Lee Hysan Estate Co Ltd v. Sky Heart Ltd

CACV000064/1997

1997, No. 64
(Civil)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

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Coram : Hon. Mortimer, V.-P., Godfrey & Rogers, JJ.A. in court

Dates of hearing : 13, 14, 15, 16 and 20 January 1998

Date of handing down judgment : 26 February 1998

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. On 11 February 1997, after a 5-day trial, Le Pichon, J. granted Lee Hysan Estate Co. Ltd ("the plaintiff") a permanent injunction, the effect of which has been to restrain Sky Heart Limited ("the defendant") from erecting, as it wants to do, a pencil-shaped commercial building, 23 storeys high, on its property at 6 and 8 Kai Chiu Road, Causeway Bay. The judge decided that the plaintiff was entitled to the benefit, and the defendant's property was subject to the burden, of certain restrictive covenants contained in an Assignment of the property dated 26 April 1954. The defendant accepts that under that Assignment its property was subjected to restrictive covenants apt to preclude it from developing its property as it wants to do. But it contends that the judge was wrong to hold the plaintiff entitled to the benefit of these covenants, and wrong in any event to grant the plaintiff an injunction. So the defendant now appeals. It contends that the judge ought to have dismissed the plaintiff's action.

The facts

2. The facts, more fully stated in the judge's judgment (reported at [1997] 1 HKC 313), may for present purposes be summarised as follows.

3. On 21 December 1953 the plaintiff agreed to sell to one Pang a piece of land, part of a larger parcel of land of the plaintiff, Inland Lot 29 at Causeway Bay. This piece of land carved out of Inland Lot 29 was to be known as Section Q. The agreement obliged Pang to covenant with the plaintiff to erect on Section Q interconnected domestic European dwelling houses of a uniform design which, save for the ground floors, were to be used only as private dwelling houses.

4. Within 2 months Pang had sub-sold all of Section Q.

5. The subsequent assignments to the various sub-purchasers were all made by reference to a common layout plan showing Section Q laid out in lots; and each assignment contained the covenants (expressed to be made with the plaintiff "and its assigns"), for which the plaintiff's agreement with Pang had provided.

6. The dwelling houses for the erection of which the agreement had provided were duly built in conformity with that layout plan and with the covenants. (The authorised architect, originally retained by the plaintiff, was one Wong, who submitted the necessary detailed building plans to the building authority on behalf of Pang.)

7. Since the erection of these buildings, there have been many new developments in the vicinity of Section Q, both on other parts of Inland Lot 29 and generally. Much of the development on Inland Lot 29 has been carried out pursuant to releases granted by the plaintiff of restrictive covenants, similar to those taken by the plaintiff in respect of Section Q, impeding the development of those other parts of Inland Lot 29 to which they related. But there has been no development of any part of Section Q.

8. After differences arose between the plaintiff and the defendant over the defendant's plans to develop its property, the plaintiff acquired the first floor of one of the dwelling houses erected on Section Q (subject to a tenancy) for the sole purpose of bolstering its claim to be entitled to enforce against the defendant the restrictive covenants affecting the defendant's property. The plaintiff owns no land capable of being benefited by the enforcement of those covenants other than this dwelling house floor.

The plaintiff's case

9. As to the benefit of the restrictive covenants affecting the defendant's property, the plaintiff, although the owner of other land in the vicinity of the defendant's property, does not claim to be entitled to enforce those covenants against the defendant for the benefit of that other land. It claims to be so entitled only for the benefit of the dwelling house floor it has recently acquired. It says that that floor is part of the property comprised in the scheme of development on the basis of which the dwelling houses now standing on Section Q were erected. It says that on the facts summarised above it should be inferred that the plaintiff and Pang dealt with Section Q on the footing of imposing restrictive obligations on the use of the various plots comprised in it for the benefit of the various sub-purchasers inter se. Further, it says that in any event it is entitled, as the original covenantee, to enforce the covenants, although it never retained any land capable of being benefited by the covenants; this, it says, is a right conferred on it, not by any rule of common law or equity, but by virtue of section 41(2) of the Conveyancing and Property Ordinance, Cap. 219 ("the CPO"). Being entitled to the benefit of the covenants, it says it is entitled, absent any suggestion of bad faith, to an injunction to enforce them.

The defendant's case

10. The defendant says that the proper inference from the facts summarised above is that the plaintiff took the restrictive covenants affecting the defendant's property for the benefit only of other land of the plaintiff outside Section Q; neither the plaintiff, nor anyone else, intended the covenants to be enforceable by the sub-purchasers inter se. Since the plaintiff does not claim to be entitled to enforce the covenants for the benefit of any land outside Section Q, it has, says the defendant, no valid claim to be entitled to enforce the covenants, whether as original covenantee (the defendant does not accept that the plaintiff's position in this respect is improved by section 41(2) of the CPO), or as owner of the dwelling house floor it has recently acquired, or at all. Even if it be held that the covenants were intended to be enforceable among the sub-purchasers inter se, the plaintiff, says the defendant, should have been denied an injunction, first, because its motive in asking for one was, not to protect its interest in the dwelling house floor it has recently acquired, but to impede the defendant's proposed development for other reasons; and, secondly, because there has been such a deterioration of the dwelling houses themselves, and such a change in the character of the surrounding neighbourhood, that there is nothing of value worth preserving by the enforcement of the covenants.

The judgment below

11. The judge concluded from the facts summarised above that it was the common intention that the restrictive covenants should be enforceable by the sub-purchasers inter se. In any case, she held that the plaintiff was entitled to enforce the covenants by virtue of section 41(2) of the CPO (which she set out in her judgment : see [1997] 1 HKC 313 at 338 B). She refused to accept that the plaintiff should be denied an injunction because it had no land capable of being benefited by the covenants other than the dwelling house floor which it had acquired simply for the purpose of enforcing the covenants; or because of the changes in the vicinity when, as she held, the buildings on Section Q itself had remained "intact", with shops on the ground floor and residential premises on the other floors.

Was the judge right?

1. Scheme of development

12. I am of the opinion that the judge was entitled, on the facts, to find for the plaintiff as she did on the one crucial question: whether or not it was the common intention, so far as the development of Section Q was concerned, that the restrictions imposed on the use of each plot shown on the layout plan should be mutually enforceable by the sub-purchasers of the plots inter se. It is a matter of inference, in the absence of any direct evidence one way or the other; but it seems to me that every sub-purchaser must have known that every other sub-purchaser was to be bound to use his dwelling house (other than the ground floor) as a private dwelling house. The restrictions were obviously for the benefit of all the sub-purchasers of lots in Section Q; and they all had a common interest in maintaining the restriction. As Lord Macnaughten put it in Spicer v. Martin (1888) 14 App. Cas. 12, at p.25 :

"This community of interest necessarily, as I think, requires and imports community of obligations."

13. It is not necessary, as it seems to me, to rehearse here all the matters considered by the judge, and all the arguments which she entertained, in coming to her conclusion on this crucial question of fact. For my part, although I recognise that on the evidence an inference the other way could equally reasonably have been drawn, I am not prepared to draw from the facts an inference contrary to that drawn by the judge. Indeed, on the whole, and weighing up the evidence for myself, I draw the same inference as she did. So, I too would hold that, subject to the question whether this was an appropriate case for the grant of an injunction, the plaintiff, as the owner of a floor on one of the dwelling houses comprised in the scheme, is entitled to the benefit of the covenants to the burden of which the defendant's property is subject.

14. I should add that, in coming to her conclusion, the judge rejected (in my opinion, rightly) one argument on the part of the defendant based on the conduct on the part of the plaintiff in releasing as mentioned above restrictive covenants in relation to other land similar to those taken by the plaintiff in respect of Section Q. The argument, as the judge remarked, depended on an assumption that "where the covenants affecting two or more separate and different parcels of land sold off by the same vendor are similar, it is permissible to extrapolate from the existence or otherwise of a building scheme affecting one of the parcels, that the same must apply to the other or others." The judge thought the assumption unwarranted "because whether or not there was an intention that the restrictive covenants should enure to the benefit of the purchasers inter se at the time each parcel was partitioned is a question of fact." I entirely agree with the judge; but I would go further. I do myself not consider the dealings of the plaintiff with its other land to be logically probative of its intentions as to Section Q. If the plaintiff had objected to the judge receiving this evidence (in fact it did not do so) she would, in my judgment, have been entitled to exclude it as irrelevant and inadmissible. This is just the sort of evidence which tends "to waste time [and] embarrass the inquiry with irrelevant issues" : see Phipson on Evidence, 14th Edition (1990), at 17-68 (dealing with "similar fact" evidence in civil cases).

2. Section 41(2) CPO

15. Once the first point is decided in favour of the plaintiff, it becomes unnecessary to consider this second point; but, out of respect for the arguments addressed to us, I will briefly express my own view. On this point, I think the judge went wrong. I do not believe section 41(2) of the CPO improves the position of the plaintiff in any way. In its capacity as original covenantee, it already possesses all the rights which section 41(2) might have been apt to confer on it if it had not been entitled to them already. The only right section 41(2) could have conferred on the plaintiff which it did not have already would have been a right to enforce the covenants against a successor in title of the original covenantor notwithstanding that the plaintiff had no longer had any land, within Section Q, which it needed to protect. Clearly, without section 41(2), it would have had no such right : see L.C.C. v. Allen [1914] 3 KB 42. I am not prepared to hold that one of the purposes of section 41(2) was to confer such a right on a person who, although the original covenantee, no longer has any land capable of protection, and so no longer has any need to invoke, against a successor in title of the original covenantor, the protection of equity.

3. Injunction

16. This, to my mind, is the only difficult part of the case. I have come to the conclusion that the judge erred in principle in granting the plaintiff the injunction for which it had asked. My reason for so concluding has nothing to do with the changes brought about by developments in the vicinity of Section Q. Section Q itself remaining "intact" as the judge held, I consider that only cogent evidence that the covenants had become totally valueless to those entitled to the benefit of the covenants would have sufficed to justify the refusal of an injunction on this ground to an owner of one, or more, of the scheme dwelling houses; and the defendant led no such evidence. My reason for so concluding is that, as I think, the evidence demonstrates that the plaintiff is seeking to invoke the intervention of equity, not for the purpose of protecting its property (i.e. the dwelling house floor it recently acquired) at all but for an ulterior purpose; to support its (misconceived) case that it is entitled to claim the benefit of the covenants either as original covenantee or (somehow) under section 41(2) of the LPO, without being the owner of any land (other than the dwelling house floor it acquired for the above-mentioned purpose alone) for the protection of which it needs to invoke the intervention of equity. The rule of equity which permits the original covenantee (or his successor in title) to enforce a restrictive covenant against one who is not the original covenantor was created for, and only for, the protection of an interest in land which the original covenantee (or his successor in title) genuinely wishes to protect for its own sake, not for some collateral purpose. In my judgment, an injunction to enforce a restrictive covenant against a successor in title of the original covenantor should be granted only to secure to the applicant some practical benefit of substantial value to him as owner of some land for the advantage of which he claims the benefit of the covenant. The principle, applied, for instance, by Sargant J. in Chambers v. Randall [1923] 1 Ch. 149 at p. 157 :

"..... is that the equitable doctrine enabling restrictive covenants to be enforced against assigns with notice ought not to be extended in derogation of the ordinary rights at common law of purchasers, and that it ought to be applied only where it is sought to enforce the covenant in connection with the enjoyment of land that the covenant was intended to protect." (emphasis added).

17. In our case, whatever and however innocent the purpose of the plaintiff may be in seeking to enforce the covenants here, it is not that purpose.

18. I should make it clear that the consideration I have given above to the position of the present plaintiff has no bearing on the position of other owners of land within the scheme who may wish to enforce it.

Conclusion

19. I would, therefore allow the appeal, discharge the injunction granted by the judge and dismiss the action. I should perhaps add that no question of damages, either for breach of contract, or in lieu of the injunction, arises, in the absence (in the latter case) of any evidence that the defendant's proposed development will reduce the value of the dwelling house floor recently acquired by the plaintiff.

Rogers, J.A. :

20. This is an appeal from a decision of Mrs. Justice Le Pichon given on 11 February 1997. By the action, the plaintiff (LHE) seeks to restrain the defendant from breaching covenants which were contained in the original assignments of the various sub-sections of Inland Lot 29, section Q. The assignments are all dated 26 April 1954 save for one in respect of sub-section 9 which is dated 13 May 1954.

21. The Judge below analysed the various transactions relating to the Inland Lot 29, section Q and other sections within the vicinity in meticulous detail. That analysis is all the more remarkable because, apparently, it had to be done partially with documents and written submissions which had been given to the Judge after the conclusion of the hearing. It suffices to say that Sir John Swaine, S.C., leading counsel on behalf of the Appellant, could find no criticism of any matter relating to the findings of facts which were contained in the first 24 pages of the judgment. It is therefore unnecessary to refer to those findings other than to say I base this judgment on them.

The Building Scheme

22. The criticism that was made of the judgment in respect of the finding that there was a building scheme relating to Section Q was that the approach had been too formalistic. It was said that the Judge had failed to give full consideration to the requirement of common intention that the restrictive covenants contained in the assignments were to be mutually enforceable in the interest of the purchasers and their successors. In my view, the Judge's reasoning reveals that she carefully assessed the facts, drew proper inferences from known facts and applied them precisely; in particular she was fully alive to the necessity for the existence of a common intention. The Judge was fully aware of the evidence and alive to the absence of direct evidence from those present in 1954, when the covenants were given, and took that into account. The judgment reveals that specific consideration was given not only to the circumstances but also to the nature as well as to the effect of the covenants. I do not consider that it is open to this Court to disturb the findings of the Judge and indeed even if it were, I consider that I would in any event have come to the same conclusion.

23. There are two matters to which I would refer in particular. The first is the suggestion that the covenants were taken for the benefit of other land which LHE or its closely associated companies retained in the vicinity. Even if that were so, that cannot be determinative. In the case of Elliston v. Reacher (1908) 2 Ch. 374 @ 384 Parker, J. specifically included in the description of the third criteria for a building scheme that the requisite intention can exist whether or not the restrictions were also intended to be and were for the benefit of other land retained by the vendor.

24. The other matter to which I would refer is that of the evidence referred to by Godfrey, J.A. as the "similar fact" evidence. I entirely agree that the learned Judge was correct in rejecting arguments based on the terms of conveyances of other sections of Inland Lot 29. Quite apart from the fact that such matters are extremely unlikely to be probative, the consideration of the documentation relating to 4 subsections which were relied upon revealed such disparity of facts in comparison to section Q that the whole exercise was no more than an unnecessary diversion.

Section 41 of the Conveyancing and Property Ordinance

25. It is necessary to deal with the arguments relating to Section 41 of the Conveyancing and Property Ordinance, Cap. 219. The Judge held that the Plaintiff was entitled to rely upon this section to enforce the covenants. Section 41(2) reads as follows :-

"(2) This section applies to any covenant, whether positive or restrictive in effect -

(a) which relates to the land of the covenantor;

(b) the burden of which is expressed or intended to run with the land of the covenantor; and

(c) which is expressed and intended to benefit the land of the covenantee and his successors in title or persons deriving title to that land under or through him or them."

26. It is clear from this subsection that the covenant in question must be intended to benefit land. The land in question must be that of the covenantee. The Judge below held that the subsection (2)(c) was satisfied even if the covenantee only held a bare legal title and not the beneficial title, the point being that at the time the covenant was taken LHE had entered contracts of sale which were yet to be completed or had been completed. To be precise, they were being completed on the very day of the assignments by which the covenants were given. It seems to me that in the circumstances of this case, at least, that the finding of compliance with subsection (2)(c) must be correct. The construction of the section which permits the covenantee to have disposed of all interest in the land prior to the covenant being given is perhaps strange but is not out of line in principle or logic. The benefits of the covenant which the assignees were contractually bound to give and without which the original covenantee could refuse assignment would pass straight to his successors in title to the land. The covenantors were in effect the beneficial owners of the land. It can hardly suggested that even if LHE were acting in the position of trustee in becoming a covenantee that was anything other than intended by all parties i.e. the covenantor, covenantee and beneficiary.

27. The attempt by the Appellant to divide up the covenants and draw a distinction between the covenants in relation to the anti-nuisance covenants and the covenants in respect of the permission to connect to drains which could only relate to the land on the one hand the covenants relating to the buildings on the other seems to be an exercise in semantics and not a proper construction of the documents.

28. If that be right and subsection (2) applies, the provisions of subsection (3) fall to be considered :-

"(3) Notwithstanding any rule of law or equity but subject to subsection (5), a covenant shall run with the land and, in addition to being enforceable between the parties, shall be enforceable against the occupiers of the land and the covenantor and his successors in title and persons deriving title under or through him or them by the covenantee and his successors in title and persons deriving title under or through him or them."

29. As subsection (2)(c) has made clear the covenant in question is one intended to benefit land. Once the original covenantee had disposed of his entire interest in the land for the benefit of which the covenant had been taken he would no longer have any interest to enforce the covenant because he would not be the land-owner but his successors in title and persons deriving title under or through him would have such an interest. Such a construction of the Ordinance would avoid the more extreme interpretation of the subsection which would mean that the original covenantee could enforce the covenant notwithstanding he had disposed of all interest in the land for the benefit of which the covenant had been taken. Godfrey J.A. has pointed out that to hold otherwise would fly in the face of established legal principles. It seems to me that the terms of Section 41 would have to be very different if subsection (2)(c) were intended to override those.

30. LHE having disposed of their entire interest in the land could not use Section 41 to enforce the covenant as the covenantee, but, when it purchased the flat on the first floor at No. 10 Kai Chiu Road it became the owner of the land (in effect the successors in title to itself) and was therefore entitled to enforce the covenants under the provisions of Section 41.

The grant of an injunction

31. The remaining question is whether an injunction should be granted to restrain the defendant from acting in breach of the covenants contained in the 1954 Assignment of sub-section 8 of section Q.

32. In coming to her decision that an injunction should be granted, the learned Judge did take into account her holding that LHE was entitled to relief under section 41 of the Conveyancing and Property Ordinance by reason of being the original covenantee. Nevertheless, in my view, the decision that an injunction should be granted should be upheld. I so hold for the following reasons :-

(a) Having come to the conclusion that a building scheme is in existence, in my view, it should be enforced. The defendant has failed to satisfy the Court that there has been a change of character in the neighbourhood. It may be said that perhaps the houses could be in a better state of repair but so far as the evidence goes, the houses comply with the covenants. They are all habitable and the area is obviously not a derelict area. There has clearly been no permission or acquiescence in any changes to the scheme area.

33. If it were sought to be shown that there has been such a complete change in the character of the neighbourhood from the time when the covenants were first given and the houses constructed until now, it would be necessary to establish that by evidence. There was no such evidence.

(b) It should also be borne in mind that in addition to the aspects of the covenants which deal with the construction of the buildings, there are aspects of the covenants which deal with the user of the buildings and in particular the anti-nuisance covenants preventing use of the premises for offensive, noisome and obnoxious trades such as cabarets and studios. Again, no complaint has been made that there has been any breach of those covenants still less any acquiescence in any such breach.

(c) If the Court were to refuse an injunction the practical effect would be to destroy the building scheme. Not only would the present plaintiff be deprived of the benefit of an injunction but all other owners of houses and flats in section Q would be put in a position where they would not benefit from the Action brought by the Plaintiff. After the defendant's proposed redevelopment had taken place it would be almost certainly impossible to say that the building scheme remained intact.

(d) Although the plaintiff is the owner and developer of substantial properties within the vicinity of section Q, it has not been demonstrated by evidence that it is interested in enforcing the covenants solely for the benefit of land outside section Q. The history of the plaintiff's approach to the enforcement of the covenants is set out in paragraph 14 of the Statement of Claim; the facts are undisputed and are referred to by the Judge at page 14 of her judgment. It appears that in 1992 when the defendant first purchased No. 8 Kai Chiu Road, the plaintiff drew the defendant's attention to the covenants and was informed by the defendant that the purpose of acquisition was for the use of the premises as a restaurant business and dormitory and that there was no intention on the part of the defendant to demolish the building. Later that year the defendant purchased part of the premises at No. 8 next door to No. 6. It was not until 1994 that the defendant informed the plaintiff that it intended to redevelop Nos. 6 and 8 and shortly thereafter the defendant appears to have completed the arrangements whereby it was in full control of Nos. 6 and 8 Kai Chiu Road. Matters did not proceed particularly swiftly thereafter but by the summer of the following year, it had been become plain that the defendant was about to redevelop and also the plaintiff had secured the purchase of the first floor flat at No. 10 Kai Chiu Road.

34. In those circumstances, it is clear that the plaintiff's position has been the same throughout: it considered that the covenants in respect of section Q should be maintained and observed. Even on the basis that the purchase of the flat was solely for the purpose of putting itself in a position whereby it could enforce that observance, I do not consider that the plaintiff has acted in a way that it should be deprived of the remedy of an injunction. The plaintiff, being a body corporate, can only use the domestic premises for occupation as a domestic premises, in the usual way that would be through rental, and there is nothing to suggest that they are doing otherwise. The facts proved do not disclose any improper conduct by the plaintiff, nor do they disclose that the plaintiff has any other intention than making sure that the covenants are observed; still less does it disclose that the plaintiff in purchasing the premises did so in order to harm the defendant or to act in any other way than any person who knowing of the existence of a building scheme in any particular area and wishing to see it maintained would be entitled to purchase premises. The plaintiff's substantial holding outside Section Q may, in the plaintiff's eyes, also be benefited by observance of the covenants, but that would not be contrary to the view expressed by Parker, J. as to the criteria for a building scheme.

35. I would dismiss this appeal.

Mortimer, V.-P.:

36. In a lucid and carefully reasoned judgment, Le Pichon J concluded on the evidence before her:

(a) That the traditional requirements were established and that a building scheme exists in respect of "Section Q".

(b) That the defendant's reliance upon the plaintiff's dealings with Sections H, I, K and O were of no assistance in determining the existence or otherwise of a building scheme for Section Q.

(c) That in addition to having a right to enforce the covenant as owner of Flat 10, the plaintiff was entitled to enforce the covenant under Section 41 of the Conveyancing and Property Ordinance Cap. 219 (the CPO) as original covenantee.

(d) That the defence based on a change in the character of the neighbourhood failed because the change was not so substantial that the original object of the building scheme was at an end.

(e) That the plaintiff's purchase of flat No. 10 to strengthen its case against the defendant did not impugn the plaintiff's bona fides. Nor did it amount to behaviour which ought to lead her to exercise her discretion against the granting of injunctive relief.

(f) That in the circumstances the plaintiff should have an injunction to enforce the covenant.

Each of these conclusions is challenged on appeal by the defendants.

The building scheme

37. For the reasons given by Godfrey JA and Rogers JA whose judgments I have read in draft, I agree that on the evidence the judge was entitled to find that there was a building scheme. I also agree with the judge's reasons. On this issue I would affirm her decision.

Sections H, I, K and O

38. Having been invited by counsel to consider evidence of the plaintiff's dealings with other sections of land in the vicinity of Section Q in some detail, I agree that this evidence was not admissible to prove the plaintiff's intentions towards Section Q. The judge ought to have ruled it out.

39. Experience in this Court shows that, in the absence of objection, judges are inclined to allow inadmissible evidence to be given. Whereas I would not encourage an over technical approach to admissibility such as may unnecessarily interrupt the flow of a witness's testimony, judges should insist upon adherence to the rules of evidence. The admission of inadmissible evidence is unfair to the parties, it wastes time and money, it tends to blur the issues and it increases the difficulty of the judge's task.

Section 41 of the CPO

40. I agree with the judge that s.41 that of the CPO applies to building schemes. However, I too seriously question whether on its true construction a covenantee who has parted with the land to be benefited can enforce the covenant.

41. On a literal reading sub-s. (3) in isolation, the interpretation that an original covenantee who has parted with the land to be benefited may enforce the covenant is open. But sub-s. (3) cannot be considered alone. Sub-section (2) makes it clear that the covenant must express an intent to benefit the land of the covenantee or his successors in title. Leaving aside the contractual position between the original parties once the covenantee has parted with the land to be benefited, he has no legitimate interest to be protected by enforcing the covenant. Such a radical change in the law to give him such a right when he has no legitimate interest to protect by doing so would require a clear and unambiguous provision. There is none.

42. For these reasons I would hold the judge to be in error and on a true interpretation of the section a covenantee who has parted with the land cannot without more enforce the covenant. This is not determinative of the appeal because having bought Flat 10 the plaintiff is a successor in title (of itself) and takes the benefit of the covenant.

Change of character

43. The judge considered this issue in some detail. She applied the correct principles and assessed such evidence as was advanced. For what it is worth, she also had a view. Her conclusion was that the defence based on change of character failed on the basis that:

"it cannot be said that the change is so substantial that the original object is at an end."

44. In spite of detailed submissions advanced by Mr Martin Lee SC who appeared on this part of the appeal for the defendants, I detect no flaw in the judge's reasoning or conclusion. I would uphold it.

45. Injunction

In the exercise of her discretion to grant an injunction to enforce the covenant, the judge took into account her finding in the plaintiff's favour that it was entitled to enforce as original covenantee under s.41. Although in my judgment it was not open to her to take this into account, her reasoning indicates that even if she had found against the plaintiff on this issue, she would still have been inclined to grant the injunction. Nevertheless, on this basis her exercise of discretion was flawed, so this Court should exercise the discretion afresh.

46. The defendant's submission was that the plaintiff's behaviour and motives in purchasing Flat 10 were inequitable. It had bought solely for the purpose of enforcing the covenant and not because as owner of Flat 10, it wished to enforce the covenant to benefit the flat as part of the building scheme. The judge expressed it in this way:

"The Defendant's submission is premised on LHE 'buying' a cause of action by taking the assignment of No.10 in 1995 thereby 'engineering' the creation of an injury to itself for no reason other than to litigate over it. The Defendant alleges that the sole purpose of this exercise was to impede the redevelopment of the Defendant's property. It was alleged that LHE has no cause of action but for being the owner of No.10."

The judge was not impressed by this submission.

47. With reference to her finding that the plaintiff could enforce as original covenantee, she said:

"Even if LHE had not succeeded, it would not follow that it had acted in bad faith. The legal position was not so obvious and clear to render the point taken a thoroughly bad and unarguable one, so as to impugn LHE's bona fides. In fact, the s.41 point raised is novel and not covered by authority. As appears from the facts as set out in Section II(F) above, LHE's stance has been consistent throughout: it believed it was entitled to enforce the covenants as original covenantee and the acquisition of No.10 was to strengthen its case against the Defendant. Suffice to say that no case has been made out that LHE has not done equity so that injunctive relief should be refused. In the circumstances, no grounds have been established to warrant a refusal of the permanent injunction sought."

48. As is clear from the pleadings, the plaintiff's approach and stance has been consistent. It intended to enforce the covenant as the original covenantee but, because of uncertainty as to the meaning of s.41, was advised that it should strengthen its case by the purchase of Flat 10. This it did. Its motive remained to enforce the covenant and maintain the building scheme.

49. It seems to me that prima facie as owner of Flat 10 within the building scheme, it has a legitimate interest in preserving the scheme even if originally the legal basis for its claim was wrong. I agree with the judge that there is nothing here to impugn the plaintiff's bona fides. Nor can it be seriously argued that its conduct in purchasing the flat was motivated by the prospect of financial gain or, a desire to injure the defendants or some other inequitable intention. As owner of No. 10 it has a right to protect by the maintenance of the scheme.

50. As the building scheme is still in existence and is neither obsolete nor futile, the only way in which the plaintiff can maintain the building scheme and be granted a meaningful remedy as owner of No. 10 is by way of injunction.

51. In these circumstances I agree with Rogers JA that the plaintiff has not behaved inequitably so as to disentitle it to injunctive relief. I would exercise my discretion to grant the injunction. I dissent from Godfrey JA in this respect and I would affirm the judge's order.

52. For these reasons, I, like Rogers, J.A., would dismiss the appeal. It is accordingly dismissed, and there will be an order (subject to Order 45 rule 5B(6) of the Rules of the High Court) that the defendant pay the plaintiff's costs of the appeal, to be taxed if not agreed.

Representation:

Sir John Swaine, S.C. & Mr. Martin Lee, S.C. leading Mr. J.J.E. Swaine instructed by M/s. M.K. Kwan & Co. for the Appellant (Defendant)

Mr. Denis Chang, S.C. & Mr. Edward Chan, S.C. leading Mr. Wong Yan Lung instructed by M/s. Johnson Stokes & Master for the Respondent (Plaintiff)