Baynard Ltd and Another v. Secretary for Justice and Others
Read the full judgment text of HCA 4073/2002 on BabelCite. This High Court CFI judgment was delivered on 11 April 2019.
1. The 1 st plaintiff (“Baynard”) is the developer (“the Developer”) of the Hong Kong Gold Coast development (“the Development”), situated on Tuen Mun Town Lot No 238 (“the Lot”). The Lot was granted by the Government to Baynard by New Grant No 2607 dated 23 May 1983 (“the New Grant”). The Lot was subsequently partitioned into different sections. By two modification letters executed in 1996 and 1997, the Government agreed to vary the terms of the New Grant in relation to some of the sections
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HCA 4073/2002 [2019] HKCFI 852 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 4073 OF 2002 ____________
(the 2nd and 3rd defendants representing themselves and all owners of Tuen Mun Town Lot 238 other than the plaintiffs and Commercial Ace Limited) ____________
_______________ JUDGMENT _______________ A. Introduction 1.The 1stplaintiff (“Baynard”) is the developer (“the Developer”) of the Hong Kong Gold Coast development (“the Development”), situated on Tuen Mun Town Lot No 238 (“the Lot”). The Lot was granted by the Government to Baynard by New Grant No 2607 dated 23 May 1983 (“the New Grant”). The Lot was subsequently partitioned into different sections. By two modification letters executed in 1996 and 1997, the Government agreed to vary the terms of the New Grant in relation to some of the sections by increasing the gross floor areas for residential development which the Developer may build thereon. Pursuant to the additional rights given under the modification letters, the Developer intended to build threemore residential blocks on those sections. However, the plan was met with strong objections from individual owners of units in the residential blocks built on other sections in the Development. They complained that they had not been notified or consulted before the execution of the modification letters. They complained that, if the Developer’s plan is implemented, it would result in the loss of sea view, the loss of a playground as well as otherproblems caused by an increase of population in the Development. Hence, there is a dispute among the Developer, the Government (represented by the 1stdefendant (“SJ”)), and the Individual Owners (represented by the 2nddefendant (“Ma”) and the 3rddefendant pursuant to the decision of Deputy Judge L Chan (as he then was) made on 24 September 2010). For the present purpose, the Individual Owners are taken to include all co-owners of the Lot other than the plaintiffs and Commercial Ace Ltd. The 3rddefendant, however, had not taken part in these proceedings. 2.For reasons that I need not go into, the dispute among the parties is now narrowed down to two ultimate issues: first, whether the modification letters are legally valid; and second, if so, whether the Developer is entitled to amend the Master Plans in relation to the Development without the consent of the Individual Owners. 3.For the purpose of resolving these issues, by a Summons dated 11 August 2017, SJ applied for an order that the following issues be determined under Order 14A of the Rules of the High Court (Cap 4A):
4.I am satisfied that the determination of the issues in the Order 14A Summons will resolve these proceedings conclusively. 5.Baynard and the 2nd plaintiff, which is its associated company,have advanced two alternative positions in their pleadings. They have now elected to ask the Court to uphold the validity of the Modification Letters, and the Developer’s right to amend the Master Plans without the consent of the Individual Owners. This position is in line with the stance of the Government. In contrast, the Individual Owners, represented by Ma,maintain that the Modification Letters are invalid, and that the Developer is not entitled to amend the Master Plans without their consent. 6.Baynard and the Government need not succeed on all seven issues in the Order 14A Summons. The interplay between the seven issues will become clear when I analyse the individual issues below. B. Background 7.As mentioned, the Lot was granted by the Government to Baynard by the New Grant. The New Grant contained certain General Conditions (“GC”) and Special Conditions (“SC”). What is in issue is clause 7 of the SC (“SC 7”). 8.SC 7(a) required the grantee, within six months from the date of the grant, to submit, for the approval of the Director of Lands (“the Director”), Master Plans detailing its final proposals for the development of the Lot. The Master Plans had to include, amongst other things, detailed reference to the positions and nature of the buildings proposed, the landscaping proposals for the Lot, and the maximum gross floor area (“GFA”) of each type of building or buildings erected or to be erected. SC 7(b) required the grantee to submit, again for the approval of the Director, Landscape Plans prepared by a qualified landscape architect. 9.Both SC7(a) and (b) required the Master Plans and Landscape Plans to be signed by both the Director and the “Purchaser”; and a signed copy had to be deposited at the District Lands Office, Tuen Mun (“DLO”). 10.Importantly for the present purpose, SC 7(e) states:
11.One of the issues is the meaning of the word “Purchaser” in SC 7(e). It should be noted that the expression “Purchaser” is stated in GC 9 to:
12.SC 8(a) requires the grantee to develop and maintain the Lot in accordance with the Conditions, Master Plans, and Landscape Plans. 13.SC 9 provides that the Lot should not be developed or redeveloped except in accordance with the Master Plans and Landscape Plans. It also fixes the density of the residential development by reference to the permitted GFA and site coverage. 14.By SC 21, the grantee was obliged to submit, to the Registrar General for his written approval, a Deed of Mutual Covenant and Management Agreement in respect of the Lot (“DMC”), which is to be entered into between the grantee and its assignees or underlessees. By SC 22, the grantee was obliged to maintain the Lot, its buildings, and structures:
15.By SC 23(a)(iv), all assignments or other disposals were required to be made subject to and with the benefit of the DMC. 16.In early 1988, the Master Plans were approved by the Director and deposited in the DLO in accordance with SC 7(a). 17.By a deed poll dated 19 July 1988, the Lot was “carved out” into Sections A1, A2, and the Remaining Portion. 18.Baynard then revised the Master Plans (which were approved by the DLO and deposited in June 1991) and proceeded to develop the Lot into an integrated development known as the “Hong Kong Gold Coast”(ie the Development). 19.On 29 November 1989, the DMC was approved by the Registrar General in accordance with SC 21. 20.On 17 August 1990, the DMC was executed by Baynard and the first assignee. 21.Importantly for the present purpose, Section III, clause 1 of the DMC (at sub-clauses 1(d) and 1(e)) provides that Baynard, as long as it remains the beneficial owner of any share in the Development, shall have the right to exercise certain rights:
22.Section III, clause 3 provides further that: “ The Estate Owners hereby jointly and severally and irrevocably APPOINT the First Owner as their attorney and grant unto the First Owner the full right power and authority to do all acts deeds matters and things and to execute and sign seal and as their act and deed deliver such deed or deeds and to sign such documents or instruments as may be necessary for the exerciseof or incidental to the First Owner’s rights mentioned in Clause 1 of this Section III.” 23.Thereafter, the Remaining Portion was further divided into different sections by way of Deed Polls, including Sections A3 – A4, B1 – B6, C1 – C5 and D. The net result was that, by the end of November 2002, the Lot had been carved out into the following sections:
24.Between 1990 and 1994, the Government issued to Baynard certificates of compliance in respect of Section A1, A2, B1, B2, B3, C2 and C3. 25.By March 1995, six phases of the Development comprising a hotel, a commercial development and thirty residential blocks had been completed. 26.In detail, the respective Sections were developed as follows:
27.Since the aforesaid development, some of the flats in the residential blocks in Sections A1, A2, and B1 had been sold off. However, Baynard still retained some units and is the owner of certain undivided shares allocated to Sections A1, A2, and B1. 28.Further:
29.Notwithstanding the carving out of the Lot into various sections,there remains only one approved DMC which applies to all of the units in the Development (ie the DMC). 30.Under the New Grant, Baynard had the right to build a total of not more than 200,000 square metres in GFA on the areas of the Lot allocated for residential and hotel development. On 24 January 1995, Baynard applied to the Government to modify the New Grant so as to permit an additional area of residential development to be built on the Lot. 31.By a modification letter dated 29 October 1996 (“the 1996 Modification Letter”), in consideration of the payment to the Government of a premium of HK$400,710,000 and an administrative fee of HK$120,000, Baynard was granted the right to develop an additional 27,670 square metres in GFA for residential development on Sections B2 and B4. 32.The 1996 Modification Letter expressly required Baynard to comply in all respects with the conditions contained in the New Grant, and such building(s) had to be completed and made fit for occupation within three years. 33.On 25 February 1997, another modification letter (“the 1997 Modification Letter”) was issued to Baynard which permitted an additional 2,852 square metres in GFA for hotel development on Section A3, in consideration of the payment to the Government of a premium of HK$32,630,000 and an administrative fee of HK$130,000. 34.Subsequently, on 22 September 1997, Section A3 (ie the section intended for hotel development) was assigned by Baynard to Golden Organise. 35.Premised on the 1996 Modification Letter, it was proposed by Baynard that three additional high-rise blocks of flats would be built on Sections B2 and B4. 36.Baynard through its Authorized Person then made the building plan submissions to the Buildings Department, who referred the building plan submissions to the DLO for approval to build the three additional high- rise blocks. Two of the blocks were to be built along the southern shore of the marina in Section B4 between the high-rise blocks in Section B1 andthe villas in Section B4; and one of the blocks was to be built in Section B2 between the high-rise blocks in Section B2 and those in Section B3. 37.The said building plan submissions were checked and considered acceptable by the DLO as stated in its letter of 5 January 1998, subject to the conditions, inter alia, that:
38.The Developer accepts that, in order to give effect to the Modification Letters, major variations and amendments to the existing approved Master Plans and Landscape Plans would be required. 39.In or about October 1997, Baynard erected protective hoarding on certain parts of Sections B2 and B4 in anticipation of construction pursuant to the 1996 Modification Letter. Baynard also engaged various consultants and contractors for the development works. 40.However, vigorous opposition began from protesters who were Individual Owners from Blocks 1 to 11 of Phases 1A, 1B and 2A (which were erected on Sections A1, A2, and B1). The protestors alleged they would be adversely affected by the proposed further development. In November 1997, some of these Individual Owners formed the “Hong Kong Gold Coast Owners’ Rights Association” (“the Owners’ Rights Association”). 41.In an effort to accommodate the concerns of the Individual Owners, Baynard tried to lobby and negotiate for an alternative plan whichwould have relocated the three additional blocks of flats to Section C of the Lot. This alternative plan was endorsed by Ma (as chairman of the Owners’ Rights Association) in January 1998. However, this alternative plan ultimately fell through because of the refusal of the Town Planning Board in March 1999 to grant planning permission. 42.Baynard also sought to obtain from the Government a refund of the premium and administrative fee which Baynard had paid in respect of the 1996 Modification Letter, on the basis that performance thereof was rendered impossible by the Individual Owners’ opposition. However,this was not accepted by the Government. 43.On 26 October 2002, this action was commenced by Baynardagainst the Government. On 24 September 2010, Ma and the 3rd defendant joined in this action in a representative capacity, representing themselves and the Individual Owners. 44.On 11 August 2017, SJ took out the present summons. It is extraordinary and unsatisfactory that it has taken such a long time for the parties to make a serious attempt to dispose of the issues in these proceedings summarily and conclusively. 45.I shall now turn to the issues. C. Issue 1 46.Section 14(1) of the Conveyancing and Property Ordinance (Cap 219) (“the CPO”) provides that:
47.Section 14(1) of the CPO applies only if there is a compliance with the conditions precedent. To facilitate the proof of such compliance,section 14(3) of the CPO provides that:
48.Most important for the present purpose, to deal with the situation where the land in question has been partitioned, section 14(5) of the CPO provides that:
49.In Butterworths Hong Kong Conveyancing and Property Law Handbook (4th ed, 2015), the author explains at [14.25], p 135 that:
50.There is no dispute that the Lot has been partitioned into various sections as stated above. There is also no dispute that certificates of compliance have been issued in respect of Sections A1, A2, B1, B2, B3,C2 and C3. In respect of the other sections, Mr Dawes (acting for the plaintiffs) submit that in the absence of evidence to the contrary (and none has been adduced), it can be reasonably assumed that there has also been factual compliance of the conditions precedent applicable to those sections. Mr Chua (representing Ma), while accepting that separate Government leases are deemed to have been issued for Sections A1, A2, B1, B2, B3, C2and C3, takes the view that, in the absence of any certificate of complianceor positive evidence that the conditions precedent have been complied with, no Government lease can be deemed to have been issued in respect of those sections. 51.For the present purpose, the above disagreement is immaterial because, in respect of Sections A1, A2 and B1 on which the units of the Individual Owners are situated, there is no dispute that separate Governmentleases are deemed to have been granted. The critical legal consequence is that the Individual Owners only hold legal estates in Sections A1, A2 and B1; and they have ceased to hold any interest whatever in the other sections on the Lot. 52.It is clear that both the 1996 Modification Letter and the 1997Modification Letter do not concern any land in which the Individual Owners of Sections A1, A2 and B1 have any interest whatsoever:
53.A modification letter is, in law, a variation agreement. Section 14A(1) of the CPO provides that:
In Butterworths Hong Kong Conveyancing and Property Law Handbook (4th ed, 2015), the author explains at [14A.03], p 136 that:
54.The 1996 and 1997 Modification Letters do not seek to vary the separate Government Leases deemed to have been granted in respect ofSections A1, A2 and B1 at all. The Individual Owners, holding interests inSections A1, A2 and B1 only, do not have any privity of estate or privity ofcontract in relation to Sections B2, B4 and A3, and the Government leasesconcerning those sections. The Individual Owners of Sections A1, A2 and B1 are not necessary parties to the variations agreements as evidenced by the Modification Letters. In law, they do not have any standing to oppose the Modification Letters. 55.Hence, the answer to Issue 1 is Yes. D. Issue 3 56.Issues 2 and 3 are inter-related. I have decided to deal with Issue 3 first. Both issues concern whether the consent of the Individual Owners is necessary for any amendment to the Master Plans. It should benoted that these two issues are not related to the validity of the Modification Letters. The relevance of these two issues is that, as explained above, in order for Baynard to enjoy the benefits conferred by the Modification Letters, the Master Plans must first be amended. As between Issues 2 and3, Issue 3 is more fundamental because, if the Individual Owners do not fallwithin the meaning of “Purchaser” in SC 7(e), Issue 2 will become academic. How Issue 3 should be resolved will not be affected by the fact that the Lot has been partitioned into different sections. On the other hand, Issue 2 deals with the consequence of the partition. 57.Baynard and SJ submit that, the word “Purchaser” in SC 7(e) should be confined to mean the Developer ie Baynard itself (or its assignee, if any, which plays the same role as developer). In contrast, Ma submits that the word “Purchaser” in SC 7(e) includes the Individual Owners. 58.The principles concerning construction of Government lease are not in dispute; they are the same as those concerning construction of contract in general. In Building Authority v Appeal Tribunal (Buildings) (ENM Holdings Ltd) (2018) 21 HKCFAR 194 at 209 – 210, Tang PJ and Lord Collins of Mapesbury NPJ held that:
59.According to GC 9, the word “Purchaser” includes not only the person entering and executing the New Grant, but “where the context so admits or requires” his assigns. Baynard is the person entering and executing the New Grant. There is no dispute that the Individual Owners were assigns of Baynard. The real issue is whether the context admits or requires their inclusion. 60.Here, the most relevant context is SC 7 viewed as a whole. The word “Purchaser” is also used in SC 7(a) which provides that “the Purchaser shall … submit … for the approval of the Director Master Plans … detailing the Purchaser’s proposals for the development of the lot”, “The Master Plans shall be signed by the Director and the Purchaser …”, “The Purchaser … shall provide with the Master Plans and at his own expense a model to an appropriate scale which shows the Lot and the Other Areas as envisaged upon completion.” And the word “Purchaser” is also used in SC 7(b) which provides that “The Purchaser shall … submit … for the approval in writing of the Director detailed plans and proposals for the landscaping of the Lot and the Other Areas … prepared by a qualified Landscape Architect ….” It is clear that these are things intended to be done by the Developer. 61.Mr Chua rightly accepts that, as submitted by both Mr Dawes and Mr Yu (appearing for SJ), the word “Purchaser” in SC 7(a) and (b) must refer to the Developer. This is important because, as held by Lord Roskill in Tor Line AB v Alltrans Ltd [1984] 1 WLR 48 at 55E–F:
62.Hence, one would expect that the word “Purchaser” in SC 7(e) should bear the same meaning as that in SC 7(a) and (b) unless the particular context requires otherwise. It is therefore important to discern the purpose of SC 7(e). In my view:
63.Mr Chua submits that, for any proposed major alteration to be made after completion, consent of the Individual Owners is required. He emphasizes the importance of completion. I am unable to accept his submission:
64.For the above reasons, my answer to Issue 3 is No. E. Issue 2 65.As I have answered Issue 3 in the negative, Issue 2 has become academic. Nevertheless, I shall deal with it for the sake of completeness. 66.This issue will depend on whether, in respect of the separate Government leases deemed to have been granted in respect of Sections A1,A2 and B1, they contain a provision identical to SC 7(e); and if so, how it should be construed. 67.I should begin with section 42(1) of the CPO which provides that:
68.The purpose of this statutory provision is to preserve the effect of covenants held under a condition of grant following the issue or the deemed issue of Government lease. Hence, in principle, the conversion ofthe equitable interest into a legal estate by virtue of the “deemed” issuance of a Government lease would not affect the covenants in the New Grant. 69.As mentioned, separate Government leases are deemed to have been granted in respect of Sections A1, A2 and B1. The question is whether these separate Government leases contain the same conditions as in the New Grant, in particular, SC 7. In my view, it is clear that each of these separate Government lease must contain a provision identical to SC 7. 70.In the light of my answer to Issue 3, in respect of the SC 7 in each and every separate Government lease (which shall be identical), it would bear the same meaning, in particular, the word “Purchaser” shall mean the Developer. 71.But what if I am wrong in that the word “Purchaser” should include the Individual Owners? Baynard and SJ submit that, in such scenario, because of the principle of severance, any amendments to the Master Plans in relation to Sections A3, B2 and B4 would not require the certificate in writing or the consent or the authority of the Individual Owners. In contrast, Ma submits that there is no severance. 72.It is necessary to explain what the principle of severance is about because the word “severance” is capable of causing confusion. Mr Chua stresses that there is only one set of Master Plans for the whole Lot, which cannot be severed. This is not what severance is about. 73.In this context, it is a term used to describe the consequence when an original tenant assigns only part of the property comprised in the lease. The common law is able to sever the obligations contained in the original contract of tenancy and apportion them between the several parts of the property comprised in the tenancy (Smith v Jafton Properties Ltd [2012]Ch 519 at 527E, §19). In Smith v Jafton Properties Ltd at p 528, §21, Lewison LJ cited the following judgment of Cherry LCJ in Dooner v Odlum [1914] 2 IR 411 at 425:
At p 530C–E, §28, Lewison LJ, after reviewing the authorities extensively, held that:
74.The principle of severance is about the severance of the tenant’s obligations; and their apportionment between the different parts of the land. At p 533, §39, Lewison LJ concluded as follows:
75.However, it does not follow that there are two contracts of tenancy. At p 534, §41, Lewison LJ held that:
76.This common law principle must be considered in the light of section 14(5) of the CPO. There is no doubt that separate Government leases are deemed to have been granted in respect of Sections A1, A2 and B1. The common law principle stresses that, upon a partition by the original tenant assigning part of the leased property, the assignee only has privity of estate with the landlord as regard that part of the leased property, and hence, he is only liable for the rent or other obligations referable to that part. Section 14(5) reinforces that upon a partition of the Lot, the tenants (or co-tenants) of any individual section of land created as a result of the partition, would only have privity of estate, and also privity of contract, with the Government in respect of that particular individual section of land. 77.With this in mind, we may return to the question how the provisions in the Government lease should be construed and applied. Take the Government lease deemed to have been granted in respect of Section A1 as an example. It follows from the common law principle that the rights and obligation in the Government lease should apply to the co-owners of section A1 only insofar they are referable to Section A1. This is because the co-owners of Section A1 have privity of estate with the Government in respect to Section A1 only. 78.How then should this principle be applied to SC 7(e) in the separate Government leases for Sections A1, A2 and B1? As mentioned, SC 7(e) provides that an amendment, alteration or variation of the Master Plans shall be valid on the Government or Purchaser unless the same have been, inter alia, certified in writing thereon by the Director and the Purchaser. The question is whether the phrase “amendment, alteration or variation of the Master Plans” in SC 7(e) in the separate Government leases for Sections A1, A2 and B1 should be construed to mean any amendment, alteration or variation of the Master Plans:
79.Again, take the Government lease deemed to have been granted in respect of Section A1 as an example. The Individual Owners holding units in that section only have legal interests in Section A1, but no interest whatsoever in the other sections in the Lot; and they have no privity of estate with the Government in relation to any other sections in the Lot. In the absence of any such interests, and privity of estate, I fail to see why an amendment, alteration or variation of the Master Plans not involving, or referable to, Section A1 should require the consent or approval of the co-owners of Section A1 at all. Hence, even if the word “Purchaser” in SC 7(e) should be construed to include all co-owners of Section A1 (which in my view is not the correct construction), they need not certify inwriting (and hence, their consent or approval be obtained) any amendment to the Master Plans or Landscape Plans unless the amendment concerns Section A1. 80.The proposed amendments to the Master Plans intended to be made by Baynard concern Sections B2, B4 and A3 only. It follows from what I said above that they do not require the certificate in writing or the consent of the Individual Owners. 81.Accordingly, the answer to Issue 2 is Yes (in obiter). F. Issue 4 82.In view of my answers to Issues 1, 2 and 3, it is unnecessary for Baynard and SJ to succeed on Issue 4. Section III, clause 1 of the DMC (sub-clauses 1(d) and 1(e)) and clause 3 thereof will become relevant if and only if the consent of the Individual Owners of Sections A1, A2 and B1 is necessary for the 1996 and 1997 Modification Letters, and any proposed amendment to the Master Plans or Landscape Plans in connectionwith those Modification Letters. For reasons stated above, I take the view that no such consent is necessary. Nevertheless, once again, in case I am wrong on Issues 1, 2 and 3, and for the sake of completeness, I shall consider Issue 4. 83.Mr Yu submits that Issue 4 is a matter between Baynard and the Individual Owners. I believe it may impact on the position of the Government because, if consent of the Individual Owners of Sections A1, A2 and B1 is necessary for the 1996 and 1997 Modification Letters, or anyproposed amendment to the Master Plans or Landscape Plans in connection with those Modification Letters, the question whether Baynard has the actual/apparent authority to agree to the Modification Letters and submit any proposed amendments to the Plans for and on behalf of the Individual Owners will depend on the proper construction and application of the relevant provisions in the DMC. 84.The DMC applies to all sections in the Lot. Putting aside the proviso for the time being, the meaning of sub-clauses 1(d) and 1(e), Section III, clause 1 of the DMC is reasonably clear. They give Baynard the right to amend the Master Plans or the Landscape Plans, and to agree with the Government to amend the terms and conditions in the Government lease, without the concurrence or approval of the Individual Owners. 85.In Mr Chua’s written skeleton submission, he sought to rely on the Interfoto principle to challenge the validity of the above provisions in the DMC. In short, under the Interfoto principle, if a contracting party seeks to enforce an unusual or particularly onerous clause, he must show that it had been brought fairly and reasonably to the attention of the other party. In DBS Bank (Hong Kong) Ltd v San-Hot HK Industrial Co Ltd & Anor [2013] 4 HKC 1 at 162 [231], Deputy Judge Pow SC took the viewthat he cannot see how this principle could apply to a contracting party whohad signed and executed documents he knew to have contained contractual terms as to do so would infringe the Court of Final Appeal’s decision in Ming Shiu Chung. Deputy Judge Marlene Ng (as she then was) agreed with what Deputy Judge Pow SC said in DBS Bank (Hong Kong) Ltd v SitPan Jit HCA 382/2009 (2 April 2015, unreported), [382] – [391]. I agreewith them. It is essential to draw and keep a clear distinction between twovery different issues: first, whether a particular term has been incorporated into a contract; and second, whether a particular term, which has been incorporated into a contract, is legally valid. The Interfoto principle should be reserved for the first issue. It is unnecessary for me to decide whether there are any exceptional circumstances in which such principle may be invoked to deal with the second issue. No authority has been cited by Mr Chua to support that such principle has been applied to invalidate a provision in a DMC, let alone provisions similar to those in issue in this case. Mr Chua did not pursue this point in his oral submissions. 86.In law, the Individual Owners are parties to the DMC. Although they have not signed the DMC personally (save and except the first assignee), they are bound by each and every covenant in the document because of section 41(3) of the CPO which provides that:
87.The real issue is how the relevant clauses in the DMC should be construed. Ma CJ held in Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351 at 361, §15:
88.Before one considers the wording of the clauses in issue, it is necessary to put the matter in context:
89.Accordingly, the Individual Owners, who are bound by the DMC, must be taken to know that the Development would be developed indifferent phases in accordance with the Master Plans, which may be amended;and that the conditions in the New Grant are susceptible to modifications. The questions are, as among the co-owners of the Lot including Baynard,who has the right to amend the Master Plans or the conditions in the New Grant; and in what circumstances, such person may exercise such right and how. The purpose of Section III, clauses 1(d) and (e) and 3 is to answer these questions. 90.I turn to the wording of Section III, clauses 1(d) and (e). Mr Chua submits that the phrase “without the concurrence or approval of any Estate Owner or Phase Owner or any of the parties hereto” in these clauses implies that the Individual Owners must be notified of and consulted on any proposed amendment to the Master Plans, or modification of the New Grant. His point is that the relevant clauses do not say “without the notice or consultation of any Estate Owner …”. I am unable to accept his submission:
91.Mr Chua refers to Section III, clause 3, and stresses that Baynard is acting as an agent for all the other co-owners. He has not gone as far as submitting that Baynard owes any fiduciary duty to the other co-owners in this respect. In any event, even assuming that there is any fiduciary relationship, as stated by Mason J in Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 97 (cited by Tang PJ in Poon Ka Man Jason v Cheng Wai Tao (2016) 19 HKCFAR 144 at 155, §15):
I do not think Section III, clause 3, can take Mr Chua’s argument in this respect any further. The purpose of this clause is simply to facilitate Baynard’s exercise of the various additional rights given under Section III, clause 1, by conferring express authority on Baynard to do so insofar as necessary. 92.The remaining issue is whether the proviso to Section III, clauses 1(d) and (e) applies. It provides that any such change, etc, (under clause 1(d)) or the exercise of the right (under clause 1(e)) shall not, firstly, interfere with an individual owner’s right to hold, use, occupy and enjoy his Unit or Car Park, or, secondly, unreasonably impede or restrict the access to or from any such Unit or Car Park. 93.It is necessary to construe the meaning of “an individual owner’s right to hold, use, occupy his Unit” first. The parties have referred me to numerous authorities concerning the construction of variousindividual words. For example, in Southwark LBC v Mills [2001] 1 AC 1 at 10E, Lord Hoffmann held that the word “enjoy” in the context of a covenant for quiet enjoyment cannot be construed literally, it refers to the exercise and use of the right and having the full benefit of it, rather than to deriving pleasure from it; in Beedles v Guinness Northern Counties Ltd [2011] HLR 31, §17, Moses LJ held that the use of the words “enjoy” and “enjoyment” in section 24C of the Disability Discrimination Act 1995conveys the meaning that the tenant should be able to use those premises in“an ordinary lawful way”. These precedents highlight that the construction of the word “enjoy” depends very much on its context; and very often, it does not carry its literal meaning. 94.On the other hand, Mr Chau refers me to authorities suggestingthat an interference with pleasurable and reasonable enjoyment constitutesan annoyance (Tod-Heatly v Benham (1888) 40 Ch D 80 at 94); and that the erection of a house obstructing the view of a river amounted to an annoyance (Davies v Dennis & Ors [2009] EWCA Civ 1081). I believe his point is that the word annoyance is wider than the concept of nuisance under the common law. I am afraid that these precedents are of little relevance or assistance. The relevant clauses in the DMC do not use the word “annoyance”. It should be noted that clause 10 in Section V uses expressly the phrase “nuisance or annoyance”; and clause 18 in the same section refers expressly to “interfere with the rights, comforts and convenience”. It is necessary to bear in mind that these words and phrases used in other clauses in the DMC could have been, but are not, used in the proviso in Section III, clauses 1(d) and (e). 95.I take the view that the phrase “right to hold, use, occupy and enjoy his Unit” must be construed and understood as a whole. First, it refers to a right: it must mean a legal right properly-so-called in contradistinction to any practical pleasure, benefit or otherwise which does not qualify as a legal right. Second, the legal right as described must be a reference to the contractual right conferred on the Individual Owners, by Section II, clause 2, to have the “full and exclusive right and privilege to hold, use, occupy and enjoy to the exclusion” of other co-owners his particular unit. This is indeed the hallmark of the right of co-owners in multi-storey buildings. As explained by Li CJ in Kung Ming Tak Tong Co Ltd v Park Solid Enterprises Ltd (2008) 11 HKCFAR 403 at 416C–F, §19, the starting point is that, as co-owners of undivided shares in the same piece of land, they are entitled each to the use and possession of the whole building built on the land. In order that they can use their own individual units exclusively, the co-owners invariably execute a deed of mutual covenant to regulate by contract their rights inter se regarding the exclusive use and occupation of the units allotted to their respective parcels of undivided shares, etc. He observed in pp 416G – 417A, §20:
96.The phrase “exclusive right to hold, use, occupy and enjoy” orsubstantially similar phrase is commonly used in deeds of mutual covenant to describe the contractual right enjoyed by individual owners over his own unit in a multi-storey building. Indeed, such phrase is also used in statutes; section 2 of the Building Management Ordinance (Cap 344) defines “common parts” as, firstly:
97.Putting aside minor variations in the wording, such phrase is aconvenient label to describe the exclusive right of an individual owner overhis unit, which for all practical purposes, is as good as exclusive possession. It is impossible in law to give exclusive possession of the individual unit to the individual owner because this would destroy the unity of possession which is essential in co-ownership of land. 98.It is also necessary to note Section II, clause 3 which provides that:
The easements, rights and privileges are set out in Section IV. The important point is that the right to hold, use, occupy and enjoy the individual unit is to be distinguished from, and does not include, any contractual easements, rights and privileges given to the Individual Owners under the DMC. It is only about the exclusive right over an individual owner’s own unit. 99.I also take the view that to construe the phrase “right to hold, use, occupy and enjoy his Unit” in the restrictive manner mentioned above is supported by the following considerations:
100.I turn to the application of Section III, clause 1(e) to the facts of this case first. The question is whether the exercise of the right by Baynard to agree with the Government to enter into the Modification Letters shall interfere with the Individual Owners’ exclusive right over their individual units. One needs to focus on the consequence of the exercise of such right by Baynard. As a result of Baynard’s exercise of such right, the Modification Letters were concluded. Under the Modification Letters, Baynard acquired the right to build more GFA on Sections B2 and B4 as well as Section A3. I fail to see how the acquisition of such additional right, per se, shall interfere with the Individual Owners’ exclusive right over their individual units in Sections A1, A2 and B1. Whether, how and when Baynard would make use of such additional right is another matter. 101.I turn to the application of Section III, clause 1(d) to the facts of this case. The question is whether the proposed amendments to the Master Plans shall interfere with the Individual Owners’ exclusive right over their individual units. Pursuant to the additional right given by the 1996 Modification Letter, Baynard intended to amend the Master Plans in order to build three more residential blocks on Sections B2 and B4. Mr Chau submits that this would interfere with the Individual Owners’ right in at least three ways:
102.As to the first complaint about the loss of sea view, it must be rejected for the following reasons:
103.Second, as to complaint about the intended removal of the Playground, it must be rejected for the following reasons:
104.Third, as to the complaint about access to the Individual Owners’ Units and Car Parks, it must also be rejected for the following reasons:
105.For the above reasons, the answer to Issue 4 is Yes (in obiter). G. Issue 5 106.The Individual Owners complain that the Government has committed a derogation from grant by issuing the Modification Letters. 107.The relevant legal principles are not in dispute. In Kung Ming Tak Tong Co Ltd v Park Solid Enterprises Ltd (2008) 11 HKCFAR 403 at 430D–F, §61, Li CJ held that:
108.At 431A–F, §63, Li CJ held that:
109.In Rank Profit Industries Ltd v Secretary for Justice [2009] 1 HKLRD 194 at 206, §24, Tang VP (as he then was) held that:
110.In Rank Profit Industries Ltd v Secretary for Justice FAMV 8/2009 (25 June 2009, unreported), §12, Ribeiro PJ held that:
In §15, he held that:
111.A crucial point to note is that, in ascertaining what is necessarilyimplicit, one must be guided by the test which regulates the implication of contractual terms, namely, necessity. The important principle that a term will be implied into a contract if and only if it satisfies the test of necessityhas been reaffirmed by recent authorities in the United Kingdom and Hong Kong. 112.In Devani v Wells [2019] 2 WLR 617 at 627H – 628C, §28, Lord Kitchin JSC (with whom Lord Wilson, Lord Carnwath and Lord Sumption agreed) held that:
113.In Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd [2019] HKCA 261, the Court of Appeal held in §32 that it agreed with the comments of Lord Neuberger in Marks & Spencer plc v BNP Paribas Securities ServicesTrust Co (Jersey) Ltd [2016] AC 742 at [21]; it further cited the decision of Privy Council in Nazir Ali v Petroleum Company of Trinidad and Tobago [2017] UKPC 2 where Lord Hughes (with whom Lord Neuberger, Lord Clarke and Lord Carnwath agreed) summarized the law at [7]:
114.Returning to the facts of this case, Mr Chua submits that it is necessarily implicit in the relevant Government leases (to which the Government and the Individual Owners) are parties that any alterations which are not minor to the New Grant, the Master Plans and Landscape Plans for further development require the consent of the Individual Owners; or alternatively any such alterations which interfere with the Individual Owners’ use of their units or car parks would require their consent. He submits that a major feature of a significant number of residential units in the Development is their sea-views; and it is implicit that any alteration which would adversely impact on the Individual Owners’ enjoyment of seaview from their units would require their consent. He further submits that, by the Modification Letters which were concluded without the Individual Owners’ consent, the Government has rendered the Individual Owners’ unitsand their enjoyment substantially less fit for the purpose for which they weregranted. I am unable to accept these submissions for the following reasons. 115.First, as mentioned, the Modification Letters merely give additional rights to Baynard to build more GFA on Sections A3, B2 and B4. They do not require Baynard to build anything at all, let alone to build anything which might impact on the sea view enjoyed by some of the Individual Owners from their units. I am unable to see how it can be said that the execution of the Modification Letters, per se, has rendered the Individual Owners’ units less fit for their residential purpose. 116.Second and more importantly, it is clear that the term that the Individual Owners seek to imply into the Government leases cannot satisfy the test of necessity:
117.Third, a matter which merely interferes with convenience, amenity, or privacy, is not a breach of the implied covenant not to derogate from the grant unless the interference is of such a serious nature as to frustrate the use of the premises for the purpose for which they are demised(Kelly v Battershell [1949] 2 All ER 830 at 836E–H). In Browne v Flower [1911] 1 Ch 219 at 227, Parker J held that:
Applying these principles to this case, at most, the complaints of the Individual Owners, in particular, the loss of sea view, would interfere with their convenience or amenity. They are plainly not serious enough so as to frustrate the use of their individual units for residential purpose. 118.For the above reasons, the answer to Issue 5 is No. H. Issue 6 119.The Individual Owners submit that the additional GFA or the potential GFA given by the Modification Letters could and should have been allocated to the Lot as a whole and should enure to the benefit of, among others, the Individual Owners. In his Skeleton Submissions, Mr Chua submitted that:
120.The Modification Letters are clear. As mentioned, the 1996 Modification Letter concerns Sections B2 and B4 only, whereas the 1997 Modification Letter concerns A3 only. In essence, the Individual Owners seek to impose on both the Government and Baynard a legal obligation to allocate additional GFA in a particular way if and when they intended to vary the relevant Government leases. The burden is on the Individual Owners to identify the legal basis to impose such a legal obligation on the Government and Baynard. 121.First, insofar as the position of the Government is concerned, Mr Chua refers to various provisions in the Town Planning Ordinance (Cap 131) and some authorities concerning the Ordinance. I fail to see the relevance of the Ordinance at all in the present context. As a matter of fact, as stated by a letter of the Planning Department dated 16 May 2000, for reasons that I need not go into, no permission from the Town Planning Board is required for the addition of three additional residential blocks from a statutory point of view. 122.Second and more importantly, it is crucial not to mix, confuse or conflate different roles played by different Government departments in relation to matters concerning the development of the Lot. In the present context, we are solely concerned with the Government’s role as thelandlord or grantor of the relevant Government leases. In this respect, theGovernment’s rights are, generally speaking, identical to those of a privatelandlord. This is a private law matter; and it will be wrong to allow publiclaw considerations to slip in. In Director of Lands v Yin Shuen Enterprises Ltd & Anor (2003) 6 HKCFAR 1 at 14, §19, Lord Millett NPJ reaffirmed that:
123.As mentioned, the Government leases in respect of Sections A1, A2 and B1 where the units of the Individual Owners are located are separate and distinct from the Government leases in respect of the other sections in the Lot. It is clear that the Government was entitled to decide to agree to the modifications of the Government leases regarding Sections B2 and B4 under the 1996 Modification Letter, and the Government lease regarding Section A3 under the 1997 Modification Letter, in the way it saw fit. The Government was merely exercising its contractual right as a landlord. 124.I note that, in a letter dated 14 June 2000, the Director of Lands on behalf of the Lands Department commented on the three additional blocks intended to be built on Sections B2 and B4 as follows:
Mr Chua submits that, Baynard had utilized the site area of the whole Lot to persuade the Government to grant it the right to build more GFA. He argues, therefore, Baynard should allocate the additional GFA to the Lot as a whole. I am unable to follow his argument. As a matter of negotiation, it was open to Baynard to rely on any matter it saw fit to persuade the Government to agree to the modification of the Government leases regarding Sections B2, B4 and A3; and it was open to the Government to decide whether to accept Baynard’s request for modification on whatever grounds it saw fit. The Government has explained that its approach was necessary in order to assess whether or not the additional GFA breached the normal guidelines for the plot ratio development density of other lots with the same zoning in the area. The letter merely stated what considerations the Government had taken into account in agreeing to the Modification Letters. I fail to see how it can be utilized to create a legal obligation on the Government and Baynard on allocation of GFA as suggested by the Individual Owners. 125.In addition, insofar it is suggested that restrictions concerning the allocation of additional GFA as proposed by the Individual Owners should be implied into the relevant Government leases, it is clear that the test of necessity cannot be satisfied. 126.For these reasons, the answer to Issue 6 is No. I. Issue 7 127.Issue 7 is the ultimate question; it is not a free-standing issue. In view of my answers to Issues 1 to 6, my answer to Issue 7 must be Yes. J. Conclusion and order 128.For the above reasons, I answer all Issues in favour of Baynard and SJ. A summary of my answers are as follows:
129.As explained, what is crucial is that they succeed on Issues 1, 3, 5 and 6. Their success on these four issues is sufficient to result in a favourable answer to the ultimate question ie Issue 7. They do not need to succeed on Issues 2 and 4. Hence, although I have concluded that they also succeed on those two issues, my conclusions on them are obiter. 130.As I indicated at the end of the hearing, I would invite parties to submit, within 14 days, an agreed draft of the precise declarations that they propose should be made to reflect my decision on the Issues; or, in default of agreement, each party may offer me a separate draft, accompanied by a short supporting submission (not longer than 5 pages). 131.It is critical to ensure that the declarations that I shall make candispose of the issues in these proceedings finally and conclusively, but will not create any unintended consequences leading to new potential disputes. The declarations will, of course, be binding on all parties to these legal proceedings. To assist parties to agree on a draft order, the declarations that I am minded to make are along the following line: (a) The 1996 and 1997 Modification Letters are legally valid; and b) Under SC 7(e), Baynard is not obliged to seek the consent of the Individual Owners in submitting any proposed amendment to the Master Plans or the Landscape Plans for the Director’s approval; and any such amendment approved by the Director and recorded on those plans need not be certified in writing by the Individual Owners. 132.As to costs:
Mr Victor Dawes SC and Mr Wilson Leung, instructed by Mayer Brown, for the 1st and 2nd plaintiffs Mr Benjamin Yu SC and Mr Bernard Man SC, instructed by Simmons & Simmons, for the 1st defendant Mr Chua Guan-hock SC and Ms Sharon Yuen, instructed by K B Chau & Co, for the 2nd defendant The 3rd defendant was not represented and did not appear | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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