of law or otherwise; and, if and as far as the lessor has
power to bind the person from time to time entitled to that
reversionary estate, the obligation aforesaid may be taken advantage
of and entered against any person so entitled.
The burden of the landlord's covenants thus passes to an assignee of the
landlord provided the covenants relate to the 'subject matter of the lease'.
This expression carries the same import as the expression used in Spencer s
case, that the covenants must 'touch and concern' the land, and will be
examined more closely shortly.
There is no distinction drawn in the section between leases made under
seal and leases made under hand. Thus there is no difference in the
treatment of legal or equitable leases.
14.3.2.2
Benefit -
Can LA Sue T?
Fig 14. 7 Benefit of Tenant's Covenants
L
/
/ LA
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
~
T
Can LA sue T?
Section 31 of the Conveyancing and Property Ordinance, which is identical
to s 141 of the Law of Property Act 1925, 29 provides that the benefit of the
tenant's covenants run with the land provided they relate to the 'subject
matter of the lease'. It states:
29
In England, s 3 of the Landlord & Tenant (Covenants) Act 1995 supersedes s 141 of
the Law of Property Act 1925 in relation to the running of the benefit of tenants'
covenants in leases entered into after 1 January 1996.
357
~
f.
f
HONG KONG LAND LAW
Rent reserved by a lease, and the benefit of every covenant or
provision therein contained, having reference to the subject matter
thereof, and on the lessee's part to be observed and performed, and
every condition of re-entry and other condition therein contained,
shall be annexed and incident to and shall go with the reversionary
estate in the land, or any part thereof, immediately expectant on the
term granted by the lease, notwithstanding severance of that
reversionary estate, and without prejudice to any liability affecting a
covenantor or his estate.
The benefit of a tenant's covenants may thus be relied upon by a
landlord's assignee to enable him to sue the tenant for the rental, and upon
the other covenants given by the tenant that have reference to the subject
matter of the lease. Again, there is no distinction drawn in the section
between leases made under seal and those made under hand.
?•'I
;..,i, ,. ~
~1!1!?·~·•,......~ ....-·
['111_;,.u,
Manchester Brewery Co v Coombs [1901] 2 Ch 608
FACTS
The defendant agreed to take a lease of a hotel for one year. It was a term
of the agreement that he would purchase beer only from his landlords. The
landlords sold the hotel to the plaintiff, who brought action to prevent the
defendant from selling other beers.
JUDGMENT
The plaintiffs could prevent the defendant from selling other beers in breach
of covenant despite the fact that the lease was equitable.
Some doubt remains as to whether the definition of lease includes oral
leases. In England, the matter is put beyond doubt by s 154 of the Law of
Property Act 1925, which clarifies the operation of the section to all
tenancies. There is no equivalent to this section in Hong Kong, but it would
be open to the courts in Hong Kong to adopt a liberal interpretation of
'lease'. There may, however, be evidentiary problems in establishing the
content of the covenants found in an oral lease with sufficient certainty to
found an action.
14.3.3
Severance of the Reversion
A landlord need not assign the whole of his reversion. He may assign only
part of his reversion, either as to a part of the land or as to a part of the estate.
358
LEASEHOLD COVENANTS
14.3.3.1
Severance as to the Estate
A landlord assigns part of his reversionary estate when he grants a
concurrent lease. The concurrent lessee, as the party holding 'the reversionary
estate immediately expectant on the term granted by the lease', takes the
benefit of the lessee's covenants and the burden of the landlord's covenants
under ss 31 and 32 of the Conveyancing and Property Ordinance.
14.3.3.2
Severance as to the Land
A landlord may have granted one lease covering several units. He may then
decide to assign the reversion of the lease relating to only one of those units.
Section 30 of the Conveyancing and Property Ordinance provides that
every covenant or condition contained in a lease will be apportioned upon
a severance of the reversion, so that the original landlord and the new
landlord both may claim the benefit and will be subject to the covenants in
the lease affecting their respective units. 30
14.3.3.3
Surrender/Merger
of the Reversion
Where A leases land to B, who in turn subleases the land to C, and then D
purchases both A's and B's interest, the reversion immediately expectant on
C's lease, ie B's reversion, merges with A's reversion. The privity of estate
arising on C's lease is extinguished, and D is then unable to take action
against C, and C is unable to take action against D.
Fig 14.8 Reversion
A
lease
D - B's estate and privity of
estate between B and C is
extinguished
B
sublease
C
In England the benefit and burden of the covenants are preserved by the
effect of s 139 of the Law of Property Act 1925, but this provision has not
been enacted in Hong Kong. The problem could be avoided, 'however, if
D preserves the independence of B's interests by purchasing either A or B's
interest in the name of a nominee.
30
Winster Development Co Ltd v Pang Yiu Chang [19931 1 HKC 95
359
HONG KONG I.ANDI.AW
'Touch and concern the land' and 'subject matter of the lease'
14.3.4
Whether the benefit and burden of a covenant runs with the lease or the
reversion depends on whether the covenant 'touches and concerns the
land' or 'has reference to the subject matter of the lease'. These tests are
essentially the same, the former being the common law and the latter the
statutory formulation of the requirement.
The test is far easier to apply than to explain. 31 Most leasehold covenants
do 'touch and concern the land': for instance, covenants to pay rent, to
repair, to use the premises in a particular manner, or not to dispose of the
premises. Covenants that have fallen outside the net have included
covenants to pay an annual sum to someone other than the landlord, 32 to
keep other premises in repair, 33 or not to open a competing business near
the leased premises. 34
The classic exposition of the characteristics of the requirement was
referred to in Breams Property Investment Co Ltd v Strongler 35 as being to
determine whether the covenant affects either 'the landlord qua landlord or
the tenant qua tenant'. 36 Covenants that are personal or private in nature are
thus excluded, as are those that are collateral to the lease itself. But this test
has been criticised as begging the question.
The issue has come under scrutiny in respect of those obligations that
support or buttress covenants that clearly do relate to land. In Hong Kong
there has been the question of whether the obligation for a tenant to pay
and for a landlord to repay a tenant's deposit is a covenant that runs with
the land.
Hua Chiao Commercial Bank Ltd v Chiaphua Industries Ltd
[1987] AC 99
FACTS
A landlord granted the defendant a lease for five years, under which the
defendant was required to pay a deposit equivalent to two months' rent as
security for the performance of the tenant's covenants in the lease. The
landlord subsequently mortgaged the property to the plaintiff. The landlord
then defaulted under the mortgage and went into liquidation. The plaintiff
entered into possession and on the expiry of the lease the defendant, having
performed all the covenants, sought the return of the deposit from the plaintiff.
In England, s 2 of the Landlord & Tenant (Covenants) Act 1995 abandons the
requirement for a covenant to 'touch and concern the land' or 'have reference to the
subject matter of the lease' in respect of covenants in leases entered into after
1 January 1996. All covenants in leases made after that date will run with the land.
32 Mayho v Buckhurst(1617) Cro Jae 438
33 Bewar v Goodman [1909] AC 72
34 Thomas v Hayward (1869) LR 4 Ex 311
35
[1948] 2 KB 1
36 ibid at 7
3l
360
l.
LEASEHOLD COVENANTS
JUDGMENT
The defendant could not recover the deposit from the plaintiff, for the
covenant to pay and repay the deposit did not run with the land.
The Privy Council rejected the view of the Hong Kong Court of Appeal
that the covenant did run with the land because it was so inextricably bound
up with the tenant's covenants, which did touch and concern the land. This
was not the critical question. The covenant had to be looked at in isolation.
The English courts have examined a similar but not identical issue when
deciding that a landlord's assignee could enforce a surety covenant
guaranteeing the performance of the tenant's covenants in the cases of
Kumar v Dunning 37 and P & A Swift Investments v Combined English Stores
Group Plc.38
Sir Nicholas Browne-Wilkinson V-C in Kumarv Dunning3 9 identified the
acid test as being to determine whether the covenant was beneficial to the
landlord or tenant, as the case may be, and to no one else. Furthermore, he
was of the opinion that a covenant to pay a sum of money might be capable
of touching and concerning the land provided that the existence of the
covenant and the right to payment under it affected the value of the land.
These tests were approved and developed by the House ofLords in the Swift
Investments case, which set out four guidelines for determining if a
covenant runs with the land: 40
(1)
(2)
(3)
( 4)
the covenant benefits only the reversioner for the time being, and
if separated from the reversion ceases to be of benefit to the
covenantee;
the covenant affects the nature, quality, mode of use or value of
the land of the reversioner;
the covenant is not expressed to be personal (that is to say neither
being given only to a specific reversioner nor in respect of the
obligations only of a specific tenant);
the fact that a covenant is to pay a sum of money will not prevent
it touching and concerning the land so long as the three foregoing
conditions are satisfied and the covenant is 'connected with
something to be done on, to or in relation to the land.
In applying such a test, it is difficult to see why an appropriately drafted
covenant to pay or repay a deposit should not qualify. Indeed, in the Hua
Chiao case, the Privy Council were critical of the wording of the covenant
in question because it failed to make provision for what was to happen to
the deposit upon an assignment of the lease or the reversion. In the light
37
38
39
40
[1989] QB 193
[1989] AC 632. see also Coronation Street Industrial Properties Ltd v Ignall Industries
Plc [1989] 1 WLR 304.
[1989] QB 193 at 204
[1989] AC 632 at 642
361
HONG KONG LAND LAW
of such omission, the Privy Council had little choice but to construe the
covenant as personal to the original landlord. 41
The Swift Investments test has subsequently been considered in:
Caerns Motor Services Ltd v Texaco Ltd [1995] 1
ER 247
FACTS
The plaintiff leased a petrol station from Texaco. The lease contained a
covenant requiring the tenant to carry on the business of a petrol filling
station and to keep the business open all day for the sale of the landlord's
petroleum products. Texaco assigned the lease to another petrol company
and the question arose whether the new landlord could force the plaintiff
to sell only their petroleum products at the petrol filling station in
performance of the leasehold covenant.
JUDGMENT
The covenant requiring the plaintiff to sell only the landlord's petroleum
products was enforceable by the new landlord for it was a covenant which
had reference to the subject matter of the lease and thus ran with the land
under the provisions of s 141 of the Law of Property Act 1925.
The court noted that the Swift Test, although satisfied in this case, was
a test that had been developed in the context of surety covenants where
there was no privity of estate between the landlord's assignee and the
surety. The proper approach was to look at the test in s 141 of the Law of
Property Act 1925, ie did the covenant have reference to the subject matter
of the lease? The Swift Test was helpful but it was not the starting point.
The application of the 'touch and concern' test to options granted to the
tenant to either renew his lease or to purchase the landlord's reversion also
illustrates the sometimes fine distinctions that can be drawn. An option to
renew the lease does run with the land, whereas an option to purchase the
reversion or a right of first refusal does not. The distinction stems from the
fact that an option to renew affects the lessee as a lessee, whereas an option
to purchase or a right of first refusal affects the lessee as purchaser and is
therefore collateral to the landlord and tenant relationship.
14.4
Subtenants
The enforcement of the head lease covenants against a sublessee cannot
rest upon Spencer's case,42 for there is no privity of estate between the head
41
42
362
See also Crocodile Gannents Ltd v 7be Prudential Enterprise Ltd (1989) HCt No A6152
of 1988.
(1583) 5 Co Rep 16a
LEASEHOW COVENANTS
landlord, and the sublessee.-Although they are landlord and tenant, they
have no direct relationship. They are not each other's respective landlord
or tenant. Privity of contract and estate only exists between the head
landlord and tenant under the head lease and between the tenant and
subtenant under the sublease.
Fig 14.9 Privity of Contract and Estate: Subtenants
L
privity of contract and estate
T
I
privity of contract and estate
ST
A landlord thus cannot directly enforce his tenants' covenants against
a subtenant on the basis of Spencer's case. But a subtenant cannot ignore
his head-landlord. He may be faced with a forfeiture of the head lease, in
which event his own sublease will fall or the landlord may enforce the
covenants against him on the principles applicable to all land covenants
(see Chapter 15).
363
r
'
Land Covenants
15.1
Introduction
We have seen how privity of estate overcomes the limitations of privity of
contract where covenants relating to land affect owners of the same
leasehold estate so as to facilitate the enforcement of leasehold obligations
between landlord and tenant. But are there any other circumstances when
it is necessary or convenient for covenants relating to land to affect a larger
circle of people than the original parties to the covenant?
In our study of land law we have constantly noted that land as an
immovable and permanent asset is characterised by the number of interests
that may subsist in the land at any given time. Co-owners, lessors and lessees
including sub-lessees, beneficiaries and trustees all may hold interests in the
same piece of land. Where different interests do exist in the same piece of
land it will be necessary to regulate the relationship between these interests.
We have already examined the rules affecting the priority of interests and
the relationship of trustee and beneficiary and landlord and tenant. We
have also looked at the common law regulation of co-ownership rights. In
the next chapter we will be examining in more detail how co-ownership
rights and obligations have been used to facilitate the ownership and
management of multi-unit developments in Hong Kong. Covenants relating
to land play a crucial role in this area and it is thus vital that we gain a solid
grasp of the principles governing the enforcement of land covenants.
Furthermore, we have seen how easements provide a mechanism to
facilitate the simultaneous use of adjoining land. The recognition of the
right to use adjoining servient land for purposes which accommodate the
adjoining dominant tenement as an interest in land regulates the future use
of both the servient and dominant tenements. Covenants also may be used
to regulate the user of adjoining land. Indeed, it is in this context that the
principles that we will be examining in this chapter were developed. The
nineteenth century in England saw the break-up of many large estates to
provide land for industrial development and the rise in population that
accompanied higher standards of living. There was, however, little public
control of planning and land owners thus had to rely on private law
mechanisms to regulate land use. The law of land covenants developed
against this background.
In Hong Kong, land covenants have also been used for this purpose but
not so much between adjoining owners of different pieces of land. As we
will see in the next chapter,Qand covenants have been used to regulate land
use between co-owners of the same land. Regulation of planning between
adjoining owners falls largely under governmental control but interestingly
not so much by use of public law measures but through the private law
mechanism of privity of estate. The government can and does use the
Crown lease covenants to control land development and use.)
364
LAND COVENANTS
15.2
Covenant Terminology
Before considering the detailed rules concerning the enforcement of
covenants, it is important to appreciate the context in which that enforcement
is framed.(A covenant as an agreement must be made between at least two
parties. One party, the covenantor, agrees with the covenantee to perform
or refrain from performing some act. The covenantor is bound by or has the
burden of the obligation, and the covenantee may enforce or has the benefit
of that obligation. The original covenantee's ability to take action, or original
covenantor's obligation to observe or perform the covenant is based upon
the contract itself. There is no need to establish that the benefit or burden
has passed to them.)
Fig 15.1 Covenant Between Two Parties
Covenantor---------------covenantee
(Burden)
(Benefit)
Successors in title of the covenantee will wish to be able to enforce
the covenant against the covenantor. To do so they will have to prove
that the benefit of the covenant has passed to them.
Fig 15.2
Covenant with Successor
Covenantor --------------
Covenantee
_ j
BcncGt
--Successor
Even if the covenantee and his successors in title can prove that they have
the benefit of the covenant, it will be of limited use if they can only sue the
covenantor. Once the covenantor has disposed of his interest in the land,
the covenantee and his successors in title will wish to enforce the covenant
against the covenantor's successors in title. They will have to prove that the
burden of the covenant has passed to the covenantor's successors.
Fig 15.3 Covenant with Successor
Covenantor __________
Burden
j
___,_Covenantee
,,,,----------------
Successor~
365
HONG KONG LAND LAW
And
Covenantor __________
Burden
Suct,m
__,_ Covenantee
◄-"-----------------
Benefit
Sm,Jsm
Covenants may also be mutual. The parties to the covenant may both
agree that they will only use their respective properties for a particular
purpose, for instance only for residential purposes. In this context both
parties are covenantors and covenantees. They each agree to bind their
respective properties with the burden of the restriction and at the same time
agree that they should both be able to enforce the benefit of the covenant
should the other party use their property other than for residential purposes.
Fig 15.4 Running of Mutual Covenants
Benefit --- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - . Burden
I
I
Developer: Covenant for residential use only: FirstPurchaser 1
I
I
I
Burden
Benefit
Burden
Benefit
I
I
1
'
Successor - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- Successor
Benefit
Burden
Thus, in the case of mutual covenants it is important to establish the
capacity of the party in question. If action is being taken against a party, it
is the running of the burden that must be established. If a party is wishing
to take action, it is the passing of the benefit that must be proved. Where
both the original covenantor and the original covenantee have disposed of
their interests in the land, it will be necessary to establish both the running
of the benefit and the burden.
The_original covenantor or covenantee, or their respective successors in
title, may not dispose of their whole interest in the property. They may, for
instance, grant a lease or a mortgage. The question then arises as to whether
the lessee or mortgagee, as persons deriving title from the covenantor or
covenantee, are able, on the one hand, to enforce the covenant and, on the
other hand, are obliged to perform the covenant. In other words, does the
benefit and burden of a covenant pass to persons deriving title from the
original covenantee or covenantor and their successors in title?
366
LAND COVENANTS
I
.1
i
Fig 15.5 Persons deriving a lesser title
Covenantor
Bunlcn
------------;►
j
j
Lessee ____________________
15.3
Covenantee
Benefit
Mortgagee
The Burden - Who Can Be Sued?
15.3.1
Common Law
The burden of a covenant relating to land cannot pass at common law.
Austerbeny v Corporation of Oldham
(1885) 29 Ch D 750
FACTS
A group of landowners established a company in order to make a road. The
landowners transferred their land to trustees for the company, who
covenanted with them to keep the road in good repair. The defendant
acquired the road from the trustees, and the question was whether he was
bound to repair the road.
JUDGMENT
The defendant was not bound by the covenant unless it constituted an
interest in the land. The court was of the view that the covenant in question
was not an interest in land recognised at law.
There are ways around this general principle.
15.3.1.1
Chain of Covenants
The running of the burden of a covenant at common law can be achieved
indirectly by means of a chain of covenants, whereby the covenantor, when
he sells the land, obtains the agreement of the purchaser to observe the
covenant. The covenantee still has to take action against the covenantor, but
the covenantor can then take action against his purchaser. If a chain of
covenants is built up as each owner sells, the guilty party who commits a
breach can be made liable by passing the liability down the chain. A
covenant by the purchaser of a unit in a multi-unit development to perform
the Government lease and the deeds of mutual covenant is automatically
367
HONG KONG LAND LAW
implied into all assignments of units in a multi-storey building. 4 As liability
under a chain of indemnity covenants is based on a contractual relationship
there is no necessity for the covenant to run with the land. 5
A chain of direct covenants is only as good as each link in the chain, and
will no longer be effective if the original parties to the covenant can rely on
s 41 (8) of the Conveyancing and Property Ordinance to break the very first
link. At common law the original contracting parties remain contractually
liable on the covenant even after they have parted with any interest in the
land, buts 41(8) now provides that a party is not liable on a covenant that
complies with the requirements of the section once he has parted with any
interest in the land. Breaches of covenant committed before the disposal are
the only exception.
15.3.1.2
Novation
The burden of a contract may pass by novation. A novation is a tri-partite
agreement between the original contracting parties and the third party to
whom the burden is to pass, whereby the original covenantor is released
from his contractual obligation in consideration of a direct promise by the
third party to be bound by the terms of the covenant.
Novations can be used in Hong Kong to pass the burden of repaying a
tenancy deposit where an owner sells land that is subject to a lease. It will
be recalled that the obligation to repay a tenancy deposit may not pass
under the doctrine of privity of estate. 6
15.3.1.3
The Rule in Halsall v Brizell
Where an agreement or covenant confers some benefit, a party or his
successor in title cannot claim that benefit without also accepting the
obligations to which that benefit is subject.
j,ji!i
!,ii,:l'.i;..,
Halsall v Brizell [1957] Ch 1697
FACTS
The developers of an estate in Liverpool sold houses on the estate but
retained the ownership of the estate roads. The developers, by a separate
deed, granted the purchasers of houses on the estate a right to use the estate
roads, and the drains underneath the estate roads, and the purchasers
agreed to contribute towards the cost of the upkeep of the drains and roads.
The defendants acquired one of the houses on the estate and questioned
Sub-section 35(1)a and Part I First Schedule of the Conveyancing and Property
Ordinance Cap 19
TRW Steering Systems Ltd v North Cape & others (1993) 69 P&CR 265
See Hua Chiao Commercial Bank Ltd v Chiaphua Industries Ltd[1987] AC 99.
See also ER Ives Investment Ltd v High [1967] 2 QB 379; and Tito v Wadell (No 2) [1977]
Ch 106.
368
LAND COVENAN1 1•
whether they were bound by the covenant to contribute to the cost of
upkeep of the roads and drains.
JUDGMENT
The defendants were bound to contribute to the upkeep of the estate roads
and drains. They could not claim the benefit of the right to use the roads
and drains unless they accepted the burden of the agreement to contribute
towards their upkeep.
The limits of the doctrine are unclear. Megarry V-C in Tito v Wadell
8 drew a distinction between conditional benefits and independent
obligations. Conditional benefits arise where the benefit is only granted subject
to the acceptance of an obligation. The obligation is, in effect, an intrinsic part
of the property or benefit conferred. In these cases the burden clearly passed,
for it was a question of taking all or nothing. An independent obligation arises
where the benefit and the obligation or burden, although granted or imposed
by the same instrument, are not dependent or conditional on each other.
Megarry V-C referred to these cases as cases of 'the pure principle of benefit
and burden'. He was of the view that the passing of the burden was also
possible in these cases. Whether or not the burden did pass depended on
the construction of the assignment of the benefit or property to the third •
party. The assignment would have to show that the assignee was not
intended to take the benefit unless he also assumed the burden. In other
words, although the initial grant was not conditional, its assignment was.
MegarryV-C's views on the pure principle of benefit and burden are novel,
but they are also radical and would, if taken to their logical conclusion,
render the law relating to land covenants irrelevant! Indeed the House of
Lords in Rhone v Stephens 9 were not prepared to accept Megarry's pure
principle of benefit and burden, although they 'wholeheartedly' agreed
with the principles espoused in Halsall v Brizell that the enjoyment of a
benefit can be conditional upon the acceptance of a burden which is
relevant to the exercise of the right.
(No 2)
'·
8
9
[1977] Ch 106
[1994] 2 All ER at 73 per Lord Templeman
369
HONG KONG LAND LAW
15.3.2
Statutory Intervention - Section 41 of the Conveyancing and
Property Ordinance
The limitations of the common law have now been addressed bys 41 of the
Conveyancing and Property Ordinance. The section replaces the Law of
Property (Enforcement of Covenant) Ordinance, which was felt to be
inadequate to deal with all the problems presented by multi-unit
developments. Unfortunately, s 41 gives rise to its own problems, so this
area of the law remains fraught with difficulty.
Sub-section 41(3) provides:
Notwithstanding any rule of law or equity but subject to subsection
(5), a covenant shall run with the land and, in addition to being
enforceable between the parties, shall be enforceable against the
occupiers of the land and the covenantor and his successors in title
and persons deriving title under or through him or them.
The sub-section operates to pass the burden of a covenant to both the
successors in title of the covenantor, ie purchasers and persons to whom
the land of the covenantor passes on his death or bankruptcy, and to
persons deriving title from either the covenantor or his successors in title,
ie lessees or mortgagees. Indeed, the burden will also extend to any
occupier of the land, so that a licensee, who has no title, or a squatter, who
acquires title by adverse possession, will also be bound.
15.3.2.1 Characteristics of Enforceable Covenants
Sub-section 41(3) does not apply to all covenants, for sub-s 41(2) provides:
This section applies to any covenant, whether positive or restrictive
in effect
(a) which relates to the land of the covenantor;
(b) the burden of which is expressed or intended to run with the
land of the covenantor; and
(c) which is expressed and intended to benefit the land of the
covenantee and his successors in title or persons deriving title
to that land under or through him or them.
In order to fully appreciate the import of these conditions it is necessary
to tum to the rules developed in equity to govern the running of the burden
of restrictive covenants. 10 These rules originated from the historic decision
in Tulk v Moxhay.
10
370
In Supreme Honour Development Ltd v Lamaya Ltd [1991) 1 HKC 198 the court felt that
the section should not necessarily be given its plain meaning. As a codifying section
with retroactive effect, the section had to be read in the light of previous decisions.
\
LAND COVENANT.: \
FACTS
The plaintiff sold a vacant piece of land forming Leicester Square in London
to a Mr Elms, who covenanted that he would keep the area 'in an.open state,
uncovered by any buildings'; The land passed into the ownership of the
defendant who knew of the covenant but nevertheless threatened to build
on the land. The plaintiff sought an injunction to restrain the defendant from
doing so.
JUDGMENT
The defendant was bound by the covenant. He had bought the land with
notice of the covenant, and equity would not allow him subsequently to
disregard it.
The basis for the decision in Tulk vMoxhayrested upon the purchaser's
notice of the covenant. But the doctrine soon developed to establish land
covenants as a proprietary interest attached to the land of the covenantee
over the land of covenantor, which would affect a subsequent purchaser or
occupier of the land according to the established rules of priority governing
interests in land.
A number of requirements must be satisfied before equity will recognise
a covenant as a proprietary interest. In Hong Kong these requirements have
been adopted in a modified form by sub-s 41(2) of the Conveyancing and
Property Ordinance.
(a)
The covenant may be positive or restrictive (sub-s 41(2))
Despite a number of early decisions in which positive obligations were
enforced, the courts soon bowed to their traditional reluctance •to make
orders that would require continuing supervision, and the doctrine in Tulk
v Moxhay was confined to the enforcement of negative obligations.11 The
House of Lords has recently reaffirmed this position in England in the case
of Rhone v Stevens 12 when they emphasised that whilst equity could restrict
the exercise of an owner's rights by punishing a breach of a negative
stipulation it could not contradict a common law prohibition by conferring
a right to enforce a positive contractual obligation.
In Hong Kong, where there are so many multi-unit developments, it is
vital that positive covenants, for instance to pay management charges or to
repair the whole or part of the property, are capable of enforcement against
strangers to the covenants. It is for this reason that sub-s 41(2) removes this
11
Haywood v Brunswick Permanent Benefit Building Society (1881) 8 QBD 403
12
[1994] 2 AC 310
•
371
HONG KONG LAND LAW
limitation, so that both positive and negative covenants may be enforced
under the section. In an attempt to encourage the grant of mandatory
remedies by the court, sub-s 41( 4) details the remedies available to enforce
a covenant.
There is, however, one limitation on the enforceablity of positive
covenants. By sub-s 41(5), an occupier or a lessee, whether of the original
covenantor or a successor in title of the covenantor or a person who himself
derives title from the covenantor or a successor in title, is not directly liable
for a breach of a positive obligation. The covenantee or other person
wishing to enforce the covenant must take action against the covenantor or
his successor in title, who may then be able to seek redress from the lessee
where there is also a breach of a separate covenant contained in the lease.
Fig 15.6 Running of Covenants against a Lessee/Occupier
Positive Covenants
Covenantor
j
,,,Covenantee
//<:::~::~~,venants
oilly
Lessee/Occupier~
(b)
The covenant must relate to land of the covenantor (sub-s 41(2)a)
It is perhaps obvious that if the covenant is to affect the land of the
covenantor, then the covenant must relate to something to be done or not
done on or in relation to the land held by the covenantor. But not every
covenant that affects what the covenantor must or must not do on his land
will be binding upon a covenantor's successor in title. In order to be
enforceable, the covenant must be of benefit to the land of the covenantee.
Indeed, the justification for recognising a covenant as a proprietary interest
that affects the covenantor's land is this concept of benefit to other land.
Equity saw no justification in supporting the enforcement against third
parties of a covenant that conferred a purely personal advantage on the
covenantee. There is thus a vital link between this requirement and that
found in sub-s 41(2)(c), which looks to the question of benefit to the
covenantee's land. They are like different sides of the same coin - on one
side the covenant affects the land of the covenantor, and on the other the
covenant must confer a benefit on the land of the covenantee.
(c)
372
The covenant must be made for the benefit of the land of the
covenantee (sub-s 41(1)c)
LAND COVENANTS
This requirement has two limbs., First, the covenantee must own land, and
second, the land must be capable of benefiting from the covenant.
(d)
Land of the covenantee
The covenantee must own land to which the benefit of the covenant can
be attached. A covenant cannot exist in isolation: like an easement, it must
be appurtenant to land. This requirement is illustrated by the case of:13
FACTS
The defendant's husband owned land on which he wished to build. The
plaintiff gave him permission, provided he did not build on that part of the
land that was to be developed as streets. The land was transferred to the
defendant, who built three houses on the land including that part
designated for streets. The question was whether the defendant was bound
by the covenant.
JUDGMENT
The burden of the covenant did not run because the plaintiff had no land
that could be accommodated by the covenant.
The covenantee must not only hold land to which the benefit can attach
at the time of the creation of the covenant, but he must also retain an interest
in that land if he is to continue to be able to enforce the covenant. Once he
has disposed of his interest in the land, his right to take action is lost. In a deed
of mutual covenant it is common for the original parties to agree that the
developer should retain certain rights over the development, such as the right
to erect advertising signs or chimneys on the outside walls or roof of the
development. If the developer disposes of his entire interest in the development, then he loses his right to take action on this covenant for he no longer
has any land that is capable of benefiting from the covenant. The necessity
for a dominant tenement owned by the covenantee to which the benefit of
the covenant is attached and a servient tenement owned by the covenantor
over which the covenant is exercised is qualified in two instances.
(1)
Co-owners
A deed of mutual covenant of a multi-unit development is not made
between owners of separate but adjoining pieces of land but is made
between the co-owners of the same land and there is thus prima facie no
13
See also Formby v Barker [1903] 2 Ch 539.
373
HONG KONG LAND LAW
dominant and servient tenement. But sub-s 41(7) provides that the fact that
a covenant is between co-owners does not prevent the covenant being •
enforceable under the section.
(2)
Leasehold Reversion
A landlord's reversion may also constitute a separate interest in land in order
to satisfy the requirement. 14 It is on this basis that a landlord can justify
enforcing the covenants in his lease against a sublessee with whom he
enjoys neither privity of contract nor estate. It is his reversion that constitutes
the land to be benefited by the covenant in the lease.
(e)
Covenantee's land must benefit from the covenant
The second limb of the requirement provides that the land of the covenantee
must be intended to and be capable of benefiting from the covenant. The
covenant must thus affect the value of the covenantee's land or the mode of
its use or enjoyment. The requirement is similar to the test applicable to
leasehold covenants, being that the covenant 'touch and concern' the land
of the covenantee. 15 For instance, in Supreme Honour Development Ltd v
Lamaya Ltd 16 the court applied the latest test that was laid down by the
House of Lords in P&A Swift Investments v Combined English Stores Group
PLC 17 to determine when a covenant 'touches and concerns the land'.
Whether a benefit exists is a question of fact. The wording of
sub-s 41(2)(c) would suggest that the test is one of intention, and an express
intention at that; but it is submitted that this approach is incorrect. 18 It is not
sufficient, in the context of the passing of the burden of a covenant, that the
parties merely state that the covenantee's land is intended to benefit from
the covenant. That intention must be a view that can reasonably be held.
In fact, the wording of sub-s 41(2)(c) is more applicable to the test of
annexation, at which we will look when considering the passing of the
benefit of a covenant.
Traditionally the courts have looked for strict proof of benefit. For
instance, in the case of a large dominant tenement, the covenant had to be
capable of benefiting the whole of the covenantee's land unless the benefit
was severed and expressed to affect each and every part of the covenantee's
land. 19 More recent cases have tended to relax the strict proof of benefit, and
to presume that a benefit is conferred unless it can be shown that such a
view cannot be reasonably held.
14
15
16
17
18
19
374
Hall v Ewin (1887) 37 Ch D 74; and Regent Oil Co Ltd v ]A Gregory (Hatch End) Ltd
[1966] Ch 402
Rogers v Hosegood [1900] 2 Ch 388 •
[1991] 1 HKC 198
[1989] 1 AC 633
It is suggested that the section should read: 'which is capable and intended to benefit
the land of the covenantee ... '.
Re Ballard's Conveyance [1937] Ch 473 and Marquess of Zetland v Driver [193911 Ch 1
IAND COVENANTS
v ParP,,in'.PHomes
[1974) 1 WLR 798
FACTS
Part of the Wrotham estate was sold subject to a covenant that it should not
be developed except subject to a layout plan approved by the vendor. The
area sold was so developed except for a small triangular area reached by
a narrow path. This triangular area was sold to the defendant, who began
developing it although no layout plan approval had been obtained. The
plaintiff sought an injunction to restrain the development.
JUDGMENT
No injunction was granted, but damages were awarded. The court rejected
arguments that the covenant should no longer be enforceable because it
could no longer be said to benefit the Wrotham Park estate.
Brightman
J summarised the test as follows:
There can be obvious cases where a restrictive covenant clearly is,
or clearly is not, of benefit to an estate. Between these two extremes
there is inevitably an area where the benefit to the estate is a matter
of personal opinion, where responsible and reasonable persons can
have divergent views sincerely and reasonably held. In my judgment,
in such cases, it is not for the court to pronounce which is the correct
view. I think that the court can only decide whether a particular view
is one that can reasonably be held: 20
The requirement for benefit dictates that the covenantee's land should be
physically close to the covenantor's land. There is obviously no difficulty in
the context of a deed of mutual covenant, but difficulties can arise where the
covenant affects the use of land between different owners. A covenant
restricting the use of land in Yuen Long is not going to benefit land in Stanley!
CD The covenant must be intended to run with the covenantor's land
(sub-s 41(1)(b))
Section 40 of the Conveyancing and Property Ordinance 21 implies an
intention that a covenant relating to land is intended to bind not only the
covenantor but also his successors in title, eg his personal representatives
;and beneficiaries to whom he may assign the land and persons deriving title
from him or them eg a mortgagee or lessee. If a covenant is intended to bind
20
21
At 808D
The equivalent of s 79 of the Law of Property Act 1925
375
HONG KONG LAND LAW
only the covenantor, then it must be expressly phrased to that effect.22 The
section is merely a word-saving provision. It does not cause a covenant to bind
any person who would not otherwise be bound under the provisions of s 41.23
The similarity between easements and covenants is striking. There is the
need for a dominant and servient tenement, there is the need for proximity,
and there is the need for accommodation or benefit. Jessel MR in London
and South Western Railway Co v Gomm 24 described covenants as 'either an
extension in equity of the doctrine of Spencer's case to another line of cases,
or else an extension in equity of the doctrine of negative easements'. The
development of the law relating to restrictive covenants has taken over any
need to expand or further develop the categories of negative easements,
which remain an interest the courts are not prepared to extend. The Law
Reform Commission in England has recommended a greater assimilation of
the law relating to covenants and easements by the replacement of
covenants by a new interest in land called 'a land obligation', but their
proposals, radical as they are, have not yet been implemented. 25
15.3.3
Enforceability of Covenants
15.3.3.1
Occupiers and Subsequent Owners
As an interest in land, a covenant will bind any person on the land affected
by the covenant according to its relative priority. Given the equitable nature
of covenants, that priority originally depended upon the doctrine of notice.
All were bound except for the bona fide purchaser for value of the legal
estate ih the covenantor' s land who did not have notice of the covenant. The
effect of a covenant upon a third party is illustrated by the case of:
Re Nisbet and Pott;' Contract [1906] 1 Ch 386
FACTS
The plaintiff's title to land was dependent on adverse possession. He did
not know that the land was subject to certain restrictive covenants that
would have been revealed if he had investigated title for the full statutory
period. A purchaser from the plaintiff objected to his title because of these
restrictive covenants, but the plaintiff claimed that he took free of the
covenants as he had no notice of them.
22
23
24
25
376
See for instance Re Royal Victoria Pavilion Ramsgate [1961] Ch 581.
Tophams Ltd v Earl of Sefton [1967] 1 AC 50, where the convenantee owned no land
that could be benefited.
(1882) 20 Ch D 562 at 583
See Transfer of Land: the Law of Positive and Restrictive Covenants (Law Com No 127,
26 January 1984).
LAND COVENANTS
JUDGMENT
The covenants were similar to an equitable charge on the land, and as such
would bind all those on the land except a bona fide purchaser for value of
the legal estate without notice. The plaintiff had constructive notice of the
covenants, which he would have discovered if he had examined the title
for the statutory period.
In Hong Kong the doctrine of notice has largely been superseded by the
Land Registration Ordinance, 26 at least as regards instruments in writing,
including covenants. In order to retain priority against a purchaser, an
instrument affecting land must be registered. 27 It seems that a volunteer will
be bound by a covenant regardless of registration or notice, but the point
is not entirely free from doubt. 28
The interface between s 41 and the Land Registration Ordinance is not
clear. As we have seen, sub-s 41(3) states that a covenant falling within the
section is enforceable against subsequent occupiers or holders of an interest
in the land. There is no express requirement that the covenant be registered.
Sub7section 41(9) does provide that successive owners will be bound by a
covenant that is duly registered, whether or not they have notice of the
covenant, but it does not say that successive owners will not be bound by
a covenant that is not duly registered, irrespective of any notice. It is hoped
that, if the already limited registration system in Hong Kong is not to be
further eroded, sub-s 41(3) will be read in the light of the requirements of
the Land Registration Ordinance so as to require the registration of the
covenant before it can be enforced against a subsequent purchaser.
15.3.3.2 Original Covenantor
Privity of contract dictates that an original covenantor remains liable upon
a covenant even though he disposes of his interest in the land. However,
the dictates of privity are overridden by sub-s 41(8) of the Conveyancing
and Property Ordinance, which provides that a covenant will cease to bind
a person after he has ceased to have any interest in the land, except for a
breach committed while he held an interest. Thus the developer and the first
purchaser, as the original parties to a deed of mutual covenant, will cease
to be bound by its terms when they dispose of their interest in the
development provided, of course, that the covenant satisfies sub-s 41(2) and
is enforceable against subsequent owners.
26
27
28
Cap 128
See s 3(2) and Chapter 3.
See s 3(1) and Chapter 3.
377
HONG KONG LAND LAW
15.4
The Benefit -
Who Can Take Action?
The benefit of a covenant may pass both at law, in equity, and by statute.
15.4.1
At Common Law
It is possible for the benefit of a covenant to be assigned at common law
provided that:
• the covenant touches and concerns the land of the covenantee;
• there is an intention at the time the covenant was made that the
benefit of the covenant was to run; and
• the covenantee a~d assignee hold a legal estate in the land but not
necessarily the same legal estate.
15.4 .1.1 The Covenant Touches and Concerns the Land of the Covenantee
As the benefit of the covenant is to run with the land, the covenantee must
have land that can take the benefit of the covenant. Furthermore, the
covenant must 'touch and concern the land' of the covenantee in the sense
that it must benefit the mode of use of the land or its nature, quality, or value.
The 'touch and concern' qualification has its origins in the requirement we
have examined in relation to leasehold covenants.
There is no requirement that the covenantor own land to which the
covenant relates, because at common law the burden simply cannot run. 29
15.4.1.2
Benefit is Intended to Run
Section 39 of the Conveyancing and Property Ordinance 30 now introduces
into all covenants relating to land an intention that the benefit of a covenant
is to run unless a contrary intention is expressed.
15.4.1.3
Covenantee and Assignee Hold a Legal Estate
Only legal estates are recognised at law, and thus the covenantee and
assignee must hold a legal estate. At common law it was necessary for the
assignee to hold the same legal estate as the covenantee, but s 39 of the
Conveyancing and Property Ordinance now operates to permit an assignee
who takes a legal estate, but not necessarily the same legal estate as the
covenantee, to claim the benefit of a covenant by an assignment at law. Thus
a legal lessee or a legal mortgagee can claim the benefit if the other
conditions are satisfied. This change in the law was first noted in:
29
30
378
See, for instance, Smith & Snipes Hall Farm Ltd and others v River Douglas Catchment
Board [1949] 2 KB 500, where the defendant covenantor owned no land.
The equivalent of s 78 of the Law of Property Act 1925
LAND COVENANTS
,--~• '
~,-,-·· ~'"-· or.,.,,,_,,,"·-"-"• ~
••
-
-If
Smith and Snipes Hall Farm Ltd and others v
River Douglas Catchment Board [1949] 2 KB 500
FACTS
The defendant covenanted with several owners to repair and maintain the
banks of a river provided the owners bore the cost. One of the owners sold
her land to the first plaintiff, who in turn leased the land to the second
plaintiff. The river broke its banks owing to the defendant's negligent work
and caused damage to the plaintiffs' land.
JUDGMENT
Both the first and second plaintiffs were entitled to recover damages from
the defendant. Section 78 of the Law of Property Act 1925 had changed the
law to permit a person deriving title from the covenantee or their successors
in title (eg the second plaintifD, as well as the covenantee's successors or
assignees (eg the first plaintifD, to claim the benefit of the covenant.
The occasions when the benefit of a covenant can be assigned at law
are limited. Only the original covenantor can be sued, as the burden of the
covenant.cannot run at common law. Nor is an assignment at law of any
assistance if part of the covenantee's land is sold, because at law the benefit
of the covenant cannot be severed. These limitations are particularly
unhelpful in the case of the passing of the benefit of a deed of mutual
Covenant.
15.4.2
In Equity
There are three ways in which the benefit of a covenant may pass in equity:
• by assignment;
• by building scheme; and
• by annexation.
Historically each of these modes were hedged about with technicalities,
but recently the courts have taken a more relaxed attitude and looked to
intention rather than strict form. A number of these technicalities are, in any
event, unlikely to be the cause of difficulty in the context of deeds of mutual
covenant in Hong Kong, where it is generally possible to establish the
passing of the benefit by assignment or by a building scheme.
: I
15.4.2.1
Assignment
Some of the limitations encountered in the ability to assign the benefit of
a covenant at common law are overcome in equity. The burden of a
379
HONG KONG LAND LAW
covenant runs in equity and so an assignee of the benefit of a covenant can
take action in equity against the person responsible for the breach whether
they be the original covenantor or their successors in title. Nor does equity
have any objection to the severance of a covenant so that an assignee of the
benefit of a covenant can take action against a successor in title to part of
the original covenantor's land.
Assignment of the benefit of covenants is common in Hong Kong to pass
the benefit of deeds of mutual covenant; the standard wording of an
assignment of undivided shares of a unit in a multi-unit development
provides that the assignment is made 'subject to and with the benefit of the
deed of mutual covenant'. 31 The assignor thus assigns not only the property
but also the benefit of the deed of mutual covenant.
It appears that benefit must be assigned on each disposal of the land so
as to build up a chain of assignments, 32 although some earlier authorities
seem to suggest that an effective initial assignment may be sufficient to
attach the benefit of the covenant to the land once and for all.33
Apart from the need for express words of assignment or a clear agreement
to assign the benefit, there are three further preconditions to be satisfied.
(a)
The covenant must touch and concern the land of the covenantee
Again we find the requirement that we have already examined in relation
to both the passing of the burden of a covenant and the passing of the
benefit by assignment at common law. The element of benefit need not be
established from the express wording of the covenant itself; it may be
apparent from the surrounding circumstances. It was the surrounding
circumstances that established the requisite benefit in:
Newton Abbott Co-operative Society Ltd v Williamson & Treadgold Ltd
[1952] Ch 286
FACTS
A woman owned premises known as 'Devonia' on which she carried on
business as an ironmonger. She also owned property across the street,
which she sold. On the sale she took from the purchaser a covenant that
the purchaser would not use the premises for the business ofan ironmonger.
There was no indication in the covenant that the covenant was taken for the
benefit of Devonia. The woman died and left Devonia to her son, who
subsequently assigned Devonia to the plaintiff with the benefit of the
covenant. The property, subject to the covenant, was sold to the defendant
who started to sell items of ironmongery.
31
32
33
380
-~
See for example Form 1 Third Schedule of the Conveyancing and Property Ordinance.
Re Pinewood Estate [1958] Ch 280
Renals v Cowlisbaw (1878) 9 Ch D 125 at 130; and Rogers v Hosegood [1900] 2 Ch 388
•
IAND COVENANTS
JUDGMENT
The plaintiff was entitled to an injunction to restrain the defendant's breach
of the covenant. The covenant was not merely personal. The surrounding
circumstances showed that it was taken for the benefit of Devonia and not
just to enhance the business carried on there.
(b)
The covenantee's land must be ascertainable with reasonable
certainty
If the covenant is to benefit the land of the covenantee, it must be possible
to establish what that land is. The most likely place to find sufficient details
of the land to be benefited is from the covenant or deed itself. But the court
will also look to extrinsic evidence gleaned from the circumstances
surrounding the case. For instance, in the Newton Abbott case the covenant
contained no reference at all to Devonia, but nevertheless UpJohnJ looked
to the circumstances surrounding the taking of the covenant and concluded
that the covenant must have been taken for the benefit of Devonia.
This approach was also adopted by Wilberforce J in:
Marten v Flight Refuelling Ltd [1962] Ch 115
FACTS
Part of a large estate was sold and the purchaser covenanted that he would
only use the land for agricultural purposes. A portion of the land sold was
requisitioned for use as an aerodrome. After the war, the defendants were
allowed to use the aerodrome, part of which they used for industrial
purposes. The plaintiff became entitled to the estate, and the question was
whether the plaintiff was entitled to the benefit of the covenant.
JUDGMENT
The plaintiff was entitled to the benefit of the covenant. Even though the
details of the plaintiff's land to be benefited by the covenant could not be
ascertained from the deed, the court was satisfied that the covenant had
been taken for the benefit of the remainder of the estate.
There is no need, as there is at law, for the assignee to take an assignment
of the whole of the covenantee's land. The benefit of covenant can thus be
severed and assigned with different portions of the land.
(c)
The land and the benefit of the covenant must be assigned at the
same time
381
HONG KONG LAND LAW
The assignment of the benefit and the land must be contemporaneous, unless
action is being taken against the original covenantor when the benefit may
be assigned as a chose in action. In Miles v Easter 34 Romer LJ justified this
requirement on the basis that equity permitted the assignment of the benefit
of a covenant in order to dispose of the property to its best advantage. Thus,
if the covenantee 'has been able to sell any particular part of his property
without assigning to the purchaser the benefit of the covenant, there seems
no reason why he should at a later date and as an independent transaction
be at liberty to confer upon a purchaser such benefit'.
15.4.2.2 lBuilding Schemes
Early in the development of the law relating to covenants, equity recognised
that the enforcement of common covenants within a development merited
special consideration. Where a 'building scheme' or 'scheme of development'
could be established, equity would permit the reciprocal enforcement of the
common covenants by all owners within the development as a 'local law'
affecting the development. A building scheme will thus permit both the
benefit and burden to pass to all owners within the scheme but it is in the
context of the passing of the benefit that the doctrine has been most often
relied upon. The rule in Tulk v Moxhay has generally provided sufficient
authority upon which to establish the· passing of the burden to owners
within a building scheme.
The classic statement of the requirements necessary to establish a
building scheme is found in Elliston v Reacher, 35 being:
•
•
•
•
that the parties derive title from a common vendor;
the common vendor before selling lay out the estate in defined plots;
the common vendor impose the same restrictions on each plot sold
with the intention of benefiting all plots within the scheme; and
the parties purchase their plots on the footing that the restrictions are
mutually enforceable between the owners of all plots within the
scheme.
In Reid v Bickerstaff
36
an additional requirement was added:
• the area of the scheme of development must be certain:\
In fact, Elliston v Reacher laid out the requirements of a building scheme in
rather more stringent terms than is found in earlier authorities, which looked
rather to a community of interest in the reciprocal enforcement of common
covenants. 37 More recent English authorities have looked to these earlier
authorities to justify a relaxation of the requirements of Elliston v Reacher.
34
35
36
37
382
[1933] 1 Ch 611 at 632
[1908] 2 Ch 374
(1909] 2 Ch 305
Renals v Cowlishaw (1878) 9 Ch D 125; and Spicer v Martin (1888) 14 App Cas 12
LAND COVENANTS
FACTS
Robert Dolphin owned the Selly Hill Estate in Birmingham, which consisted
of 30 acres. After his death the bulk of the estate was sold off by nine
conveyances, the first four of which were sold off by his sisters and the
remainder by his nephew. All except the last were in identical form and
contained a covenant by the purchaser that every house be detached, cost
at least £400, have at least a quarter of an acre of ground and be 21 feet from
the road. The vendors further covenanted that they would impose similar
restrictions on the sale of other plots. The successors of one of the original
purchasers sought a declaration that the covenants were not enforceable in
the absence of assignment or annexation.
•
JUDGMENT
There was a building scheme, although the plots were not all derived from
a common vendor nor was there any evidence that the land was laid out
in plots before it was sold.
Stamp J was satisfied that there was sufficient intention evident from the
covenants to establish a local law for the common benefit of all owners on
the estate. He observed that:
... the equity arises not by the effect of an implication derived from
the existence of the four points specified by Parker J in Elliston v
Reacher or by the implication derived from the existence of a deed
of mutual covenant but by the existence of the common interest and
common intention actually expressed in the conveyances themselves. 38
Mutual enforceability does not depend on the implication of any contract
between the purchasers and the common vendor, but upon a common
intention that it would be inequitable to ignore. That intention may be gleaned
from the existence of a deed of mutual covenant, or by the laying out of the
development in lots and the imposing of a common set of restrictions on each
lot. The mere imposition of common restrictions willnot be enough, however,
if they are taken purely for the benefit of the vendor's retained land. They must
be taken with the intention that they are to be for the benefit of the estate as
a whole. The fact that the vendor covenants to impose similar restrictions on
all plots sold points towards a wider community interest. 39
38
39
At 664
See Re Dolphin's Conveyance[l907] Ch 654;.and Baxter v Four Oaks Properties Ltd
[1965] Ch 816.
383
HONG KONG LAND LAW
The area affected by the building scheme must be clear, although Stamp
J was satisfied that land need not be precisely identified in the conveyance
itself 'provided it can be otherwise shown with reasonable certainty.' 40 It is
important not only that the common vendor knows the area affected by the
scheme but also that the owners within the scheme know the extent of their
obligations and rights under the covenants.
,... .,. -~-·--·~·"'
~·-·-·
Emile Elias & Co Ltd v Pine Groves Ltd [1993] 1 WLR 305
FACTS
In 1938 a company divided a part of its land into five lots, which were sold
to different purchasers. The fifth lot was shown on the plans attached to the
conveyances of lots four and five but not on the other conveyances. The
purchasers of lots one, four and five entered into covenants with the company
including a covenant to erect only one dwellinghouse on the plots. A similar
restriction was also given by the purchasers of lots two and three but they also
entered into a number of other different restrictions. In 1948 the company and
four of the owners of lots one to five released the owner of lots four and five
from the covenant to enable him to build a house on lot five in addition to
the house he had built on lot four. The plaintiff became the owner of lot three
and the defendant the owner oflot one. In 1983 the defendant started to build
another house on lot one and the plaintiff started proceedings to enforce the
covenant contained in the 1938 deed, claiming that he enjoyed the benefit by
virtue of a building scheme covering the five lots.
JUDGMENT
There was no building scheme. The development failed to satisfy two
requirements of Elliston v Reacher. The area of the proposed scheme was
not laid out with sufficient certainty, the inclusion of lot five was not clear
to the purchasers of lots one to three and the purchasers had not all accepted
a common code of covenants.
The Privy Council thought it improbable that purchasers would accept
the burden of covenants under a scheme unless they also acquired the right
to enforce the same covenants against other owners within the scheme.
Reciprocity was thus a crucial element to any building scheme. The
covenants did not have to be identical, particularly where there were
different types of uses within a development, but where the lots were of a
similar nature and intended for a similar use 'a disparity in the covenants
imposed a powerful indication that there was no intention to create
reciprocally enforceable rights'. 41
40
41
384
At 659, applying Marten v Flight Refuelling Ltd [1962] Ch 115
at 311
LAND COVENANTS
The effect of a building scheme as a local law for the development is
illustrated by its effect on sub-purchasers who, although in no contractual
relationship with the common vendor, are nevertheless within the operation
of the scheme .
.......
Brunner v Greenslade [1971] Ch 993
FACTS
In 1926 the Bromley Park Gardens Estate was sold to a development
company subject to various restrictions, including a covenant to build only
private houses at a density of not more than eight per acre. Part of the estate
was sold to builders in 1928, who covenanted separately with the
development company to observe the 1926 covenants and also covenanted
not to build. more than one house on each building plot. The builders
divided their land into five plots and built one house on each plot which
they subsequently sold. An owner of one of the five plots sold part of the
plot to the defendant who started to build a house.
JUDGMENT
The plaintiff, as a sub-purchaser of one of the five plots, was entitled to
enforce the covenants in the head scheme even though the sub-purchasers
of the five plots had not themselves entered into covenants to that effect.
15.4.2.3
Annexation
Assignment involves the transfer of the benefit of the covenant from one
person to another. Annexation involves the automatic transfer of the benefit
with the land itself, so the benefit must thus become part of the land by the
process of annexation.
(a)
Express annexation
Traditionally, it has been necessary for the original parties to establish
annexation by showing an intention that the benefit of the covenant should
run with the land from the wording of the covenant itself. This wording must
sufficiently define the piece ofland to which the covenant is annexed, and also
express the covenant to be made either for the benefit of the land or for the
benefit of the covenantee in his capacity as owner of the land. For instance,
in Rogers v Hosegood 42 a covenant that was expressed to be entered into:
with the intent that the covenant might as far as possible bind the
premises . . . conveyed and every part thereof, into whosesoever
hands the same might come, and might enure to the benefit of the
42
[1900] 2 Ch 388
385
(
i
HONG KONG LAND LAW
mortgagees, their heirs and assigns and others claiming under them
to all or any of their lands adjoining or near to the premises
l
l
was held to be annexed to the land and to pass automatically to subsequent
purchasers, even though the purchaser might not know of the covenant. By
contrast, in Renals v Cowlishaw 43 a covenant failed to pass the annexation
test where it was taken for 'the vendors, their heirs, executors, administrators
and assigns'. The failure to connect the covenant with the land of the
covenantee was fatal. The reference merely to 'assigns' was not sufficient, as
• it might refer only to the assigns of the benefit of the covenant and not the land.
There has been some difficulty in establishing annexation where the
land said to be benefited is so large that it is doubtful whether the covenant
can indeed benefit the whole of the land. This doubt arose in the case of:
Re
Conveyance
FACTS
The purchaser of 18 acres of land, which formed part of the 1,700-acre
Childwickbury Estate, covenanted with the vendor, her heirs and assigns
and successors for the benefit of the owners for the time being of the estate
that he, his heirs and assigns would perform and observe certain covenants.
The plaintiff, as a successors in title of the vendor, claimed an injunction to
restrain a threatened breach of covenant.
JUDGMENT
The covenants could not possibly benefit the whole estate and therefore the
purported annexation of the covenant was ineffective. The court declined
to sever the covenant so as to annex the benefit to those parts of the estate
that could benefit.
This unfortunate result can be avoided by providing that the covenant
is taken for the benefit of 'each and every part of the estate'. This was the
solution achieved in:
Marquess
1
FACTS
A conveyance of a shop in Redcar, which formed part of a large estate,
contained a covenant by the purchaser 'to benefit and protect such part or
parts of the [estate] as should for the time being remain unsold or as should
have been sold' with the express benefit of a covenant 'not to commit any
386
43
(1878) 9 Ch D 125
LAND COVENANTS
nuisance to the vendor or the owners or occupiers of any adjoining property
in the neighbourhood'. The respondent purchased the shop and opened it
as a fish-;:ind-chip shop, The appellant sought an injunction to restrain this
use. He claimed the benefit of the covenant in his capacity as the successor
in title to the unsold land of the estate.
JUDGMENT
The appellant was entitled to the injunction. Although the whole of the
estate could not be said to benefit from the covenant, the. covenant was
expressed to be annexed to each and every part of the estate so as to permit
the severance of the covenant to those parts that could benefit.
But what if this formula is not expressed? There is some support for the
view that the omission of these words will not be fatal. For instance,
Brightman LJ in the Federated Homes Ltd v Mill Lodge Properties Ltd 44
indicated that, in his view, a covenant that is annexed to the land is annexed
to each and every part of the land unless there is a contrary intention
expressed. Furthermore, the more subjective approach thatthe courts have
taken to the question of whether the covenantee's land is capable of
benefiting from the covenant should assist by making it easier to pass the
benefit test. A benefit may be assumed unless it is a view that cannot be
reasonably held or supported. 45
(b)
Implied annexation
There is some support for the view that annexation can be achieved by
implication where it is obvious from the surrounding circumstances that the
parties intended the covenant to become annexed to the land. 46
(c) .. Statutory annexation
(,,,.-
<-..,
_ •••• ,.
It is unfortunately unclear to ";hat extent the Conveyancing and Property
Ordinance affects the passing of the benefit of a covenant relating to land.
There are two sections, ss 41 and 39, which may well do so - but neither
have yet been the subject of judicial consideration in Hong Kong, at least
so far as the running of the benefit is concerned.
(1)
Section 41
Sub-section 41(3) provides that a covenant falling within the section shall
be enforceable not only by the covenantee but also by the covenantee's
successors in title and assigns and persons deriving title from the covenantee
or his successors or assigns. At first sight the sub-section would appear
44
45
46
[1980] 1 WLR 594 at 606
Wrotham Park Estates Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798.
Rogers v Hosegood [1900] 2 Ch 388 at 408 and Marten v Flight Refuelling Ltd [1962]
Ch 115 at 133.
387
HONG KONG LAND LAW
automatically to pass the benefit. But not all covenants will fall within subs 41(3). To do so they must satisfy the requirements of sub-s 41(2), the most
significant part of which to this enquiry is that found in sub-s 41(2)(c):
'which is expressed and intended to benefit the land of the covenantee and
his successors in title or persons deriving title to that land under or through
him or them.'
This requirement, as worded, would appear to necessitate express
words to attach or annex the benefit of the covenant to the covenantee's
land before the benefit can pass automatically under sub-s 41(3). If that is
so, s 41 merely repeats the concept of express annexation. However, if the
sub-section provided that a covenant should be 'capable and intended to
benefit the land of the covenantee', a statutory passing of the benefit could
more easily be achieved with the assistance of s 39.47
(2)
Section 39
Section 39 provides that a covenant relating to land is deemed made with
the covenantee his successors and assigns and persons deriving title under
the covenantee or his successors and assigns unless a contrary intention is
expressed. Does this section conveniently automatically provide the intention
to benefit the land of covenantee that is demanded by sub-s 41(2)(c)? There
is authority in England to suggest that it does in the case of:
--■■••■■------------■
Federated Homes Ltd v Mill Lodge Properties Ltd [1980] 1 WLR 594
FACTS
A vendor sold three areas of development land known as the blue, red, and
green land respectively. The blue land was sold to the defendant subject to
a covenant that in carrying out the development of the blue land the
purchaser should not build at a greater density than a total of 300 dwellings
so as not to reduce the number of units which the vendor might eventually
erect on the retained land under the existing planning consent. The red and
green land were also sold and eventually came into the ownership of the
plaintiff. The defendants threatened to breach the covenant, and thus a
question arose as to whether the plaintiff could enforce the covenant. There
was an express assignment of the benefit of the covenant in respect of the
green land but not the red land. The covenant was not expressly given for
the benefit of the owner from time to time of the red and green land or for
the covenantee and its successors and assigns of the red and green land.
JUDGMENT
The plaintiff was entitled to the benefit in respect of the green land by
assignment of the benefit of the covenant, and in respect of the red land
47
388
Even a disjunctive reading of the sub-section, ie 'expressed or intended to benefit',
would assist in a statutory passing of the benefit.
LAND COVENANTS
because s 78 of the .Law of Property Act 1925 automatically annexed the
benefit of the covenant to all or any part of the land of the covenantee in
spite of the absence of express words of annexation.
Three interpretations of s 78 of the Law of Property Act 1925, which is
almost identical to s 38, were put forward in the Federated Homes case. First
there was the traditional or orthodox view that the section is merely a wordsaving provision to overcome the need to refer to successors and assigns
in the document itself. The second view was that the section effected a
statutory annexation, provided the land to which the benefit was to be
annexed was sufficiently identified in the document by express words or
necessary implication. The third interpretation was that the section achieved
an automatic statutory annexation of the benefit, provided the covenant
touched and concerned the land of the covenantee and that fact could be
established either from the document or extrinsic evidence.
Brightman LJ rejected the orthodox view and supported automatic
statutory annexation, whether on the second or third view. If a covenant
related to land in the sense that it touched and concerned the land, then on
the wording of the section it was enforceable by (1) a successor in title of
the covenantee, (2) a person deriving title from the covenantee or a successor
in title, or (3) the owner or occupier of the land intended to be benefited. 48
The decision has been subject to much criticism on two particular
grounds. First, it is said that the intention of the parties, upon which
annexation is based, is ignored because s 78 does not give way to a contrary
intention. However, this criticism cannot be levelled at s 39, which is
expressed to be subject to the contrary intention of the parties. Second, the
proponents of the traditional view suggest a comparison with s 79 of the
Law of Property Act 1925, 49 which is similar in form to s 78 of the Law of
Property Act 1925 50 but relates to the running of the burden. This section
has been held to be merely a word-saving provision and not a statutory
mechanism by which the burden of a covenant may automatically run. 51
The passing of the benefit of a covenant by statute is thus surrounded
by uncertainty in Hong Kong. Fortunately, as we have seen, the alternative
means by which the benefit can pass are of considerable assistance in Hong
Kong.
15.4.3
By Third Parties
We have considered the passing of the benefit from the covenantee to the
persons who obtain their title from the covenantee, but to what extent can
a third party claim the benefit of a covenant? At common law a person
intended to take the benefit of a covenant could only do so if they were
48
19
50
51
The predecessor to s 78, s 58(1) of the Conveyancing and Law of Property Act 1881
did not have the same effect. See J Sainsbury Plc v Enfield LBC [1989] 1 WLR 590.
See s 40 of the Conveyancing and Property Ordinance.
Sees 39.
Tophams Ltd v Earl of Sefton [1967] 1 AC 50
389
1
f;·
HONG KONG LAND IA W
l
named as a party to the covenant. This rule has now been altered by s 26
of the Conveyancing and Property Ordinance, which is based upon s 56 of
the Law of Property Act 1925 and provides that:
I
A person may take ... the benefit of any condition, right of entry,
covenant or agreement granted to him over or in respect of land,
although he may not be named as a party to the instrument.
It is clear from the terms of s 26 that the covenant or agreement must
relate to land. 52 The difficulty lies in defining who may qualify as 'a person'
for the purposes of the section. It is clear that although the reference to
person is not qualified in the section itself, it does not permit anyone to take
advantage of the covenant. In White v Bijou Mansions Ltd 53 Sir Wilfred
Greene MR stated that 'The mere fact that somebody comes along and says
"It would be useful to me if I could enforce that covenant" does not make
him a person entitled to enforce it under s 56.'
The person must be in existence and identifiable at the time the covenant
is made, since it must have been possible for him to have been a party to
the covenant.
I
I
;;;•
Re Ecclesiastical Commissioners/or England's Conveyance
[1936] Ch 430
FACTS
In 1887 the Commissioners sold land and took from the purchaser certain
covenants. The covenants were expressed to be made with the Commissioners
and their successors in such terms as to annex the benefit of the covenant
to the land retained by the Commissioners. A separate covenant was also
taken from the purchaser that he would enter into the same covenants with
their assigns, the owners for the time being of land adjoining or adjacent
to the land sold. The Commissioners had, prior to 1877, sold off various plots
near to the land sold. Successors in title to the land sold in 1887 applied for
a declaration as to whether the defendants, who were successors in title to
the plots sold prior to 1877, were entitled to the benefit of the covenants.
JUDGMENT
The defendants were entitled to enforce the covenants although their
predecessors in title were not parties to the original covenants. The
defendants were not in existence at the time the covenant was made and
so the benefit could not pass directly to them. But the benefit had passed
indirectly through their predecessors in title who were the owners of the
adjoining plots at the time the covenant was made.
52
53
390
See by contrast s 56 of the Law of Property Act and Beswick v Beswick [1968] AC 58.
[1938] Ch 351 at 365.
LAND COVENANTS
It also appears that the person must be named in, or at least identifiable
from, the covenant itself. For instance, in the Re Ecclesiastical Commissioners
case, the defendants: predecessors in title were generically referred to in the
covenant as the owners of the adjacent or adjoining land. The covenant
must also identify the person as someone who is specifically entitled to its
benefit or the section will not help. For instance, it is not enough for A to
agree with B to do something that will benefit C. A must agree with both
B and C. A case where the section failed to assist .for this reason is:
v Bijou Mansions
351
FACTS
In 1886 an area was sold for development. The vendors agreed with the
developers that they would directly convey or grant leases to the purchasers
to whom the. developers sold the houses they built on the land. The leases
or conveyances were to contain covenants restricting the use of the houses
to private residences. One of the houses was sold to F, and the conveyance
contained a covenant from F to use the house only as a private residence.
Subsequently N purchased another of the houses and entered into a covenant
with the vendors and developers, their heirs, successors, and assigns to use
his house only as a private residence. The defendants, who were lessees of
N's successors in title, started to use the property as flatlets. The plaintiff, a
successor in title of F, sought an injunction to restrain them from doing so.
JUDGMENT
The plaintiff did not have the benefit of the covenant given by N because
F was not within the scope of the benefit of the covenant given by N. The
reference to successors in title and assigns in the covenant related to the
vendor's subsequent successors and assigns, not those who had already
acquired land from the vendors.
15.5
Modification and Extinguishment
of Covenants
The covenants in a Crown or Government lease or any other deed relating
to land, whether between co-owners to regulate their ownership and
management of co-owned property, or between adjoining owners to
control the use of their respective lots, will prima facie remain enforceable
throughout the term of the Crown lease or any renewal of that term. 54 But
for a number of reasons it may be desirable to alter the terms of the
covenants or get rid of them entirely, For instance, co-owners to a
development may wish to modify their relationship in order to deal with
54
Section 15 Crown Leases Ordinance Cap 40 ands 7 New TerritoriesLeases
(Extension) Ordinance Cap 150.
391
HONG KONG LAND LAW
new situations that arise or to alter existing arrangements to achieve a fairer
arrangement, while changes in the character of the area, or the Government's
planning proposals for the area, may render user restrictions obsolete. Many
areas of Hong Kong change beyond recognition within comparatively short
periods of time. The relocation of the airport to Lantau, the extensive
reclamation of land within the harbour, and urban renewal proposals
contained in the Metroplan will change the face of Hong Kong as it moves
into the 21st century. Individual landlords and tenants may also wish to
modify the covenants that govern their relationship.
There is in Hong Kong no statutory mechanism by which a covenant
may be modified or extinguished. Such a mechanism would be welcome
because the means presently available under the general law are woefully
inadequate, particularly in the case of deeds of mutual covenant between
co-owners. By contrast, in England a covenant may be modified or
extinguished by statute: first, where it has become obsolete because of a
change in use of the land to which the benefit is attached or a change in
the character of the neighbourhood; second, where the covenant unreasonably restricts the use of the covenantor's land without providing any
practical benefit to the covenantee; third, where the parties entitled to the
benefit of the covenant have expressly or implicitly agreed to its modification or extinguishment; and last, where the proposed change will not
substantially injure the land of the covenantee. 55
15.5.1
Agreement
Those persons for the time being entitled to the benefit and subject to the
burden of the covenant may agree to its variation or extinguishment. Where
the covenant is created by deed, the variation or extinguishment should also
be by deed, although a written or even oral variation may give rise to an
estoppel. A Government lease covenant may, however, be varied in writing
by a letter of modification. 56
Where land affected by a covenant remains in the ownership of only a
small number, obtaining a variation by agreement creates little practical
problem. But it will often be impossible to effect the variation or
extinguishment of a deed of mutual covenant between co-owners by
agreement. All the current owners of the building and their tenants,
mortgagees, or others deriving title from the owners will need to be parties
to the deed of variation and there will often just be too many of them to make
any agreement realistic. Some deeds of mutual covenant seek to overcome
the problem by incorporating a provision empowering an owners' committee, comprising a number of elected representatives of the owners, to agree
to a modification of the terms of the deed on behalf of all the owners.
At common law a licence or permission to perform an act in breach of
covenant was not severable and had the effect of extinguishing the
covenant entirely. 57 It was thus not possible to grant a temporary modification
55
56
392
57
See sub-s 84(1) of the Law of Property Act 1925. There has been suggestion that this
provision could be incorporated into Hong Kong law by the Land Titles Bill.
Section 14A of the Conveyancing and Property Ordinance Cap 219
Dumpor's case (1603) 4 Co Rep 119b
LAND COVENAM
of a covenant to sanction a particular breach. For instance, if a landlord
agreed that a tenant could sublet part of the premises despite a covenant
against subletting in the lease, the landlord could then not prevent the
tenant from subsequently subletting the premises to another sub-tenant.
The covenant was extinguished by his first variation. This rule is amended
bys 29 of the Conveyancing and Property Ordinance, 58 which provides that
the permission will only approve the particular breach actually sanctioned.
15.5.2
Estoppel or Acquiescence
We have already seen in the context of leasehold covenants that a landlord
may waive his exercise of a right of re-,entry for breach of covenant. In the
context of other deeds of covenant, equity may also intervene to deprive
a covenantee of an effective means of redress.
The enforcement of covenants is usually dependent upon the availability
of injunctive relief. The grant of such relief is within the discretion of the
courts, who may decide that there are circumstances that do not justify the
exercise of their discretion in favour of enforcement: for instance, if the
covenantee has delayed in seeking redress or has in some other way
indicated that he will accept the breach.
Peter and Angeli Wong Co Ltd v Silverera Ltd [1995] 3 HKC 411
FACTS
A Crown lease included a covenant that no buildings were to be erected on
the land 'except one detached or semi-detached private residence of
European type'. Before proceeding with plans to redevelop the site with the
erection of a low-rise block of flats, the developer entered into extensive
correspondence with the Government to confirm that they would not object
to the development or to the selling off of the individual flats. The
Government acting through the District Land Office confirmed that under
the current policy flatted development was allowed in the area
notwithstanding the restriction in the lease. Acting in reliance on this
assurance the developer obtained approval of the plans for the block of
flats, which was subsequently built. Almost ten years later, a prospective
purchaser of a flat within the block queried the title of the seller on the basis
that there had been a breach of the Crown lease.
JUDGMENT
There was clear evidence to suggest that the Government would be
estopped from taking action to enforce the covenant. The Government had
represented that they would not take action, which the developer had relied
on by proceeding with the development.
58
See s 143 of the Law of Property Act 1925.
393
HONG KONG LAND LAW
This case is to be contrasted with the case of CitiwardLtd v Tai Ping Wing 59
in which a developer had already constructed a block of flats on a site, the
Crown lease of which contained a covenant to build no more than one
detached or semi-detached private residence, before they obtained an
assurance from government that it was not their current policy to enforce
the covenant. The vital change of position thus was not made in reliance
on the assurance and no estoppel arose.
An estoppel also may be implied from inactivity on the covenantee's
part, although it is clear that the circumstances must be extreme. 60
J-i■l-~~llllfll',~!i:fl!f~
___ '.
Fairfax Ltd v AG [1995] 2 HKC 401 & 617
.,,~.---~=
...
--·~·-•---0
~-
.• ,
..
FACTS
The Crown lease granted in 1862 contained a covenant requiring the lessee
to erect one or more villa residences on the site. Over the years a number
of buildings had been erected on the site ranging from three to 26 storeys.
In 1957 a six-storey building was erected on part of the site and between
1992 and 1993 the plaintiff gradually acquired all the units in this building
at a cost of almost HK$60 million. It then sought permission to redevelop
that part of the site but was informed by the District Lands Office that the
proposed development was in breach of the Crown lease.
JUDGMENT
The Government's failure to take any action to enforce the covenant for
almost 40 years constituted a clear case of 'notorious and avowed
acquiescence' and would be presumed to have intended to release the
covenant.
15.5.3
Unity of Ownership
If the land of the covenantor and covenantee becomes vested in the same
person, the covenant will be suspended until separate ownership of the two
tenements is restored or unless the tenements form part of a building
scheme. 61
59 [1995] 2 HKC 181
6 Contrast Citiward Ltd v Tai Ping Wing [1995] 2 HKC 181
61
See for example Wong Kam Lan v Well Win Investment Ltd [1995] 3 HKC 381.
°
394
Multi-Unit Developments
16.1
Introduction
Hong Kong is renowned the world over for its dramatic skyline dominated
by clusters of skyscrapers. The steep terrain of much of the Territory and
an ever-growing population has made it imperative that Hong Kong makes
the very most of the building land it does have. These demands have taxed
the engineers and architects to design ever-higher buildings on ever-steeper
slopes and even to create more land by reclamation. The lawyers too have
been called upon to create legal frameworks to provide for the ownership
and management of these 'castles in the air'.
The common law has always approached with suspicion the conceptof
ownership of an air space. The basic principle, as we saw in Chapter 1, is
that an owner of a piece of land owns everything beneath, on and above
the land. This principle is based not just on an abstract desire to support the
absolute nature of ownership but also on practical considerations, A piece
of air space is little use on its own-,- how would you get to it, what would
you do with it? It is dependent on the ground and air space beneath for
support and the provision of access and supply of services and on what is
above for shelter. Multiple ownership of a piece of land thus calls for careful
regulation of reciprocal rights and obligations.
A further important consideration is an effective mechanism for the
repair and management of a building that is owned and occupied by more
than one person. In addition to obvious health considerations, it makes little
economic sense to expend large sums in maximising land use only to let
the buildings erected fall into disrepair. It must be dear who is responsible
for repairing what part of the building and who bears the cost of doing so,
particularlywhere a part of the building is used by more than one person
so that these obligations need to be shared.
To be effective, these regulations and mechanisms must be enforceable
against all the owners and.other occupiers for the time being of the building,
and yet flexible enough to be able to adapt and cater for a change of
circumstances. All this adds up to quite a tall order - at least as demanding
in legal terms as it is for the engineer and architect to design a building 40
storeys high on a steep slope in an area renowned for typhoons and land
slips.
16.2
Multi-ownership
Structures •
Skyscrapers are by no means unique to Hong Kong; across the world
lawyers have had to provide formulti-unit ownership and occupation. They
have developed a number of legal structures to do so.
395
J
HONG KONG LAND LAW
16.2.1
Leases
In England, lawyers have adapted the lease to provide for the ownership
of buildings in multi-ownership, whether they be flats or office blocks. The
owner of a unit is granted a lease of the unit of which they are to have sole
use - remember exclusive possession is an essential requirement of a
lease. The landlord will retain ownership of the common parts of the
building but grant the unit lessees rights by way of easements over the
common parts to provide support and shelter and access to the unit, both
for the unit lessees and for the services which are required for use in the
unit. Often the landlord will not wish to retain any interest in the
development. In this situation the unit owners may take over the ownership
collectively by forming a company, in which they all own shares. The
company will act as landlord and hold the freehold reversion of their units
and the ownership of the common parts. A separation of the ownership and
occupation of the units and common parts is necessary in order to create
the dominant and servient tenements that are essential for the support of
the easements over the common parts. Occasionally, where there are only
a small number of unit lessees, they may hold the freehold reversion of the
units and the common parts as trustees for themselves in order to achieve
the same separation of ownership, albeit nominal.
The covenants in the unit leases provide a mechanism for the control and
repair of the units and the common parts. These leasehold covenants will
be enforceable against subsequent unit owners through the doctrine of
privity of estate, which as we have seen allows for the running of the benefit
and burden of both positive and negative obligations, provided the
covenants relate to the land.
The limitation of the unit owners' interest to a leasehold estate is
somewhat artificial. There is ofteri no real intention to limit the extent of the
unit owners' ownership to a certain duration. Where the unit owners control
the management company, they are able to exercise the company's powers,
as landlord for instance, to extend the leases of units when the initial grant
expires, to collect the rent and management charges and to exercise of the
right to forfeit or to take other action to enforce leasehold covenants. The
lease does, however, facilitate the enforcement and running of the essential
positive obligations, for instance of repair and payment of management
charges, which freehold covenants have failed in England to achieve, and
it regulates the use of the common areas by creating the nominal separation
of dominant and servient tenements that is necessary to support the
easements and covenants that govern the use of the common areas.
In Hong Kong, leases are used where the developer wishes to obtain
their return not from the sale of the building but from the rental that is
produced when the building is let on short-term tenancy agreements. For
instance, many of the premier office developments in Central are leased by
developers in this way. The developer lets the units on tenancy agreements
for terms that rarely exceed five years and are often for much shorter
periods. Ownership of the common parts is retained by the developer who
will grant the tenant easements, often by way of implied grant of necessity
396
MULTI-UNIT DEVELOPMENTS
or through the operation of the rule in Wheeldon v Burrows, for instance to
provide for access to the unit or for the supply of services and the provision
of support and shelter. The use of the unit is regulated by the covenants
contained in the tenancy agreement, which usually also provide for the
payment of a portion of the developer's costs in repairing and maintaining
the common parts through the payment,of a management charge.
16.2.2
Strata Titles
An alternative to the rather artificial use of the lease is to recognise by statute
the ownership of a piece of air space. Several common law jurisdictions
have taken this step, including Australia and Singapore, with the introduction
of a system of strata titles. 1 The concept behind a strata or commonhold title
is that the unit holder should own their unit in perpetuity, as opposed to
a limited leasehold term, and that the common parts of the development are
held by the unit holders as co-owners or by a corporate body in which each
owner of a unit is a member and has a share. The strata ownership by the
unit holder and the ownership of the common parts are regulated by a
network of statutory rights and obligations and the responsibility for the
management of the development is vested in the owners' corporation.
Proposals have been made in England to move to a concept of strata title
through the introduction of commonhold title. Although these proposals
have been considered for some time it is only now that they appear to have
captured the attention of the Parliament and seem likely to become a
reality. 2 There is nothing inherent in the Hong Kong system of leasehold
title which contradicts the principles behind strata title; there is no reason
why the perpetual nature of a strata title could not be adapted to operate
within the framework of a Government lease. Common codes of rights and
obligations within a multi-unit development are structures with which
conveyancers in Hong Kong are becoming increasingly familiar and could
be painlessly converted to a statutory form. The concept of an owners'
corporation in relation to the common parts of a development is also not
new to Hong Kong; it has existed for some time in a voluntary form. The
stage could thus easily be set for the introduction of a concept of strata title
in Hong Kong- a development which could be encouraged by the current
consideration of title registration.
16.2.3
Co-ownership
In Hong Kong, lawyers have adapted co-ownership to provide a structure
for the ownership of multi-storey buildings. This structure has proved so
popular that it is also used to provide for the ownership of housing
See the New South Wales, Strata Titles Act 1973 and the Singapore, Land Titles
(Strata) Act5 No 2 of 1976 & No 23 of 1982
The Law Commission Command Paper, Commonhold:Freehold Flats and the freehold
ownership of other interdependent buildings (Cm 179) was published in July 1987.
There have been reports that their proposals may be enacted by Parliament by the
end of 1996.
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HONG KONG LAND LAW
developments where a number of units, often of a high-class character, are
built on their own individual plot within a larger site which may provide
common facilities in the form of estate roads, or even a swimming pool or
other recreational facilities. 3
All the owners of a multi-unit development in Hong Kong are _co-owners
of the whole of the land and the buildings erected on the land, which they
hold as tenants in common in shares which usually bear some relationship
to the size of individual units within the development. The essential unity
of co-ownership, namely unity of possession, gives each co-owner the right
to use all parts of the development including the common parts, for
instance, the driveway, entrance hall and lifts. However, the co-owners do
not want to occupy each other's units - they want individual occupation
of their own units. This exclusive possession, which would at first sight
appear repugnant to the idea of unity of possession, is achieved by an
agreement binding on each co-owner granting individual owners the right
to exclusive occupation of 'their unit'. By this agreement a de facto partition
is achieved.
Thus, if we take a six-storey building with two flats per floor, each flat
owner will hold a 1/12 share as a tenant in common of the whole of the land
and the building and will be granted the exclusive right to hold, use, occupy
and enjoy the flat of which they are 'the owner'.
Fig 16.1
Multi-storey Buildings
1/12
1/12
1/12
1/12
1/12
1/12
1/12
1/12.
1/12
1/12
1/12
1/12
It is also necessary to have an agreement binding on all the owners to
cater for the use, maintenance and repair of the common parts and facilities.
For instance, the common entrance hall might be used by one of the coowners in such a way that it would interfere with the other co-owners'
access to their units; it might be obstructed by the co-owner's belongings.
The unit owners would have difficulty in suing the offending owner in
trespass, since they are all entitled to possession of the common parts, but
they can agree between themselves that the entrance hall will only be used
for access and will not be obstructed.
Perhaps the most extensive and dramatic example is Discovery Bay on Lantau Island.
398
MULTI-UNIT DEVELOPMENTS
The ~greement between the co-owners to regulate their co-ownership
of the building and provide for the building's effective management is
known as a deed of mutual covenant, commonly known as the 'DMC'. We
must now consider in a little more detail how this deed regulates the c