LOK KIN CHUEN v. THE INCORPORATED OWNERS OF LOCKHART HOUSE
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DCCJ 1343/2022
[2025] HKDC 1658
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO 1343 OF 2022
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BETWEEN | ||
| LOK KIN CHUEN (駱健全) | Plaintiff | |
| and | ||
| THE INCORPORATED OWNERS OF LOCKHART HOUSE | Defendant | |
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| Before: | Deputy District Judge N. Hui in Chambers (Open to Public) |
| Date of Hearing: | 4 July 2025 |
| Date of Decision: | 30 September 2025 |
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DECISION
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Background
1. I refer to my judgment dated 10 April 2025 of this same action (“the Judgment”) where I adopt those same terms and abbreviations in this decision. I made the following orders in the Judgment at §155:
(1) A declaration that the defendant has lost its right to bring any action to recover the storeroom or any part thereof from the plaintiff pursuant to section 7 of the Limitation Ordinance;
(2) A declaration that the defendant’s title to the storeroom has been extinguished by virtue of section 17 of the Limitation Ordinance;
(3) A declaration that the plaintiff has acquired a possessory title to the storeroom;
(4) The defendant’s counterclaim be dismissed;
(5) Order nisi that the defendant do pay the plaintiff the costs of this action and counterclaim to be taxed if not agreed with certificate for counsel. Unless any of the parties apply by way of summons to vary it, the costs order nisi shall be made absolute 14 days from today.
2. The plaintiff by summons dated 16 April 2025 sought a variation of the costs order nisi made in §155(5) of the Judgment (“the O 22 Summons”) which was stated hereinabove.
3. The O 22 Summons is based on the defendant’s non-acceptance of the plaintiff’s sanctioned offer made on 13 April 2023 (“the Sanctioned Offer”) pursuant to the Rules of the District Court, Cap 336H (“RDC”) per O 22, r 24 whereby the plaintiff offered, as follows:
“TAKE NOTICE that the Plaintiff, LOK KIN CHUEN (駱健全), is prepared and hereby offers to accept that lifetime tenancy of the Rooftop Storeroom be given by the Defendant to the Plaintiff in full and final settlement of the whole captioned action.” (emphasis added).
4. The O 22 Summons was further narrowed in scope by Mr Bernard Lam, counsel for the plaintiff, where variation of the Judgment at §155(5) is as follows:
(1) costs incurred before and up to 11 May 2023 (ie the deadline for accepting the Sanctioned Offer) to be taxed on the usual party and party basis (with certificate for counsel); and
(2) costs incurred after 11 May 2023 to be taxed on an indemnity basis, pursuant to O 22 r 24(3)(a) RDC (with certificate for counsel). P does not seek any enhanced interest under O 22 r 24(3)(b) RDC.
5. Mr Lam’s written submissions clarified that the ultimate relief the plaintiff seeks pursuant to the O 22 Summons is the usual indemnity costs order for costs incurred after 11 May 2023 as found in the second half of the O 22 Summons since the first half of the O 22 Summons is the standard order on costs to be given as per the Judgment.
6. In Mr Lam’s written submissions, he indicated that the defendant through the affirmation of Kwan Man Yi dated 16 May 2025 (“Affirmation of Kwan”) the chairperson of the defendant, is that the only live issue was whether pursuant to RDC O 22, r 24 the court “shall” award indemnity costs after 11 May 2023, or that the court is to depart from the usual indemnity costs order on the exception that it would be “unjust” to do so. Mr Li Pak Hei, counsel for the defendant does not agree to this characterization of the defendant’s position on the O 22 Summons and has made this known in both his written and verbal submissions. At the hearing, Mr Lam acknowledged Mr Li’s position and rightfully withdrew his aforesaid position previously found in his written submissions, a considerate and appropriate concession.
7. It will be noted that the Affirmation of Kwan stated that, inter alia, the defendant was not in a position to grant a lifetime tenancy to the plaintiff for the storeroom due to, inter alia, the storeroom was identified in the deed of mutual covenant (“DMC”) of the building at clauses 3(a) and 4(i)(iv) as being common parts of the building.
8. Furthermore, the Affirmation of Kwan stated that by operation of s 34I(1)(b) (and consequently by s 34I(2)) of the Building Management Ordinance, Cap 344 (“the BMO”) no person may use the common parts of the building in such a manner as unreasonably to interfere with the use and enjoyment of those parts by any owner or occupier of the building or to cause a nuisance or hazard to any person lawfully in the building and therefore a grant of lifetime tenancy to the plaintiff could not be approved.
9. Of relevance and as a secondary position, the Affirmation of Kwan also mentioned that the plaintiff’s claim of adverse possession is materially different from the offer or claim of a lifetime tenancy of the storeroom as per the Sanctioned Offer.
RDC O 22
10. RDC O 22, r 24 states that:
“24. Costs and other consequences where plaintiff does better than he proposed in his sanctioned offer (O. 22, r. 24)
(1) This rule applies where—
(a) a defendant is held liable for more than the proposals contained in a plaintiff’s sanctioned offer; or
(b) the judgment against a defendant is more advantageous to the plaintiff than the proposals contained in a plaintiff’s sanctioned offer.
……
(3) The Court may also order that the plaintiff is entitled to—
(a) his costs on the indemnity basis after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court; and
(b) interest on those costs at a rate not exceeding 10% above judgment rate.
(4) Where this rule applies, the Court shall make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so.
(5) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3), the Court shall take into account all the circumstances of the case including—
(a) the terms of any sanctioned offer;
(b) the stage in the proceedings at which any sanctioned offer was made;
(c) the information available to the parties at the time when the sanctioned offer was made; and
(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.
(6) The power of the Court under this rule is in addition to any other power it may have to award interest.”
11. Mr Li cited Lau Chung v Hui Keng Yee and Another[2025] HKCFI 2229 at §17 where a three-stage approach is adopted in considering an application for variation of costs order nisi:
(1) In the first stage, the court has to consider whether the operation of O 22, r 24 is triggered by the satisfaction of either of the conditions under O 22, r 24(1);
(2) If the first stage is satisfied, then in the second stage, the court has to consider whether it is unjust to make an order under O 22, rr 24(2)-(3); and
(3) If it is not unjust for the court to make an order under O 22, rr 24(2)-(3), then the court, in the third stage, would have to consider the precise orders to be made.
12. Mr Li submitted that that the answer to the first issue is in the negative and that to the second issue is in the affirmative.
Adverse possession and the Judgment
13. A typical adverse possession case relates to a plot of rural land found in the New Territories where the plaintiff may be a farmer and/or inhabitant (and possibly their descendant) that claims to have lived on such a location for long and continuous period of time (ie 20 or 12 years in length of time, depending on when the adverse possession allegedly took place as per the Limitation Ordinance, Cap 347) with animus possidendi and the defendant typically may be the registered owner of that same plot of rural land.
14. The orders at §155 of the Judgment are typical in the relief being sought by a plaintiff in an adverse possession case.
15. However, the facts of the present case are quite different from a typical adverse possession case since the present case relates to the storeroom found on the roof of the building which is a common part of the building under the deed of mutual covenant. Notably the building is a multi-storey residential location found in the heart of Hong Kong island with the defendant being the incorporated owners of the building.
Substance of the Sanctioned Offer
16. For the avoidance of doubt, both parties agree that the present case is one where there is no directly or substantively comparable precedent regarding settlement on similarly proposed terms with a similar factual matrix per se.
17. To begin with, comparing on the face of what is being sought under the sanctioned offer to that of the relevant declaratory relief at orders at §155(1)-(3) of the judgment (“the plaintiff’s declaratory relief”), they are simply different.
18. When considering the plaintiff’s declaratory relief, Mr Lam began by submitting that a lifetime tenancy should be approached from trite principles. Mr Lam cited from his supplemental list of authorities Goo and Lee, Land Law in Hong Kong (5th Edn) at §6-53 on what a possessory title is and then at §6-55 on what can be done with a possessory title:
“6-53 The title acquired by an adverse possessor is called a possessory title or a good holding title. Though it stems only from possession, this title is absolute, but it falls short of a good title, ‘one which can at all times and in all circumstances be forced on an unwilling purchaser’. A good holding title is transmissible, but it has been suggested that the vendor ‘should supplement his title by a statutory declaration that he has been in undisturbed possession of the property for so many years without acknowledging the right of any person’.”
“6-55 It should be noted that even before the adverse possessor successfully acquires his new title under the Limitation Ordinance, he has acquired a title, by virtue of his possession, as against the whole world except those who can claim a better title than him. He can assign this title, even within the limitation period, or dispose of it by will or under the rules of intestacy. The assignee, or those who succeed to the adverse possession under his will or the rules of intestacy, can count the period of his possession towards the period of their adverse possession.”
19. From the foregoing, Mr Lam submits that the possessory title denotes ownership albeit the general nature of a possessory title is not as good as an ordinary absolute title. The plaintiff’s declaratory relief is consistent with that of a possessory title in relation to the storeroom.
20. Mr Lam then invited this court to consider from his supplemental list of authorities the case of Wong Chi Hung v Lo Wing Pun & Ors[2023] HKDC 1664 where DDJ Gary CC Lam stated principles at §12 of his decision that related to a liquidated sum which was the basis of a plaintiff’s sanctioned offer in that particular case, namely:
“Order 22 is entirely procedural in nature, and does not affect the general law of contract: see Rai v Pacific Construction (HK) Co Ltd [2011] 3 HKLRD 469 at §20 per Bharwaney J. Therefore, the general legal principles governing contractual constructions apply in construing a sanctioned offer. Salient to the present application are the legal principles of contractual construction that: (1) terms are to be construed objectively in context; and (2) terms are to be construed with reference to the factual background known to both parties.”
21. For completeness sake, it is noted that the court when considering O 22 in other instances has held that the court should not consider the parties’ contractual intentions since it is an exercise that creates uncertainty and thus irrelevant as per Asahi Iwasawa & Associates Management Consultants Ltd v Shibakawa (Hong Kong) Ltd, HCA 969/2014, [2023] HKCFI 2340, DHCJ Le Pichon, 12 September 2023 at §§27-30 while having considered the decision in Rai v Pacific Construction (HK) Co Ltd [2011] 3 HKLRD 469.
22. In any event, Mr Lam cited from his supplemental list of authorities the cases of Yumul Jennifer Concepcion v Tam Po Shan (unrep, DCEC 1856/2011, 14 April 2014) at §18(4) and (5) where the principles on certainty of terms in agreements were summarized by the Court of Final Appeal in New World Development Co Ltd & Others v Sun Hung Kai Securities & Another [2006] 3 HKLRD 345 per Bokhary PJ, namely:
“(4) An agreement may fail for uncertainty if the parties have expressed themselves in language that is too uncertain, vague or unintelligible to make their agreement legally enforceable. The court will hold that there is no contract where the language used was so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention. The object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted. But the test of intention is to be found in the words used. If these words, considered however broadly and untechnically and with due regard to all the just implications, fail to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract. Such a position is not often found (G Scammell & Nephew Ltd v HC & JG Ouston [1941] AC 251 at 268).
(5) The court will endeavour to find practical meaning in commercial agreements and are reluctant to strike down as too vague and uncertain agreement which businessmen have made and acted upon (Hillas & Co Ltd v Arcos Ltd (1932) 43 Ll L Rep 359 at 367).”
O 22, r 24(1)
23. In order for the O 22 Summons to be successful, the plaintiff must first establish that the Sanctioned Offer as a proposal via the “lifetime tenancy” engages or satisfies the conditions under O 22, r 24(1) as per the first, second or third positions advanced.
First position relating to the Sanctioned Offer
24. Mr Lam submitted that the foregoing principles cited at paragraph 22 hereinabove meant that the court’s approach was to try to effectuate the Sanctioned Offer, namely to give meaning to the Sanctioned Offer, rather than to invalidate it.
25. Further dialogue arose whereby I asked Mr Lam in the present case, aside from giving a complete possessory title, how could the defendant have counter-offered, particularly in the context of RDC O 22, particularly where a “lifetime tenancy” is quite different from a “lifetime interest”. To be put in further context, the reason for my query was that the term “lifetime tenancy” does not arise in the context of any referrable cases in Hong Kong per se.
26. Mr Lam then stated that the construction of the Sanctioned Offer was that this would create an arrangement which in effect would allow the plaintiff to live in the storeroom for life.
27. In Mr Lam’s written skeleton submissions, he stated that the defendant could give approval to the plaintiff’s exclusive occupation of the storeroom under a lifetime tenancy when considering sections 34C(2), 34I, 34I(1)(a), 34K of the BMO where the management committee of the defendant had both the legal power and was in a position to approve of the plaintiff’s continuous exclusive possession of the storeroom under a lifetime tenancy as supported by the cases in his supplemental list of authorities, namely Hollywood Shopping Centre Owners Committee Ltd v Wing Wah Building Mongkok Kowloon (IO) (CA) [2011] 4 HKLRD 623 at §§68-69; Freder Centre (IO) v Gringo Ltd (CA) [2016] 2 HKLRD 190 at §24; Center Chase Investment Ltd v International Industrial Building (Castle Peak Road) (IO) (No 3) [2025] 1 HKLRD 532 at §§44-48.
28. Mr Lam’s submissions then also referred to The Incorporated Owners of Sun Hing Building v Join Profit (Hong Kong) Ltd & Anor[2024] HKCA 589 at §§47-49. It is also to be noted in summary by the Court of Appeal at §53 of the same aforesaid case and after referring to several of the cases mentioned in the foregoing paragraph, that such an approval by the incorporated owners may apply to an individual owner of a building but makes no mention to whether such approval would apply to a squatter:
“These authorities do not support the IO’s contention that it is beyond the power of an owners’ incorporation to allow an individual owner to permanently convert a common part to his own use.”
29. From the foregoing authorities, Mr Lam submitted the defendant can acquiesce to a breach of the DMC under the BMO and the cases show that such actions may include approval for, inter alia, converting certain common areas of a building such as an external wall and canopy for advertisement boards, give approval to an owner to convert a common part to his own use, conversion of the common parts of a building by reason of installation of window frames, an owner changing an original wall into a glass wall.
30. Notably as per Center Chase Investment Ltd v International Industrial Building (Castle Peak Road) (IO) (No 3) (supra) at §37, “Ultimately it is a matter of examining the nature of the breach and the terms of the DMC.” However, this does not mean that a “lifetime tenancy” could be granted per se nor has this ever been previously recorded in cases in Hong Kong.
31. Mr Li rightly pointed out that those aforesaid scenarios may or may not apply to a co-owner but as noted in The Incorporated Owners of Sun Hing Building v Join Profit (Hong Kong) Ltd & Anor[2024] HKCA 589 at §41 such a scenario as suggested in the Sanctioned Offer would not apply to third parties such as the plaintiff who is a squatter:
“Before evaluating the arguments, it is necessary to examine the true legal nature and effect of the Agreement. It has been referred to as a mutual grant of licence, and it has been debated whether the licence to use the original corridor is terminable. But in this way the term “licence” is used in a very loose sense indeed. This is not a case where permission is given for a stranger to enter on land which would otherwise be a trespass – the usual context to which the legal meaning of licence refers: Thomas v Sorrell (1673) Vaugh 330, 351.”
32. Mr Li submitted that s.34I of the BMO states that “no person”, that would include a third party stranger thus including the defendant, could convert common parts such as the storeroom of the building:
“34I. Common parts
(1) No person may—
(a) convert any part of the common parts of a building to his own use unless such conversion is approved by a resolution of the owners’ committee (if any);
(b) use or permit to be used the common parts of a building in such a manner as—
(i) unreasonably to interfere with the use and enjoyment of those parts by any owner or occupier of the building; or
(ii) to cause a nuisance or hazard to any person lawfully in the building.
(2) Any person who contravenes subsection (1) shall be deemed to be in breach of an obligation imposed on him by the deed of mutual covenant in respect of the building.”
33. To further support Mr Li’s interpretation of s 34I of the BMO, he places reliance on Malcolm Merry, Building Management in Hong Kong (3rd Edn 2016) at §4.81 where the grant of a lifetime tenancy is impermissible since the defendant (namely the incorporated owners of the building) does not have any proprietary rights in the common parts of the building and therefore neither a lifetime tenancy or proprietary interest (such as a tenancy) may be granted to the plaintiff.
“4.81 ‘Owners’ Committee’ is defined as the management committee if one has been appointed under sections 3, 3A or 4 of the BMO; or if none, the committee of owners (however named) formed under and in accordance with the DMC. If there is no such committee, it seems that no approval can be given and the prohibition is absolute. The implication of subsection (1)(a) is that a conversion is always possible with the permission of the owners’ committee, but this is not necessarily correct. Certainly, the sub-section means that any conversion at a minimum must be approved by the committee, so that permission given by the chairman or other member of the committee or by the manager or a caretaker, or even by a resolution of owners, is not enough. However, the subsection does not give power to the committee to approve the permanent conversion of common parts into exclusive areas, for that would amount to an amendment of the DMC. Also, the DMC may contain additional requirements, such as the charging of fees or rent, before common parts can be used by one person exclusively; these requirements are not overridden by subsection (1)(a).”
34. For the sake of completeness, Mr Li noted that reference to Mr Lam’s reliance on The Incorporated Owners of Sun Hing Building v Join Profit (Hong Kong ) Ltd & Anor[2024] HKCA 589 is limited in application since at §29 the Court of Appeal only deals with 3 grounds of appeal and §91 shows that the proprietary arguments failed at appeal[1] and hence the Court of Appeal decision did not intervene with the lower Lands Tribunal finding in The Incorporated Owners of Sun Hing Building v Join Profit (Hong Kong) Ltd & Ors, [2022] HKLdT 56 at §104 that an incorporated owner does not have any proprietary right over common areas.
35. It is critical to note that at the hearing, Mr Lam accepted there is no such thing as a “lifetime tenancy” in Hong Kong because this is a matter of freehold estate and that cannot be created out of a government lease in Hong Kong as per Goo and Lee, Land Law in Hong Kong (supra) at §9-9 and The Hong Kong Housing Society v Ng Lung Nam (unreported, DCCJ 8966/1991, 1 Oct 1991) at §7. However, Mr Lam very much emphasized that a “lifetime tenancy” was a simply understood term that can and should have been understood and accepted by the defendant.
36. RDC O 22 is an entirely self-contained statutory procedural mechanism for settlement. A sanctioned offer is not made in a vacuum but as part of the plaintiff’s offer to settle, so the precise basis and terms upon which the sanctioned offer is made must be ascertained. The White Book 2025 in the preamble of O.22 states that:
“Court’s discretion
The provisions of the new O.22 under CJR make it clear that the Court will continue to exercise its discretion as to costs in relation to any offers of settlement which do not meet the requirements to qualify as a “sanctioned offer”.”
37. The White Book 2025 under O 22, r 5 in the commentary under 22/5/A had this further comment which referred to Kwok Chin Wing v 21 Holdings Ltd [2011] 3 HKC 542 which is appropriate and applicable in the present context relating to O 22, r 24 for the general principle which was found at §§11-12:
“11. Unless the sanctioned offer is in the prescribed form it will not constitute a sanctioned offer. The consequence of the offer not constituting a sanctioned offer is that a plaintiff who has made the offer, if successful, cannot rely upon the provisions of O 22 r 24 as to costs and other consequences where he does better than his offer. The principal provision that the plaintiff will not be able to rely upon is that in relation to enhanced interest.
12. However, the letter does meet all the requirements of a Calderbank offer and in that respect may be taken into account on costs if Mr Kwok has succeeded in obtaining a judgment which exceeds the amount of the offer.”
38. The White Book 2025 at 22/24/1 also states that:
“The provisions of O.22 rr.23 and 24 are vital to effective application of the sanctioned payment and offer regime. These rules are designed to provide important incentives to encourage plaintiffs to make, and defendants to accept, settlement offers at appropriate levels as early as possible. Such an incentive would be deprived of effect unless the non-acceptance of an offer, which subsequently proves to have been a sufficient offer, ordinarily will advantage the plaintiff in the manner foreseen in the rules.”
39. The Sanctioned Offer appears to comply with the “form and content” required under O 22, r 5. However, even if this court were to consider the Sanctioned Offer in a context to be construed with reference to the factual background of both parties, the fact that a “lifetime tenancy” does not exist as a form of legally enforceable relief in Hong Kong would not engage O 22, r 24(1) as a valid proposal and thus renders the Sanctioned Offer invalid. This is so when this court is looking at the substance of the Sanctioned Offer “untechnically” since a “lifetime tenancy” still suffers from being beyond merely vague and uncertain but strays into non-existent relief under Hong Kong law and thus cannot be said to be part of a valid proposal or a sufficient offer.
40. The Sanctioned Offer is invalid and thus the plaintiff is unable to invoke O 22, r 24(1) in his favour. The plaintiff’s declaratory relief cannot be compared to an invalid proposal such as the Sanctioned Offer which is a non-existent form of relief under Hong Kong law and could not be said to be more advantageous to the plaintiff.
41. Given the foregoing matters, the plaintiff’s first position relating to the Sanctioned Offer fails to engage or satisfy the conditions under O 22, r 24(1).
Second position relating to the Sanctioned Offer
42. Mr Lam then went on to submit that if a “lifetime tenancy” does not exist in Hong Kong, that would not necessarily mean that the court ceases to consider the Sanctioned Offer since the approach of the court should be to give effect to the Sanctioned Offer rather than to strike it down.
43. After further dialogue and discussion on what the first component of “lifetime tenancy” meant, namely the term “lifetime” and matters of duration, Mr Lam then went on to abridge his position by also submitting that the meaning discerned from the Sanctioned Offer would align with a common sense understanding of what a “lifetime tenancy” is “in effect” by citing the cases of Prudential Assurance Co Ltd v London Residuary Body and Ors [1992] 2 AC 386 and Mexfield Housing Co-operative Ltd v Berrisford [2012] 1 AC 955.
44. Mr Lam cited Mexfield Housing Co-operative Ltd v Berrisford (ibid) at 967 §33 that further discussed the principles regarding the certainty of term as mentioned in Prudential Assurance Co Ltd (supra) and that if the parties were to come to an agreement on a “maximum year” limit, then the Sanctioned Offer would be effective:
“33. Following the decision of the House of Lords in the Prudential case [1992] 2 AC 386, the law appeared clear in its effect, intellectually coherent in its analysis, and, in part, unsatisfactory in its practical consequences. The position appears to have been as follows: (i) an agreement for a term, whose maximum duration can be identified from the inception can give rise to a valid tenancy; (ii) an agreement which gives rise to a periodic arrangement determinable by either party can also give rise to a valid tenancy; (iii) an agreement could not give rise to a tenancy as a matter of law if it was for a term whose maximum duration was uncertain at the inception; (iv) (a) a fetter on a right to serve notice to determine a periodic tenancy was ineffective if the fetter is to endure for an uncertain period, but (b) a fetter for a specified period could be valid.”
45. Also seen from Mexfield (ibid) at §33(i) and (iii) identifies a problem encountered if the Sanctioned Offer were to be read verbatim, namely that the “lifetime” of the plaintiff is obviously unknown and thus the maximum duration of the tenancy cannot be identified from the inception and thus does not give rise to a valid tenancy.
46. Mr Lam submitted that the term “lifetime” is simply achieved by understanding that the “lifetime tenancy” is “in effect” a fixed term tenancy subject to a right to determine upon the squatter’s death.
47. Before considering the validity of such an argument, I then queried Mr Lam why the Sanctioned Offer did not clearly state Mr Lam’s position, namely that the “lifetime tenancy” is “in effect” a fixed term tenancy subject to a right to determine upon the squatter’s death. By doing so, the plaintiff technically could have but did not specifically state in the Sanctioned Offer its complete and unambiguous terms. I reminded Mr Lam that one of the hallmarks of Order 22 since its inclusion from the CJR is that an offeree must be given clear and unambiguous terms to which it could agree upon, putting aside whether the Sanctioned Offer as now further elucidated upon, is valid to begin with.
48. Mr Lam referred to Prudential Assurance Co Ltd (supra) at 391C where it was accepted by the House of Lords per Lord Templeman that when referring to the “ancient authority” as recognised by the Law of Property Act of 1925 (“LPA 1925”) was applied in Lace v Chantler [1944] K B 368 where a dwelling house was let at the rent of 16s 5d per week where Lord Greene M R held at pp 370-371 where the duration of a tenancy needed to be certain but then it was later considered in the context at 395A where it was possible that the duration of the lease may be considered valid but with a modification:
“391 … The question immediately arises whether a tenancy for the duration of the war creates a good leasehold interest. In my opinion, it does not. A term created by a leasehold tenancy agreement must be expressed either with certainty and specifically or by reference to something which can, at the time when the lease takes effect, be looked to as a certain ascertainment of what the term is meant to be. In the present case, when this tenancy agreement took effect, the term was completely uncertain. It was impossible to say how long the tenancy would last. Mr. Sturge in his argument has maintained that such a lease would be valid, and that, even if the term is uncertain at its beginning when the lease takes effect, the fact that at some future time it will be rendered certain is sufficient to make it a good lease. In my opinion, that argument is not to be sustained. I do not propose to go into the authorities on the matter, but in Foci’s Landlord and Tenant, 6th ed. (1924), p. 115, the law is stated in this way, and, in my view, correctly: The habendum in a lease must point out the period during which the enjoyment of the premises is to be had; so that the duration, as well as the commencement of the term, must be stated. The certainty of a lease as to its continuance must be ascertainable either by the express limitation of the parties at the time the lease is made, or by reference to some collateral act which may, with equal certainty, measure the continuance of it, otherwise it is void.
395 A lease can be made for five years subject to the tenant’s right to determine if the war ends before the expiry of five years. A lease can be made from year to year subject to a fetter on the right of the landlord to determine the lease before the expiry of five years unless the war ends. Both leases are valid because they create a determinable certain term of five years. A lease might purport to be made for the duration of the war subject to the tenant’s right to determine before the end of the war. A lease might be made from year to year subject to a fetter on the right of the landlord to determine the lease before the war ends. Both leases would be invalid because each purported to create an uncertain term. A term must either be certain or uncertain. It cannot be partly certain because the tenant can determine it at any time and partly uncertain because the landlord cannot determine it for an uncertain period. If the landlord does not grant and the tenant does not take a certain term the grant does not create a lease.”
49. Mr Lam then brought this court to Megarry & Wade, The Law of Real Property (10th Edn) particularly at §16-072 and §16-115, where in England a life tenancy or a lease for life is now almost always converted by the LPA 1925 at s 149(6) thereof to become a term of 90 years and which according to Megarry v Wade (ibid) §16-069“the Supreme Court was able to circumvent the difficulties of the certainty rule by construing the arrangement between the parties as a tenancy for life which was in turn converted by statute into a 90-year term terminable by the tenant or the landlord on compliance with the termination provisions contained in the tenancy agreement” that was also confirmed by Mexfield (supra) at §§34-35.
50. Mr Lam accepted upon querying that there was no equivalent provision under Hong Kong law to that of the LPA 1925, particularly s 149(6) thereof, whereby a conversion of a life term would be 90 years or any other fixed term.
51. However, Mr Lam submitted that the foregoing conversion of a life term was plainly a technical rule since all that needed to be understood from the position of the defendant as the offeree of the Sanctioned Offer was that the plaintiff wanted to be a tenant for the remainder of his life in the storeroom without ownership per se.
52. Mr Lam submitted that it would be unfair for the defendant as the offeree to say that the Sanctioned Offer was invalid since the plaintiff was 67 years old at the time when the Sanctioned Offer was made and what could have happened was that a tenancy for a period of between say 40 to 60 years could have been made by the defendant and offered to the plaintiff since that would outlast the lifetime of the plaintiff and that such a tenancy would be subject to the right by the defendant to determine the lease upon the plaintiff’s death.
53. Mr Li properly submitted that it was not a duty on the part of the defendant to perfect the Sanctioned Offer on, inter alia, the duration of a lifetime tenancy. This court notes that were the defendant to somehow comply with making the tenancy last for say 40 years from the date of agreeing to the Sanctioned Offer but the plaintiff were to live beyond 40 years, the plaintiff would not have the benefit of usage of the storeroom for a “lifetime” thus rendering the defendant potentially liable for the plaintiff’s loss.
54. Aside from the difficulties as already explained facing the defendant in understanding the duration of what would be meant by “lifetime” and Mr Lam’s suggestions on how that could arguably have been overcome, there then also comes the difficulty in the question of what is meant by “tenancy” in the context of the Sanctioned Offer.
55. Mr Lam accepted that the Sanctioned Offer did not provide for any payment of rent, a feature that would appear in a tenancy. However, Mr Lam then submitted that given the background of this case, the “likely construction” is that no rent has to be paid by the plaintiff or that in order to satisfy the requirement of there being a “tenancy” that a nominal rent of $1 would be made.
56. Again, Mr Lam rightly accepted that the Sanctioned Offer did not state any of the foregoing words or meanings to be ascribed to the term “tenancy” such as a nominal rent of $1 would be made. But Mr Lam submitted that an “untechnical” interpretation as per New World Development Co Ltd & Others (supra) would be applied to the Sanctioned Offer whereby the meaning of “tenancy” in the context of this case would imply that there be “residential use” of the storeroom simpliciter and this satisfies the requirement under O 22.
57. Mr Lam then further submitted, to complete the meaning of “tenancy”, requires the parties to first agree to the Sanctioned Offer and thereafter the parties would additionally enter into a tenancy agreement that would include all of the relevant terms as discussed in the foregoing paragraphs. Such aforementioned additional steps are obviously beyond the actual wording of the Sanctioned Offer itself but Mr Lam stated that the creation of and entering into such a tenancy agreement as described would only be “a matter of practice”.
58. Mr Lam then complained that the defendant should have made a request to the plaintiff clarifying the terms of the Sanctioned Offer as permitted under O 22, r 14(1). It will be noted that O 22, r 14(1) is permissive in nature and O 22, r 14(2) empowers the court to order an offeror to give clarification if so sought by the offeree.
59. Mr Lam then referred to Foskett on Compromise (9th Edn) at §§15-19 but Mr Lam agreed the following citation and its principles would not be applicable if the Sanctioned Offer was invalid because no clarification would make the Sanctioned Offer valid:
“15-19 The question will arise of what an offeree should do when an offer is arguably ambiguous, but the offeree is of the view that the argument as to ambiguity should be answered in his favour. From a purely contractual point of view, the offeree would be entitled to accept the offer as it stands and, subject to any issues as to mistake or misrepresentation, the contract thus formed would be binding. The offeree would then have to take his chances in the argument as to the true meaning of the agreement in the event of a dispute about it. However, if the offeree elected not to accept the offer, it is unlikely that the court would be receptive to the argument, when the issue of costs is determined at the end of the trial, that the offer was not accepted because it was unclear or ambiguous. The remedy for that problem would be the seeking of clarification and the failure to do so, where it was plainly the appropriate course, would undoubtedly be one of the “circumstances” that could be taken into account on costs. The culture embodied in the CPR demands a sensible and meaningful dialogue, particularly where settlement is concerned.”
60. Mr Li agrees that the terms of the Sanctioned Offer are to be construed objectively and in context but he cautions that even considering Yumul Jennifer Concepcion (supra) and New World Development Co Ltd & Others (supra) that the court should strive to uphold a proper contract if there is one, but that the court when looking at an offer itself does not have a duty to perfect the content of the offer.
61. Mr Li also reminded this court that looking at the circumstances surrounding the Sanctioned Offer, the defendant faced difficulties and replied to the plaintiff’s proposal of a lifetime tenancy in a letter dated 26 October 2022 where the defendant explained, inter alia, that it understood the law to mean that it was impermissible for the defendant to comply with the Sanctioned Offer due to the DMC of the building and prohibition for conversion of the common areas of the building (ie the storeroom) by stating that:
“貴行客戶不應奢望認為本行客戶有機會同意批准貴行客戶不合法地佔用大廈之公用部分作自住用途，貴行應清楚明白任何有關決定均屬違法。”
62. Quite unhelpfully, the plaintiff’s reply letter dated 3 November 2022 gave no indication of trying to resolve any issues or to clarify the plaintiff’s position by simply writing in its sole paragraph of substance:
“With due respect[s], our client fails to see the sincerity of your client in resolving the dispute amicably but notes that unfounded allegations are unnecessary[il]y raised and the purported “Offer” is hereby rejected.”
63. The Sanctioned Offer in its brevity does not allow for there to be implied a tenancy which existed on an assumed nominal rent of $1 or that the tenancy would be for residential use of the storeroom simplicter. If this court were to take into account the factual background and context of this case, it would be stretching the limits of reason to assume that a “tenancy” between the plaintiff and the defendant could exist without some explicitly stated basic and/or de minimis terms of user regarding the storeroom as relating to the plaintiff.
64. The storeroom was a part of the common area of the building but since the plaintiff was not an owner in the building and not bound under the rules relating to user pursuant to the DMC, the plaintiff’s unrestricted use of the storeroom would potentially create havoc that would be unanswerable to anyone and thus his user of the storeroom would necessarily need to be defined under the Sanctioned Offer but which was never done.
65. It is again repeated that a “lifetime tenancy” is not a recognized form of relief under Hong Kong law and even breaching of the DMC by the defendant might very well not be allowed to approve a “lifetime tenancy”. Mr Lam’s suggestions on how the parties could have given effect to the Sanctioned Offer are simply not contained in the Sanctioned Offer itself and the required additional steps as aforementioned to be taken by the parties to make the Sanctioned Offer functional is counterintuitive to the underlying purpose and structure of O 22 to be an entirely procedural process that is self-contained.
66. In summary, this court finds that the Sanctioned Offer is invalid also because a “lifetime tenancy” when construed in the context of this case and the words “lifetime” (ie as aforementioned in paragraphs 47-53) and “tenancy” (ie as aforementioned in paragraphs 54-64) were found to be, inter alia, void (on the facts of this case and at law), too arbitrary in application, lacking definition for it to be applicable, required assumptions to be made and/or extra steps to be taken, thus outside the scope of O 24, r 24.
67. Given the foregoing matters, the plaintiff’s second position relating to the Sanctioned Offer fails to engage or satisfy the conditions under O 22, r 24(1).
Third position(s) relating to the Sanctioned Offer
68. A further fallback position of Mr Lam derived from his supplemental authorities and verbal submissions at the hearing were notably more brief than his submissions regarding the plaintiff’s first and second position. Mr Lam submitted that if the Sanctioned Offer is invalid due to uncertainty or uncertainty of term, then the court would give effect to the Sanctioned Offer as a tenancy at will or a contractual licence, with both being freestanding possibilities.
69. Megarry & Wade, The Law of Real Property (supra) under the heading of “The consequences of uncertainty” at §16-070 (a) states:
“(a) Periodic tenancy or tenancy at will. A person who has entered into possession under a lease that is void because of its uncertain duration, has traditionally been considered to be a tenant at will, at least initially, because exclusive possession has been granted. Where the tenant has paid rent, however, the court is likely to infer the existence of a periodic tenancy, which may then be determined by either party by giving notice in the usual way. It will not be a term of that periodic tenancy that the landlord can give notice to quit only on the occurrence of the specified event that was to bring the void lease to an end. Thus, in Prudential Assurance, a yearly tenancy was implied in place of the void lease that was granted until the land was required for road-widening, and the landlord could determine the lease by giving six months’ notice even though it had no powers to carry out works to widen the road.”
70. Mr Lam’s position was that upon applying the principles expressed in Prudential (supra) and Megarry and Wade (ibid) to the present case, the Sanctioned Offer if found to be uncertain in duration and thus void, the plaintiff would then be considered as a tenant at will which could be determined whenever the landlord decides. Due to the fact that the plaintiff will have, again Mr Lam assuming the “lifetime tenancy” would include a nominal rent, a tenancy at will thereafter is inferred to become a periodic tenancy. Mr Lam’s submissions on a tenancy at will ended without further elaboration.
71. The potential consideration of the plaintiff being a tenant at will fails when applied under the rubric of O 22, r 24 and is simply too remote and unrealistic. If there was a tenancy at will, no doubt the defendant would immediately request the plaintiff to leave the storeroom and therefore rendering the tenancy at will a moot point. If in the present case the tenancy at will became a periodic tenancy, the plaintiff would still need to be bound by some form of user of the storeroom which in any event, the duration of the periodic tenancy would be void for not stipulating any express period of time.
72. Even if an approach as in Prudential (supra) was adopted in the present case with an implied yearly tenancy, that too would likely be found to be void since there would be no context upon how long the tenancy in the present case would continue for. This is unlike in Prudential (supra) where the duration of related road works affected a strip of land fronting a highway was sold to the council which contemporaneously was leased back to the owner in an agreement that the lease would continue until the land was widened for the highway in question.
73. Mr Lam then briefly cited Megarry & Wade (ibid) under the heading of “The consequences of uncertainty” at §16-070 (d):
“(d) Contractual licence. A lease is at one and the same time a contract and an estate. Nevertheless, the courts have been reluctant in the past to infer a contractual licence where the grant of a tenancy fails for uncertainty, and would do so only in exceptional circumstances, on the ground that the grant of exclusive possession is the hallmark of a tenancy. However, it now seems to be the case that this argument carries less weight, and the court is prepared, in circumstances where the estate is void for uncertainty, to enforce the contract between the parties:
“If the Agreement does not create a tenancy for technical reasons, namely because it purports to create an uncertain term, it is hard to see why, as a matter of principle, it should not be capable of taking effect as a contract, enforceable as between the parties personally, albeit not capable of binding their respective successors, as no interest in land or other proprietary interest would subsist.”
It is evident that such a construction will be of no avail where the reversion or the term has been assigned by the original parties.”
74. Mr Lam’s position on contractual licence was not further expanded upon other than referring to the principles as cited hereinabove which are derived from Mexfield (supra) at §60 and then also citing the preceding paragraphs §59 and §63:
“59 However, having heard full submissions on those two arguments, I incline fairly strongly to the view that, if Ms Berisford had failed in establishing that she had a subsisting tenancy of the premises, she would none the less have defeated Mexfield’s claim for possession on the ground that she is entitled to enforce her contractual rights.
63 The fact that the parties may have thought they were creating a tenancy is no reason for not holding that they have agreed a contractual licence, any more than in Street v Mountford the fact that the parties clearly intended to create a licence precluded the court from holding that they had, as a matter of law, created a tenancy. So, too, as Mr Wonnacott points out, in Milmo v Carreras [1946] KB 306, the Court of Appeal (led by Lord Greene MR) held that what was plainly stated and understood by the parties to be an underlease operated as an assignment of the lease as a matter of law, because the duration of the purported underlease equalled or exceeded that of the lease.”
75. I queried Mr Lam how a contractual licence would exist in the present context, particularly what would the “licence” be actually permitting and how long would such activity last. Mr Lam answered by stating that the licence would exist through the intent of the Sanctioned Offer which was to allow the plaintiff to use the storeroom but the lifetime proviso would not apply since the licence could be revoked by either party at any time. Mr Lam admitted that where such a contractual licence as described arising in this case would be flawed, nonetheless it would still form the basis of an offer and therefore satisfy the requirements of O 22.
76. It is notable that Lord Dyson concludes Mexfield (supra) at §120 by stating:
“120 To conclude, in my view the answer to this appeal lies in the law of landlord and tenant and the appeal must be allowed. I do not nd it necessary to address the alternative arguments advanced by Mr Wonnacott. I would, however, go so far as to say that, like Lord Neuberger MR ( paras 57 to 62), I am strongly attracted by the submission that, if by reason of the uncertainty argument the agreement did not create a tenancy, then it was enforceable as a contract according to its terms like any other contract.”
77. The potential application of a contractual licence would also fail when applied under the rubric of O 22, r 24 and is also simply too remote and unrealistic. If such a contractual licence as described by Mr Lam were to arise, it would be unenforceable and the offer invalid since such a contractual licence would need to be viewed in the terms as found in the Sanctioned Offer as relating to a “lifetime tenancy” which as a whole or broken down into its constituent parts are invalid as already explained in this decision when dealing with the first and second positions relating to the Sanctioned Offer.
78. Given the foregoing matters, the plaintiff’s third position(s) relating to the Sanctioned Offer fails to engage or satisfy the conditions under O 22, r 24(1).
Additional matter(s)
79. A position of the defendant was that there is legal precedent where non-monetary claims such as in the present case, the plaintiff could derive a fair quantitative evaluation to be applied to the storeroom as an appropriate yardstick as per Friston and Chambers, Friston on Costs (4th edition, 2023) at §17.118 and as considered in Leung Ching Wai v Li Yun Lim[2023] HKDC 1494 at §§15-20 where in that case the court made a declaration in favour of the plaintiff that he held some 28.608% of the beneficial interest in the suit property by way of purchase money resulting trust.
80. The plaintiff in Leung Ching Wai (ibid) relied on a sanctioned offer in the amount of HK$200,000 and sought to vary the costs order nisi, claiming for costs on an indemnity basis. The court considered the plaintiff’s evidence from the Rating and Valuation Department to show the market value of the suit property on a vacant possession basis but this was rejected as being sufficient evidence to show that the grant of a declaration that the plaintiff was a 28.608% beneficial owner on the basis of resulting trust could be calculated with reference to the market value of the suit property on a vacant possession basis. It was held by the court that the plaintiff failed to show that RDC O 22, r 24 was applicable.
81. Mr Li’s complaint was that the plaintiff did not even attempt to carry out some form of valuation of the storeroom and therefore failed to show how the Judgment could be said to be more advantageous than the Sanctioned Offer pursuant to O 22, r 24(1).
82. In the context of the present case, it would have been quite difficult for the plaintiff to have an accurate or meaningful assessment of the value of the storeroom with such unique factual factors affecting its value.
83. Furthermore, even in a more straightforward situation such as found in Leung Ching Wai (ibid) being unsuccessfully engaged by the plaintiff in that case, this court makes no criticism of the plaintiff in this regard.
84. If the matters under this heading of additional matter(s) were to be considered at all, they might be applicable to the matters considered at O 22, r 24(5) but not O 22, r 24(1) as suggested by Mr Li.
O 22, r 24(5)
85. The plaintiff has failed to establish that the Sanctioned Offer as a proposal via the “lifetime tenancy” was engaged or satisfied the conditions under O 22, r 24(1) under their first, second or third positions advanced. As such, the plaintiff has not shown that the Judgment is more advantageous than the Sanctioned Offer.
86. It was agreed that the plaintiff did not seek relief under O 22, r 24(2) and given O 22, r 24(1) is not engaged in this case, the remaining provisions of O 22, r 24 are also not engaged. The result is that the O 22 Summons is dismissed.
87. For the purpose of completeness, if this court were to find that the Sanctioned Offer was engaged under O 22, r 24(1), what would remain as a consideration towards any potential adverse costs order against the defendant under the O 22 Summons would be the factors as mentioned in O 22, r 24(4) and (5).
88. It would not be in serious dispute that O 22, r 24(3)(a) would normally be engaged in this case as found in the second part of the O 22 Summons but it is notable that the plaintiff expressly does not seek relief under O 22, r 24(3)(b).
89. Under O 22, r 24(5)(a), this court finds the terms of the Sanctioned Offer did not engage O 22, r 24(1) as already expressed in considering the first, second and third position(s) of the plaintiff who failed on various bases ranging from the perspective of law (both substantive and procedural reasons), fact and/or mixed reasons of law and fact.
90. For the avoidance of doubt, this court has made some preliminary comments on how s 34I generally and s 34I(1)(a) of the BMO was considered in the context of the present case (ie paragraphs 27-41 hereinabove) which shows that prima facie the defendant did appear to have justification to refuse the Sanctioned Offer (ie paragraphs 61-62 hereinabove) on the law and facts of this case.
91. Under O 22, r 24(5)(b), the Sanctioned Offer was made on 13 April 2023 which was after the close of pleadings and before the exchange of witness statements, thus rather early in this case. The pleadings involved in this case were not notably detailed or particularized. Balancing both of the aforesaid factors, this court finds there is a neutral consideration for both parties under O 22, r 24(5)(b).
92. Under O 22, r 24(5)(c), the information available to the parties when the Sanctioned Offer was made, as mentioned in the foregoing paragraph at the time of the close of pleadings, was not notably detailed or particularized. The discovery and witness statement stages of this case bore more details and further advanced the case, but it cannot be said that there were any unusual features that would set this case apart from other adverse possession cases that would allow this court to make any adverse comments about either party.
93. Under O 22, r 24(5)(d), the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the Sanctioned Offer to be made or evaluated, this has been briefly mentioned earlier in this decision at paragraphs 61-62 hereinabove. Given that the defendant in its correspondence did indicate its difficulties in accepting the Sanctioned Offer and the plaintiff’s reply letter was rather abrupt and curt in providing any helpful details or elucidation on the terms of the Sanctioned Offer, this court finds it would be slightly more sympathetic to the defendant when considering the circumstances of this case.
94. After considering the factors under O 22, r 24(5) in the context of this case, particularly the matters relevant to O 22, r 24(5)(a) and dealt with at paragraphs 89-90 as aforementioned, this court finds that on balance it would have been unjust to make the orders referred to in O 22, r 24(2) and (3) which would have been applied to the second half of the O 22 Summons and sought by the plaintiff at paragraph 5 hereinabove in this decision.
Conclusion
95. The order nisi of the Judgment at §155(5) is hereby made absolute. The O 22 Summons is dismissed. The plaintiff do pay the costs of the O 22 Summons to the defendant with certificate for counsel.
96. I thank both counsel for their helpful assistance.
| ( N. Hui ) Deputy District Judge |
Mr Bernard Lam, instructed by Fung, Wong, Ng and Lam LLP Solicitors, for the plaintiff
Mr Li Pak Hei, instructed by Fairbairn Catley Low & Kong, for the defendant
[1] “I would retain §4 of the judge’s order which dismissed Join Profit’s counterclaim since its main basis was the proprietary arguments which had failed below.”