GROUP LEADER LTD AND OTHERS v. THE PERSONAL REPRESENTATIVE OF THE ESTATE OF LEUNG YIN MEI, DECEASED

CACV 61/2015
and CACV 110/2015
(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 61 and 110 OF 2015

(ON APPEAL FROM LDCS NO 27000 of 2011)

________________________

_______________________

(HEARD TOGETHER)

____________________

JUDGMENT

____________________

Hon Lam VP (giving the Judgment of the Court):

1. We dismissed this appeal on 1 March 2016 with our Reasons for Judgment handed down on 16 March 2016. By 2 Notices of Motion of 29 March 2016, the Director of Lands, the 17^th Respondent [“the Director”], seeks leave to appeal to the Court of Final Appeal. The question set out in the Notice of Motion issued in CACV 61 of 2015 as the question of great general or public importance [“GPI”] is as follows:

“ 1.  Where undivided shares of a lot previously held by the Government as bona vacantia were assigned to a party who covenanted to the Government that he would not further dispose of those undivided shares without the prior written approval of the Government, whether the Government has locus standi to be joined as a party to or intervene in an application for compulsory sale order under the Land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545)(“LCSRO”) involving those undivided shares to allow the proper ventilation of the Government’s interest arising from the said covenant?”

2. The Notice of Motion issued in CACV 110 of 2015 set out another GPI question:

“ 1. Whether, on a proper construction of the LCSRO, the market value of a property on the lot as assessed pursuant to the requirements identified in Part 1 of Schedule 1 to the LCSRO (i.e. the existing use value) should be the price at which the property would change hands in a hypothetical sale and purchase between a hypothetical seller and a hypothetical buyer?”

3. In our judgment, we decided the question in CACV 61 of 2015 against the Director.  We also held that as a result of our determination of the issue in CACV 61 of 2015, the Tribunal should not entertain the Director’s submissions on the question raised in the context of CACV 110 of 2015.  We therefore did not consider it appropriate for us to decide the issue raised by the Director in CACV 110 of 2015.

4. In support of her application in CACV 61 of 2015, the Director basically repeated her arguments before us.  We have explained in our judgment why we rejected those arguments.  A major contention of the Director is that the expression “all the rights of any prior owner” in Section 8(1) encompasses rights which did not run with the land and were not proprietary in nature.  In light of that subsection referring to “rights of any prior owner … in or over the lot or any part thereof” and the definition of such rights in Section 8(6) (confining it to rights exercisable by virtue of ownership of an undivided share in the lot which affect the lot), we remain of the firm view the Director’s contention is not reasonably arguable.

5. Mr Mok also referred to the other statutory provisions in the Ordinance to support his contention.  We have adequately addressed the same in our judgment and we do not regard what Mr Mok said in his submissions in support of the Notice of Motion as taking the matter further.  We do not think that to be reasonably arguable.

6. For these reasons, we would dismiss the Motion in CACV 61 of 2015.  It also follows that there is no basis why the Court of Final Appeal should be troubled with the issue raised in CACV 110 of 2015.  We shall also dismiss the Notice of Motion in that appeal.

7. We shall also order the Director to pay the costs of the 1^st to 9^th Applicants in respect of the Notices of Motion, with certificate for 2 counsel, such costs are to be taxed if not agreed.

8. In the supplemental submissions of Mr Mok of 13 June 2016, counsel referred us to an affirmation of 26 February 2016 and submitted that the notices of appeal had been served on the 7^th, 10^th, 12^th to 15^th Respondents.  He further submitted that those respondents were parties to the appeals before us.  On the other hand, Mr Mok appeared to accept that there had not been any effective service of the notices of appeal on the 2^nd, 3^rd and 16^th Respondents.

9. However, from the court records, these appeals had always proceeded as appeals between the Applicants and the 17^th Respondent only.  The Notices of Appeal endorsed with certificate of service lodged pursuant to Order 59 Rule 5(1)(b) for setting down the appeals were notices of appeals endorsed only with service on the solicitors for the Applicants.  The notices of setting down lodged with the court only specified the solicitors of the Applicants as the other party to whom notices were given.  A consent summons of 26 March 2015 in CACV 61 of 2015 and a consent summons of 31 May 2015 in CACV 110 of 2015 were only signed by solicitors for the Applicants and Government Counsel acting for the 17^th Respondent.  As a result, notices of hearing were only given to these parties.

10. In the circumstances, though there may be an inaccuracy at paragraph 2 of our judgment of 27 May 2016 regarding service of the notices of appeal, we stand by our conclusions in that judgment.

CACV 61/2015
and CACV 110/2015
(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 61 and 110 OF 2015

(ON APPEAL FROM LDCS NO 27000 of 2011)

________________________

_______________________

(HEARD TOGETHER)

____________________

JUDGMENT

____________________

Hon Lam VP (giving the Judgment of the Court):

1. We dismissed these appeals on 1 March 2016 and handed down our reasons for so doing on 16 March 2016.

2. Though the title of the appeals included a large number of respondents, only the 1^st to 9^th applicants and the 17^th respondent were parties to the appeal.  The 17^th respondent has not served any copies of the notices of appeal on the other respondents in accordance with Order 59 Rule 4.  At the hearing on 1 March 2016, we did not accede to the request of the 17^th respondent to adjourn the appeals for adding the other respondents as parties to the appeals.

3. After we dismissed the appeals, the 17^th respondent issued a Notice of Motion on 29 March 2016 seeking leave to appeal to the Court of Final Appeal.  Solicitors for the 17^th respondent, the Department of Justice [“DoJ”] served the Notice of Motion on the other respondents as well.

4. By a letter of 31 March 2016 sent only to DoJ and solicitors for the 1^st to 9^th applicants (on the basis that they were the only parties to appeals) the court enquired whether they agreed to have the motion processed on papers. 

5. In a joint letter of 7 April 2016 signed by DoJ and solicitors for the 1^st to 9^th applicants, they agreed to paper disposal of the Motion and directions for the filing of written submissions by them.

6. The court gave such directions accordingly on 14 April 2016.

7. The court became aware of the service of the motion on other respondents when a representative of the 16^th respondent wrote to the court seeking guidance in connection with the motion.  It appeared that the motion was served on the 16^th respondent on 29 March 2016.  On 8 April 2016, the representative responded by writing to DoJ stating that the 16^th respondent had not been a party to the appeals.  On 20April 2016, DoJ replied by stating that “the 16^th Respondent was made and intended to be made a party” in the appeals and the Motion was served on the 16^th respondent “who is intended to be made a party” to the applications for leave to appeal to the Court of Final Appeal.

8. In light of that confusion, the court replied to the 16^th respondent in a letter of 27 April 2016, copied to DoJ and solicitors for the applicants, stating as follows:

“ According to court record, the 16^th respondent is not a party to CACV 61/2015 and CACV 110/2015 as the Notices of Appeal had not been served on them. The 16^th respondent should seek advice from lawyers rather than from court.”

9. Notwithstanding such reply, on 6 May 2016, DoJ filed an ex parte application for directions for substituted service of the Motion on the 2^nd and 3^rd Respondents.

10. Initially, in view of the history of the matter, in a letter of 10 May 2016, the court invited DoJ to proceed by way of inter partes in order to have the question of whether the motion should be served on the other respondents to be properly ventilated at a hearing.

11. DoJ replied by a letter of 19 May 2016 questioning the court’s position that only the Appellants and the 17^th respondent were parties to the appeals before the court.  DoJ further indicated that irrespective of the position at the substantive hearing of the appeals, the 17^th respondent now intended to make the other respondents “parties to the process for the appeal against the Court of Appeal’s judgment” as their interest may be affected.

12. DoJ characterized the ex parte applications as an application for substituted service on the 2^nd and 3^rd Respondents as they could not be identified or located.

13. Having considered the submissions of DoJ in the letter of 19 May 2016, we find it necessary to set the record straight as to who were the parties in the appeals before us.

14. Since DoJ did not serve the notices of appeal on the other respondents, there had been no appeal as far as those other respondents were concerned.  Unless the 17^th respondent obtains extension of time to serve notices of appeal in another sets of appeals against these other respondents, they are entitled to regard the decision of the Tribunal on 8 October 2014 as final.  Up to now, there is no application for extension of time to serve any notice of appeal on those other respondents.

15. As far as this court is concerned, we only heard the appeals between the applicants and the 17^th respondent.  There was no effective appeal before us concerning the position of the other respondents.  In the context of these appeals, we did not have any jurisdiction to make any order which could affect the interest of those other respondents who were not parties before us.

16. It also follows from this analysis that even if there were to be any appeals to the Court of Final Appeal, the Court of Final Appeal cannot make any order affecting those other respondents since we have not heard any appeals concerning those persons.

17. It is wholly misconceived for the DoJ to suggest that they could simply make those other respondents as parties to the intended appeal to the Court of Final Appeal by serving the Notice of Motion on them. At the very least, DoJ must first apply for extension of time to serve a fresh set of appeals against those other respondents before the 17^th respondent could begin to challenge the finality of the decision of the Tribunal on 8 October 2014 as far as those respondents are concerned.

18. In the circumstances, the ex parte application for substituted service on the 2^nd and 3^rd respondents is likewise misconceived.  The 2^nd and 3^rd respondents should not be parties to the Motion as they were not parties to the appeals.

19. For these reasons, we dismiss the ex parte application of 6 May 2016.

CACV 61/2015
and CACV 110/2015
(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 61 and 110 OF 2015

(ON APPEAL FROM LDCS NO 27000 of 2011)

________________________

_______________________________

REASONS FOR JUDGMENT
_______________________________

Hon Lam VP (giving the Reasons for Judgment of the Court):

1. By its judgment of 8 October 2014, the Lands Tribunal made an order under the Land (Compulsory Sale for Redevelopment) Ordinance Cap 545 [“the Ordinance”] for all undivided shares in the Remaining Portion of Section A of Inland Lot No 834 to be sold by way of public auction and appointed trustees to discharge the relevant duties under the Ordinance. The Tribunal also gave certain directions regarding the net proceeds of sale.

2. These are appeals by the Director of Lands ["the Director"] against that judgment.  The first appeal (CACV 61/2015) was brought by leave granted by the Tribunal on 2 March 2015.  The second (CACV 110/2015) was brought with leave granted by Lam VP on 8 May 2015.  However, as there had not been any stay of execution, the auction duly took place and the lot was sold.  The 1^st Applicant acquired all the interest in the lot in the auction.  The proceeds of sale had been distributed according to the order of the Tribunal. 

3. The Director was not an owner of the lot at the time of the application.  However, the 8/364th shares in the lot [“the 8 shares”] in respect of the Roofs and Exterior Wall of the building had been vested in the Government as bona vacantia on 15 August 1969 upon the dissolution of the original developer company, Tai Shun Investment Company Limited. 

4. The building erected on the Lot was known as Western Court.  It was a building completed in 1961 with the occupation permit being issued on 31 May 1961.  A unit in the building was first sold by the developer to a purchaser by an assignment of 15 September 1961 with a deed of mutual covenant executed on the same date. 

5. In 1994, the Buildings Department found that parts of the external areas of the building were liable to become dangerous and issued a building order on 12 January 1994 requiring certain works to be undertaken.  In the same year, the Buildings Department also found that there were unauthorized structures attached to the external walls and wrote a letter to the Incorporated Owners of Western Court [“the IO’] on 2 August 1994 asking them to remove the same.

6. It would appear that as a result of actions taken pursuant to this correspondence, it was discovered that the Government was the owner of the 8 shares.  The Government decided to dispose of the 8 shares to the IO without charging any premium (except an administrative fee of $1,000) pursuant to its policy. The purpose of the policy was to exonerate the Government from the burden of (and incidental liability arising from) the management and ownership of properties of this nature. 

7. One of the conditions of the disposal was that there shall be no further assignment without approval from the Government.  By an assignment of 22 February 1996, the 8 shares were assigned by the Government to the IO.  The assignment contained a covenant by the IO to the Government that it would not assign, mortgage, charge, underlet, part with the possession of or otherwise dispose of the 8 shares without the prior written approval of the Government [“the Covenant”].

8. Thus, at the time when the application was made under the Ordinance in 2011, the Government had ceased to have any ownership in the lot. 

9. However, the Director claimed that she had an interest in the proceedings arising from her right to charge a premium for the disposal of the 8 shares.  The relevant history leading to the joinder of the Director in the proceedings and procedural history after the joinder were set out at paragraphs 18 to 31 in the judgment of the Tribunal on 8 October 2014:

“ 18. Messrs Lo & Lo, on behalf of the applicants, sent a letter dated 29 January 2013 to R16 [viz the IO]  requesting it to assign the Roofs and Exterior Walls to the applicants or anyone of them at nil consideration and to furnish them with the written approval of the Government required under the Restrictive Covenants.

19. On or about 17 April 2013, Messrs Lo & Lo received from R16’s solicitors, Messrs Yam & Co, a copy of the letter dated 12 April 2013 from the 17^th respondent (“R17”) [viz the Director] who asserted that the Government would only consider granting approval to R16 for assigning the Roofs and Exterior Walls to the applicants or the successful bidder at public auction (if an Order for sale of the Lot should be made by the Tribunal) subject to payment by R16 of an administrative fee and premium to be assessed and other additional terms and conditions which might be imposed in granting the approval.

20. In its Notice of Opposition filed on 8 May 2013, R16 averred inter alia that:

(a) The market value of the Roofs and Exterior Walls on their existing uses basis as at 8 February 2013 was “NIL”;

(b) Because of the Restrictive Covenants, R16 would not be entitled to any financial benefits from an assignment of the Roofs and Exterior Walls to the applicants or anyone of them or to the successful bidder of the Lot in the auction sale if an Order for sale of the Lot should be granted by the Tribunal under the Ordinance.

21. On 10 May 2013, Messrs Lo & Lo wrote to the Department of Justice who acts for R17 expressing the applicants’ concern on whether R17 would agree with the applicants and R16 on their position about the existing use value of the Roofs and Exterior Walls, suggesting if not inviting R17 to be joined in the Application to take care of the Government’s position.

22. Upon the application of the applicants by way of Summons filed on 9 September 2013 (“the Summons”) and by consent of R17, the Tribunal ordered that R17 be joined in these proceedings (“Judge Ko’s Order”).

23. By way of a consent order dated 29 October 2013, leave was granted for R17 to file its expert valuation report in respect of the Roofs and Exterior Walls.

24. At the hearing on 21 January 2014, it was ordered that the applicants and the respondents who had filed their Notices of Opposition do file and serve an Agreed List of Issues for Trial on or before 6 March 2014.

25. An Agreed List of Issues For Trial signed by the applicants, R13 and R15 to R17 was filed on 6 March 2014 which consisted of Section A to D, namely :

A. Issues not in dispute but subject to proof by the applicants;

B. Additional Issues to be determined by the Tribunal;

C. Issues in dispute between the applicants and R17 only and to be determined by the Lands Tribunal; and

D. Issues in dispute between R16 and R17.

26. Section C of the Agreed List of Issues involved the following 3 areas of dispute :

(1) Whether the Roofs of the Buildings have a market value (“EUV”);

(2) If answer to (1) above is “yes”, how much is the EUV of the Roofs; and

(3) What are the respective EUVs of 5 named properties.

27. Section D of the Agreed List of Issues involved 3 areas of dispute :

(1) Whether or not R17 is a minority owner as defined in the Ordinance and whether R17 has any proprietary interests in the Roofs and Exterior Walls;

(2) Whether R17 is entitled to receive a premium and administrative fee under the Restrictive Covenants; and

(3) If answer to (2) above is “yes”, how much are the premium and administrative fee payable by R16 to R17.

28. At the hearing on 13 March 2014, it was ordered that “the Trial of this Application (except for the issues between R16 and R17) be fixed for trial (“Judge Wong’s Order”).

29. Before the Pre-Trial Review held on 5 August 2014 (“PTR”), the applicants had taken out a summons dated 21 July 2014 asking for 2 additional issues to be heard and determined by the Lands Tribunal at trial.  They are :

(1) Whether the Lands Tribunal has any jurisdiction and power to hear and determine R17’s claim against R16 incidental to and arising out of the Restrictive Covenants in these proceedings; and

(2) Whether the issues in dispute between R16 and R17 as listed under Section D of the Agreed List of Issues for Trial filed in these proceedings on 6 March 2014 should be resolved in proceedings other than the subject proceedings.

30. At the PTR, this court had asked counsels for the applicants and R17 as to what happened at the hearing before Judge Wong and why the issues of locus concerning R17 as well as the 2 additional issues suggested by the applicants are not being directed to be dealt with as a preliminary issue.  Yet, both counsels failed to point out the fact that Judge Wong’s Order had in fact rendered issues between R16 and R17 as stipulated in Section D of the Agreed List of Issues should not be dealt with at this trial. 

31. This resulted in the order dated 5 August 2014 that 3 additional issues, ie the 2 issues raised by the applicants in §29 above as well as the locus of R17, are to be heard at the trial of this Application in order not to upset the trial dates fixed for this case.”

10. The Applicants contended before the Tribunal that the Director had no locus in the proceedings given that she had no proprietary interest in the lot.  At paragraphs 32 to 57 of the judgment of 8 October 2014, the Tribunal considered the submissions of the parties and came to the conclusion that the Director could take part but limiting her role to the additional issue (1) and the issues in Section C of the Agreed List of Issues.  Notwithstanding its finding that the Director was not a minority owner and not a party anticipated by the Ordinance to have an involvement in the main application as of right, the Tribunal considered participation of the Director could be allowed under Order 15 Rule 4 and this was the combined effect of the 2 orders of Judge Ko and Judge Wong, see paragraphs 46 to 57. 

11. At paragraphs 55 and 56, the Tribunal ruled against the Director on additional issue (1) and held that it had no jurisdiction in the proceedings before it to decide on the Director’s entitlement to charge a premium.  The Tribunal’s reasoning was as follows:

“ 55. R17’s entitlement to charge premium cannot be considered an issue arising from and in relation to the present application for an order for sale since this is not something required to be considered by the Tribunal under s.4 of the Ordinance. The jurisdiction of this Tribunal is well defined in s.8 of the Lands Tribunal Ordinance. The claim by R17 against R16 for the premium is a contractual claim which does not fall within any of the provisions under s.8. It is beyond argument that this Tribunal does not have jurisdiction over the issue as to whether R17 is entitled to claim for the premium or how much is it. Parties cannot confer jurisdiction on the Tribunal. And we agree with Ms Ngai that with a compulsory order for sale, R17’s consent in the sale need not be forthcoming. According to s.11(1)(b) of the Ordinance, the trustee appointed by the Tribunal is the assignor to the assignment and not any minority owner. The assignment of the Roofs and Exterior Walls is not done by R16 so the Restrictive Covenants do not come into play. We agree with Judge Wong’s Order that Section D of the Agreed List of Issues should not be considered at this trial and disagree with R17 that the 2^nd Issue arises from and are in relation to the Application or formed part and parcel of it.

56. As for s.4(9) of the Ordinance relied upon by R17, we find the argument is misplaced.  S.4(9) empowers the trustees under an order for sale,  to apply to the Tribunal for directions in case of doubt or difficulty.  We cannot see how R17 can rely on this subsection when it is not the trustee and no order for sale had been made yet.”

12. Another attempt was made on behalf of the Director to argue that the Tribunal has jurisdiction to consider her entitlement to charge premium in the context of these proceedings in the Director’s application for leave to appeal by reference to section 8 of the Ordinance.  The arguments were considered in the written decision of the Tribunal of 2 March 2015 paragraphs 7-18.  The Tribunal rejected that contention in these terms:

“ 14. R17’s entitlement under the Restrictive Covenants is not a right “exercisable by virtue of the prior owner’s ownership of an undivided share in the lot”, but rather a contractual right exercisable under the Assignment.  And as rightly pointed out by Ms Ngai, Section 11(7)(c) did preserve the right of any interested party to claim against the proceeds of sale.  If Section 8(1)(a) is the legal provisions to confer jurisdiction over the claim on the proceeds of sale which renders such claim to be dealt with at the hearing of the application for compulsory sale, Section 11(7)(c) will be otiose.

15. We maintain our findings in the Judgment that the jurisdiction of this Tribunal in compulsory sale application is specifically spelled out in Section 4 of Cap 545.  The only provision about the distribution of proceeds of sale which is relevant is Section 4(6)(a)(iii) which reads:

“ (6) Where the Tribunal makes an order for sale, it may order …

(a) relating to –

(iii) subject to section 11(5), the application of the proceeds of the sale including –

(A) the holding by the trustees of such part of those proceeds as is specified by the Tribunal in view of any lis pendens affecting the lot; and

(B) the payment of that part of those proceeds, upon the occurrence of an event specified by the Tribunal, to such person or persons as is or are specified by the Tribunal.”

16. This echoes with Section 11(7)(c) that the lis pendens can be a claim by the interested party affecting the lot, concerning the ownership over the lot or as in this case, the entitlement of any person towards the proceeds of sale .  And “rights of any prior owner … except to the extent, if any, specified in the order” mentioned in Section 8(1)(a) must be referring to the right to the proceeds preserved under Section 4(6)(a)(iii).”

13. This court has said previously that applications for leave are not the proper occasion for giving supplemental reasons for a judgment.  It follows that generally it is not proper for additional substantive grounds not argued at the trial to be raised on such occasion.  In the present case, we are of the view that the Director should have made an application for review to canvass the arguments based on section 8 so that the point could have been determined by the Tribunal on a proper footing.  Be that as it may, the Tribunal accepted that the point, being one going to jurisdiction, could be canvassed on appeal and proceeded to consider its merits.  For our part, we are grateful for the Tribunal’s view in that regard and we have no objection to the section 8 point being taken in the appeal.  However, as for the future, we expect parties to adopt the proper procedure for the running of a fresh argument.

14. At the trial, the IO did not contest the valuation by the Applicants that the EUV of the Roofs and Exterior Walls should be nil.  However, the Director adduced expert evidence to contest this issue and her case was that the EUV should be $9.1 million.  The Tribunal considered her evidence and determined that the EUV of the Roofs and Exterior Walls should be nil. 

15. In these appeals, the Director challenged the Tribunal’s decisions on the jurisdiction issue as well as the valuation of the EUV of the Roofs and Exterior Walls. 

16. For the reasons given below, after hearing counsel on the jurisdiction issue, we came to the conclusion that the Director has no locus in these proceedings and the Tribunal should not therefore have had regard to her contentions on the EUV issue.  We therefore did not find it necessary to hear counsel on the EUV issue. 

17. Before we embark on the discussion of the submissions of counsel before us, we would start by observing that it is perhaps more appropriate to examine the matter from the angle of locus standi rather than focusing on the question of jurisdiction, though the two questions are related: if the Tribunal has no jurisdiction to make an order affecting the Director, it would be highly indicative that the Director has no locus in the proceedings.  As its preamble suggests, the Ordinance was enacted to enable the majority owners to make an application to the Tribunal for an order of sale for the re-development of the lot.  Thus, primarily these are proceedings between the majority owners and the minority owners. 

18. The statutory scheme and its objectives have been fully discussed and explained in earlier cases: Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578 and Good Faith Properties Ltd v Cibean Development Co Ltd [2014] 5 HKLRD 534.  In the former case, Ribeiro PJ identified four different phases in an application under the Ordinance: (i) the application for an order for compulsory sale; (ii) the determination by the Tribunal; (iii) the sale; and (iv) apportionment and application of proceeds of sale. 

19. There is nothing in the statutory scheme to suggest third parties’ interests would be affected by an order made by the Tribunal for sale apart from tenants (there are specific provisions dealing with the termination of their tenancies).  Thus, prima facie, persons who are not majority owners or minority owners do not have any locus in the first two phases of an application.  In this regard, we are in respectful agreement with the decision of the Court in Pacific Crown Enterprises Ltd v Man Yu On HCMP 2846 of 2012, 7 Feb 2013 which held that the disputes and objections with which the Tribunal should be concerned in the first phase should be those of the minority owners. 

20. By way of preliminary observation, we are of the view once it is clear that the Director has no locus in the proceedings, the Tribunal should not regard itself as being tied down by the consent order made under Order 15 rule 4.  A court (and likewise the Tribunal in the present case) could review the position of joinder at any stage of the proceedings.  The consent order could not give locus to a party who, on fuller consideration, does not have locus as a matter of law.  Once the court reaches the conclusion that a party who had been joined has no locus, it should order that person shall cease to be a party pursuant to Order 15 Rule 6(2). 

21. Thus, with respect to the Tribunal in the instant case, it should not have regarded the consent order of Judge Ko as determinative of the question of locus.  Instead, when it arrived at the conclusions at paragraphs 55 and 56 of the judgment of 8 October 2014, it should have considered the question of locus in light of those conclusions.

22. Subject to our analysis below on the legal effect of the Covenant, we agree with the conclusions reached by the Tribunal in those two paragraphs.

23. Mr Mok, appearing with Mr Chan, tried to persuade us that the Tribunal was wrong by referring us to the following provisions in the Ordinance:

(a) Section  4(6)(a)(i) to (iii): empowering the Tribunal to give directions on sale of the lot, the termination of tenancies and the application of proceeds of sale;

(b) Section 4(6)(b): payment of proceeds into the Tribunal;

(c) Section 11(2)(c): payment to majority and minority owners in accordance with directions;

(d) Section 4(6)(c): power to make other directions;

(e) Section 8(1)(a): protection of purchasers regarding the rights of prior owners; and

(f) Section 4(9): application for further directions by the trustees or the majority owners or minority owners for further directions in case of doubt or difficulty.

24. Though Mr Mok’s submissions concentrated on Section 8, we can briefly address the other provisions.  In light of our agreement with the holding in Pacific Crown Enterprises Ltd v Man Yu On, supra, as to the scope of dispute before the Tribunal, we cannot see how the Director could derive assistance from section 4 in respect of locus standi in the first phase.  Whilst it is correct that the Tribunal may give directions relating to the application of the proceeds of sale to cater for “lis pendens affecting the lot” under section 4(6)(a)(iii)(A), it does not give the Tribunal jurisdiction to determine the lis pendens.  Nor would it give a plaintiff in a lis pendens the locus to seek to be heard on questions as to whether there should be a sale, the setting of reserve price and the apportionment of the proceeds between the majority and minority owners.  At the highest, such a plaintiff could only seek directions from the Tribunal to secure the proceeds in respect of the shares of the lot on which he might have a claim.  As we shall see, the Director does not even fall within that category for she has no claim on the land or the 8 shares.  This analysis also disposes of Mr Mok’s reference to Section 11(2)(c) which depends on his arguments on section 4(6).

25. We do not believe the reference in Section 4(6)(c) to directions “which are not inconsistent with the other provisions of this Ordinance” gives a free rein to the Tribunal in hearing from persons who are neither the majority owners nor minority owners in the proceedings or to determine disputes independent from those stipulated in other parts of the Ordinance.  Reading it in context that provision is purely remedial to cover for details pertaining or incidental to the sale and directions for the handling of the proceeds of sale.  This is indicated by the applicability of Section 4(4)(a) and (5) in respect of the directions given under Section 4(6), viz to be served on the owners.  Likewise, section 4(9) does not take the matter further. 

26. We now turn to Section 8.  Mr Mok asked us to read this section as a conveyancing device giving an absolute good title to the purchaser without regard to the nature of the title problems.  Further, though he agreed that the Covenant does not run with the land as the Director does not have any interest in the land (see Sky Heart v Lee Hysan (1997-8) 1 HKCFAR 318 at p.341-2; Wong King Lim v IO of Peony House [2013] 4 HKC 295), he submitted that the Director’s entitlement to enforce the Covenant is a right affecting the lot and such right of the Director (as a prior owner) would be extinguished by Section 8(1)(a) of the Ordinance upon the sale.  Thus, the Director must have a right to be heard to ensure that her interest is adequately secured, in terms of her interest in the sale proceeds, in a sum equivalent to the premium that the Director would have been entitled to charge for the approval to be given to the sale.

27. The material parts of Section 8 are in the following terms:

“ (1) Where the lot the subject of an order for sale is sold ---

(a)  immediately upon the purchaser of the lot becoming the owner of the lot all the rights of any prior owner (including the prior owner’s assigns or personal representatives) in or over the lot or any part thereof shall absolutely cease except to the extent, if any, specified in the order.”

…

(6) In this section ---

‘prior owner’, in relation to a lot ---

(a) means a person who formerly owned an undivided share in the lot;

(b) does not include the purchaser of the lot;

‘rights’, in relation to a prior owner of a lot, means all rights which

(a) were exercisable by virtue of the prior owner’s ownership of an undivided share in the lot; and

(b) affect the lot.”

28. First, it should be noted that it is not a provision giving absolute title to the purchaser.  The extinguishment of interest only relates to “the rights of any prior owner in or over the lot or any part thereof”.  Thus, though an incumbrance affecting the lot would have to be discharged (and could be discharged by the trustees applying the proceeds for that purpose, see Section 11(2)(b) of the Ordinance), such incumbrance generally does not include Chinese customary rights, easements, rights of way or covenants that run with the land, see Section 11(8). Such an excluded incumbrance may give rise to title problems which plainly are not covered by Section 8.

29. Second, even assuming (without deciding) for the moment that the Director could satisfy the meaning of “prior owner”[1], it is difficult to see how the Covenant could be regarded as a right in or over the lot or any part thereof in view of the indisputable fact that the Covenant does not run with the land.  In this respect, we agree with the Tribunal (and Mr Mok was unable to dispute) that the Covenant can only be enforced as a matter of contract between the Director and the IO.

30. By the same token, we do not agree with Mr Mok that though the Covenant does not run with the land, it is a right affecting the lot.  As the Covenant could only be enforced by way of contract, it does not give rise to any proprietary interest in the land.  It is not even an incumbrance on the land.  As such, it would not affect the land.

31. Mr Mok submitted that the Director can enforce the Covenant by seeking an injunction to prevent the IO from selling.  However, it would not be a breach of the Covenant if the IO merely took a neutral stance in the compulsory sale proceedings.  The Covenant does not require the IO to take positive steps to resist the application or to assign its interest back to the Director in the light of such proceedings.  As the Tribunal pointed out, a sale ordered by the Tribunal would not be a sale or assignment by the IO.  We have not heard submissions as to whether the compulsory sale constitutes the “otherwise” disposal of the 8 shares within the meaning of the Covenant.  Even if it does, it would be difficult to envisage a court granting an injunction to prevent the IO from complying with an order made by the Tribunal when the IO actually need not do anything to facilitate the sale going through.  The more likely outcome in proceedings by the Director to enforce the Covenant may be an award in damages against the IO, assuming the Director has a good cause of action.  Even so, the Director could not obtain any proprietary relief in respect of the land.  Thus, no matter how the Director’s case is analysed, there is no proper justification for regarding the Covenant as a right affecting the lot. 

32. Nor can the right to enforce the Covenant be described as a right “in or over the lot or any part thereof”.  In this connection, there is a difference between a right in respect of the lot and a right “in or over” the lot.  The latter can only be referring to a right of a proprietary nature and the Director’s right to enforce the Covenant by way of contract does not fall under the scope of it. 

33. Thus, we are of the clear view that the Director cannot pray in aid section 8 to give her locus to appear in the compulsory sale proceedings.

34. The fallacy of Mr Mok’s submissions lies in his underlying assumption that the Director’s right to enforce the Covenant would be extinguished by section 8.  On our analysis as explained above, the Director’s right (which has always been non-proprietary) is not affected.  The bottom line is that her right, being non-proprietary in nature, has always been precarious in that it cannot be enforced as a covenant running with the land or as an interest affecting land.  By the assignment to the IO, the Government gave up its interest in the land (for good policy considerations in terms of not taking up the responsibility and liability as owner) and chose to accept a personal covenant from the IO as the only means to exercise its control.  There is no justification for the court to elevate its right to a proprietary one simply because that means of control appears to be precarious in the case of compulsory sale.

35. According to our analysis, it is not within the jurisdiction of the Tribunal in the compulsory sale proceedings to adjudicate on the extent to which the Director could demand a premium and to assess the quantum of the premium.  For our part, we have doubts about the proposition that the Government should be entitled to charge a premium equal to the portion of sale proceeds attributable to Roofs and Exterior Wall (that is, assuming they have an EUV above zero).  We can see that there could be arguments on whether the principle for assessing premium demanded by the Government for modification of lease conditions can automatically be transposed to the present situation. Conceptually, the situations are quite different.  However, as it is not a matter coming within the jurisdiction of the Tribunal and it has not been argued before us, we shall say no more.

36. Mr Mok also drew an analogy with situations where there are disputes on title leading to arguments between parties with competing claims to the portion of sale proceeds attributable to the interest of a minority owner.  He contended that in that type of cases, the Tribunal could order the trustee to retain that part of the proceeds pending the resolution of that dispute in some other proceedings.  Mr Mok submitted that the Tribunal must have similar power to direct the trustee to retain the proceeds attributable to the Roofs or Exterior Wall pending litigation between the Director and the IO on the premium.

37. With respect, we cannot accept this submission. To start with, one must examine whether the Director’s interest is proprietary in nature.  For the reasons above, we are of the view that it is non-proprietary.  There is thus a material difference between the present case and the scenarios put forward by Mr Mok. 

38. For a person like the Director who has no proprietary claim over the land, until she obtains a judgment in her favour and a charging order based on that judgment, she could not enforce her claims on the land.  In that respect, she is in the same position as a contractor who had executed building works for the IO and sued the latter for balance of the sum due.  It can hardly be the intention of the legislature to envisage that such a contractor, before having obtained a judgment, can have the locus to require the Tribunal to hear him on the question of whether there should be a compulsory sale and how the EUV of the Roofs and Exterior Wall should be assessed.  In our judgment, the Director stands in the same position.

39. The fact that the Director might be interested in claiming upon the IO’s share of the proceeds does not necessarily mean that she has a right to be heard on how the EUV is to be assessed by the Tribunal. Her claim being a non-proprietary one, she was, at the time when the Tribunal heard the application for compulsory sale, only a potential judgment creditor of the IO.  The practice of the court is not to permit such a person to intervene in proceedings, see Sanders Lead Co Inc v Entores Metal Brokers Ltd [1984] 1 WLR 452 at p.460.  It is difficult to see how in such a capacity she could demand to be heard at the first phase of the proceedings.

40. For these reasons, we respectfully disagree with the Tribunal that Order 15 Rule 4 could be relied upon to permit the Director to adduce evidence and submissions on the valuation of EUV.  As we said earlier, the Tribunal should have considered exercising its power to order the cessation of the Director as a party upon reaching the conclusion that issues relating to the Covenant should not be litigated in the context of the compulsory sale proceedings. 

41. In the present case, there was no dispute between the majority owners and the minority owners on the valuation of EUV regarding the Roofs and the Exterior Wall.  Under the Ordinance, as it has no jurisdiction to determine issues relating to the enforcement of the Covenant, the Tribunal does not have jurisdiction to determine a dispute on such valuation of EUV between the Director and the IO even assuming it to be an issue arising from the enforcement of the Covenant.  There is no reason why the majority owners, in their capacity as majority owners, should be engaged with the Director on such an issue in light of the lack of standing of the Director in the compulsory sale proceedings.  It is putting the cart before the horse to refer to such issue as giving rise to jurisdiction to entertain the Director’s evidence in these proceedings.

42. In the circumstances, we concluded that the Tribunal was correct in holding that the Tribunal had no jurisdiction to determine issues arising from the Covenant between the Director and the IO.  In light of that, the appeal in CACV 61 of 2015 fell to be dismissed.

43. In respect of CACV 110 of 2015, though we did not hear submissions on the valuation issue, it follows from our analysis above that the Tribunal should not engage in such issue.  By reason of that this appeal also fell to be dismissed.

44. We also ordered the Director to pay the costs of the 1^st to 9^th Applicants in these appeals with certificate for 2 counsel, such costs are to be taxed if not agreed.