Hang Wah Chong Investment Co Ltd v. Attorney General

CACV000084/1978

Contract - Crown Lease - construction - restrictive covenants - licence to build flats to specified height - whether covenant entirely waived - Director of Public Works as land agent for Crown demanding premium for licence to redevelop with flats of greater height - Building Authority approved plans - Director of Public Works as land agent not bound by approval of Building Authority - absolute right to withhold approval.

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Coram: Huggins, J.A., Cons and Zimmern, JJ.

Date of Judgment: 31 October 1979

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JUDGMENT

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Huggins, J.A.:

1. Yang, J. dismissed this originating summons seeking sundry declarations concerning the rights of the Plaintiff Company to redevelop land off Kadoorie Avenue, Kowloon. In short the Plaintiff claims to be now entitled under an agreement made in 1931 to demolish the seven-storeyed block of flats known as Grand Court which was erected on the site in or about 1955 and to build four new blocks of flats, three of which would be seventeen storeys high. The Crown contends that there is no such right but is prepared to give consent for the new development upon payment of a substantial premium.

2. The site of Grand Court is part of a lot which was sold to the Hong Kong Engineering and Construction Co. Ltd. ("Hong Kong Engineering") by the Crown in 1931 at an auction. The Conditions of Sale required, inter alia, the erection of a number of buildings and provided for the grant of a Crown lease when the conditions had been complied with. Pursuant to the conditions a memorandum of agreement was signed after the auction, but no Crown lease has been executed. The memorandum acknowledged that the purchaser was bound by the conditions of sale.

3. The vital conditions for the purposes of this appeal were Special Conditions 6, 7 and 21, which were in these terms:

Special Condition 8, which is referred to in Special Condition 6, is not material.

4. The Plaintiff's predecessors in title were minded to purchase from Hong Kong Engineering that part of the lot with which we are concerned and to build a block of flats. Those flats would not be "fronting to Argyle Street and Waterloo Road" within the meaning of Special Condition 6. The predecessors in title wished first to be satisfied that the Director of Public Works would not object to their plans and the senior partner in their firm of solicitors wrote personally to the Director of Public Works as follows:

"Hong Kong. 9th Dec., 1953

On 31st December 1953 a member of the Director of Public Works's staff, who signed "pro Building Authority", replied to that letter:

On 26th May 1954 the Building Authority issued a formal notice of which the following is the material part:

"I beg to inform you that under the powers vested in me by Section 150 of the Buildings Ordinance, (Chapter 123 of the Revised Edition, 1950), I herewith grant the following Modification of Sections 77 & 78 of this Ordinance, viz:-

To permit the buildings to be erected to the height shown on the submitted plans

in accordance with the notice and plans deposited in this Office."

Subsequently Grand Court was built and the land was assigned to the Plaintiff. The Plaintiff proceeded to prepare and submit to the Building Authority plans for a proposed redevelopment and these plans were approved on 26th October 1976. In a letter forwarding the notice of approval to the Plaintiff's authorized architect the Building Authority stated:

Section 14(2) of the Buildings Ordinance provides:

"Neither the approval of any plans nor the consent to the commencement of any building works or street works shall be deemed -

5. The Building Authority's letter raised the first issue which has been argued before us, whether the terms of the tenancy themselves permitted the erection of flats on this site. The Plaintiff contends that a block of flats is clearly "detached residential premises of European type" within the meaning of Special Condition 6 and asserts that the Crown has so regarded it. Thus, whereas permissions to build shops and offices on other sites on the same lot have been endorsed upon the original Conditions of Sale, no such endorsement appears in relation to Grand Court or to blocks of flats which have been built on other sites. Moreover, where land in another part of the colony was subject to a condition that "the purchaser will not be allowed to erect any buildings on the lot except one house of European type" the Crown had stated that, as the "development comprises only one block of flats to be designed around one central entrance and staircase, no modification will be required". In my view neither of these pieces of evidence assists the Plaintiff and the condition must be interpreted in its context. I think that the words "residential premises" have been misused and were clearly intended to mean "dwellings". A block of flats is not a detached or semi-detached dwelling. Mr. Barlow, for the Attorney General, argues that the proviso adds emphasis to the plain meaning of the earlier words by authorizing the erection of flats on specified parts of the site and I agree with the learned judge in Wong Bei-mei v Attorney General 1973 H.K.L.R. 582 that the maxim expressio unius est exclusio alterius is apt. That case related to another part of this same lot, which was therefore subject to the same Conditions of Sale. Mr. Miller has submitted that the case was wrongly decided. He argues that the proviso was inserted to permit the inclusion of shops, but I do not so read it. There is more force in his objection to the manner in which the saving was there used in the interpretation of the condition and I agree with him that in spite of the precise words used the intention must have been to limit the use of individual units in a building containing more than one unit, e.g.a pair of semi-detached dwellings or an approved block of flats. Nevertheless I am satisfied that the conclusion reached in Wong Bei-mei v Attorney General was correct and that Yang, J. was right to follow that decision.

6. Since flats were not expressly permitted by Special Condition 6, the approval of the Director of Public Works was required under that condition for the erection of Grand Court. The judge said:

"In my view the correspondence was nothing more than the Crown's permission to the Plaintiff Company to construct flats up to seven storeys."

It is not contested that that was a finding that the correspondence contained the Crown's permission to the Plaintiff Company to construct flats up to seven storeys, but nothing more. Mr. Miller has submitted that the finding was not supported by the evidence: first, he says, there was no application for consent under Special Condition 6 and no consent given under that condition: secondly, if there was a consent under that condition it was a general consent to erect flats without limitation as to height. As to the first of these arguments we are faced with a concession by counsel for the Attorney General that the evidence of an application for consent under Special Condition 6 was insufficient, I must say very plainly that I think the concession was wrong and that the judge was amply justified in making the finding which he did. It was even suggested that the letter of 31st December 1953 could not be a consent under the Special Conditions at all, because it was signed "pro Building Authority" and the Building Authority as such had no authority to grant or refuse approval under the Conditions of Sale. I will return to that argument later when I consider the alternative contention that the Director of Public Works and the Building Authority were the same for all purposes. The letter of 9th December sets out Special Condition 7 and in asking whether "your Department" had any objection to the proposed height of the buildings to be erected the solicitor was undoubtedly seeking approval under the agreement and not under the Buildings Ordinance. Then it was argued that that letter, having referred expressly to Special Condition 7, should not be construed as seeking consent under Special Condition 6 also. It is true that neither this letter nor the reply expressly referred to approval for the erection of flats, but the request related to "apartment buildings". Moreover, even if, which I doubt, anyone in England would contemplate the erection of detached or semi-detached dwellings of a height equal to that of a seven-storeyed block of flats, I am quite sure that no one in Hong Kong would do so. Assume that the solicitor was under the impression that no approval was required under Special Condition 6 for the erection of the flats: the fact remained that approval was required and it would be unthinkable that in the face of his reply the Director of Public Works could have sued for forfeiture upon an allegation that he had never approved the erection of Grand Court. In my judgment there was at least an implied consent under Special Condition 6.

7. What was the nature of that consent? Mr. Barlow contends that it cannot have been more than a consent to erect flats not exceeding seven storeys in height. Mr. Miller argues that such a limitation could not be imposed upon a consent under Special Condition 6, because that condition was concerned with "town planning type control": therefore any consent for flats given under that condition would extend to flats of any height. I do not think it follows from the fact that Special Condition 7 refers expressly to the height of buildings for which special approval is required that a consent under Special Condition 6 may not also include a limitation as to height. On the contrary, I think that the Director of Public Works was clearly consenting to the erection of blocks of flats not exceeding a specified height and he was not consenting to the erection of blocks of flats exceeding that height.

8. If I be wrong in my view that there was a consent under Special Condition 6, then the Plaintiff's predecessors in title were in breach of Special Condition 6 when they built Grand Court. Mr. Miller argues that by allowing that breach to continue for well over twenty years the Crown has not only waived the breach but has waived the condition itself. For this he relies upon Hepworth v Pickles 1900 1 Ch. 108. There a conveyance was subject to a covenant that no building to be erected on the land should at any time be used as an inn, tavern or beerhouse. Soon after the date of the conveyance beer and spirits were sold in one of the houses on the land and continued to be sold openly for upwards of twenty-four years. Farwell, J. held that it must be presumed that there had been a waiver or release of the covenant. He based his decision on the principle, stated in Gibson v Doeg (1857) 2 H. & N. 615 that "no person would have permitted a covenant to be broken for more than twenty years, unless he was aware that it was broken as a matter of right".

9. I am not persuaded that it necessarily follows that what would have been waived here is the condition rather than the particular breach. One must always have regard to the terms of the covenant and the nature of the act constituting the breach. If a consent under Special Condition 6 cannot be limited as to height, there might be some force in the argument, but I have already given my reasons for rejecting that proposition. What would have been waived would be the breach committed by the building of Grand Court, and I cannot accept that that would bar the Director of Public Works from objecting to other, higher flats.

10. Whatever the position in relation to Special Condition 6, we are still left with the fact that the only approval so far given under Special Condition 7 was for a building "with roofs at a level not higher than the roof level of Hillview Apartments". Mr. Miller contends that that is immaterial for the following reasons. In the first place there is no doubt that the Director of Public Works in his capacity as the Building Authority has approved the new plans for the redevelopment, which involves buildings of greater height. Secondly, he says that the Director of Public Works is the Director of Public Works whatever hat he happens to be wearing and that his approval of the new plans is sufficient approval for all purposes: he cannot be heard to say that he approves and disapproves at the same time. Thirdly, the Director of Public Works has in fact indicated that he does not disapprove the new plans and that the only reason why he has not approved is that the Plaintiff has not paid the premium demanded: that, it is submitted, is not a proper ground for refusing approval under Special Condition 7.

11. Much has been made in argument of the fact that at all material times the "Building Authority" has been the Director of Public Works and Mr. Miller has suggested that in consequence there is really no distinction between the Building Authority and the Director of Public Works. The extent to which he goes is demonstrated by his contention that the Director of Public Works is not concerned with the collection of revenue. With respect I believe there is a fundamental fallacy here. The Director of Public Works has many responsibilities besides those imposed by the Buildings Ordinance. Inter alia he is in effect the Crown's land agent and, as is notorious as a result of Ho Po-sang v Director of Public Works 1959 H.K.L.R. 632, has for many years executed deeds relating to land on behalf of the Crown, a practice now authorized by the Letters Patent. In my judgment the Director of Public Works can bind himself in his capacity as the Building Authority without binding himself in his capacity as land agent and vice versa.

12. If the vendor had been a private person there might have been many reasons which would have led him to object to the erection of a building higher than Grand Court, although, viewing the plans in the discharge of its statutory duties, the Building Authority might find no ground for objecting. I do not see why the Crown should be in any worse position than a private vendor. We come, therefore, to the third contention, namely that the Director of Public Works, having indicated that he would be willing to approve if a premium were paid, is wrongly withholding his approval. Reliance is placed upon two classes of case, those which decide that, where work is to be done to the satisfaction of a surveyor, the capricious withholding of the surveyor's certificate cannot be allowed to destroy the basis of the contract and those which provide that an official in whom is vested a discretion must not, in the exercise of that discretion, take into consideration irrelevant factors. I do not think it is necessary to review all these authorities, for the principles are not in dispute: what is in dispute is whether they are applicable to the present case. Once again the argument on behalf of the Plaintiff depends upon the assumption that for the purposes of Special Condition 7 the Director of Public Works is required to act in the capacity of an arbitrator rather than as the alter ego of the landlord (the Crown). I see no reason at all to accept that assumption, but, on the other hand, am of opinion that Special Condition 21 is wholly inconsistent with it. It was argued that, if the Director of Public Works was not being named as an arbitrator, so that he was to have a discretion enabling him to veto any and every plan submitted for approval under Special Condition 7, that would destroy the whole basis of the contract. If in Viscount Tredegar v Harwood 1929 A.C. 72 the named insurance office had gone out of business, the landlord could equally have prevented the tenant from complying with the covenant to insure by declining to approve an alternative "responsible insurance office". However, that case is authority for the proposition that a landlord whose approval is necessary for some act by the tenant has an absolute right to withhold his approval without entering into reasons. That does not mean that if the landlord gives reasons it is open to the tenant to argue that the reasons are insufficient. Only Lord Blanesburgh, in a dissenting judgment, thought that Dallman v King (1837) 1835-42 All E.R. Rep. 411 could be applied in the circumstances of that case. It is true that the House of Lords went on to say that, if it were possible to imply a term that the landlord's approval was not to be unreasonably withheld, the landlord's disapproval in that case was reasonable, but the law is as laid down by the House. Tindal, C.J. in Dallman v King (supra at p. 412I) did say:

"It never could have been intended that [the lessor] should be allowed capriciously to withhold his approval. That would have been a condition which would go to the destruction of the thing granted, and if so, according to the well-known rule, the thing granted would pass discharged of the condition".

If the Director of Public Works had capriciously disapproved every plan submitted prior to the expiration of the five years fixed by General Condition 9 for the fulfilment of that building condition, no doubt Dallman v King could have been prayed in aid, but that is not the position here. In the present case the existence of Special Condition 21 makes it even less necessary than it was in Viscount Tredegar v Harwood to imply a term that approval should not be unreasonably withheld.

13. We are concerned solely with the legality or otherwise of the refusal by the Director of Public Works to approve under the Special Conditions the proposed redevelopment. I am not persuaded that he was not fully entitled to take the stand which he did.

14. I would dismiss the appeal.

Cons, J.:

15. I agree with what has just been said and would only like to add two personal views.

16. The first is as to the position if we are wrong in holding that consent was given under Special Condition 6 in 1953.

17. In Hepworth v Pickles 1900 1 Ch. 108 at 110 Farwell, J. set out the judgment of Pollock, C.B. in Gibson v Doeg (1857) 2 H. & N. 615 and then said:

"That I take to mean this - that if you find a long course of usage, such as in the present case for twenty-four years, which is wholly inconsistent with the continuance of the covenant relied upon, the Court infers some legal proceeding which has put an end to that covenant, in order to shew that the usage has been and is now lawful, and not wrongful."

18. If the correspondence did not amount to a legal proceeding which made the present user of the land lawful we are forced to infer that there was some other legal proceeding. But I see no reason to infer that that other legal proceeding in itself permitted flats to be built to an unlimited height. Rather the opposite. It is common experience that developers build flats up to or near to the maximum that physical or other limitations permit. Grand Court could obviously physically have been built higher than it is. I can only presume that the developers were prevented from doing so by some provision in that inferred proceeding which limited them to the height to which they in fact built and which would still bind the present owners today.

19. The second is that in my view, while there may be some force in the argument that it would be improper for the Director to demand a premium for giving his approval under Special Condition 7 to works with which he is otherwise satisfied, the argument cannot in any event be extended to Condition 6. I take the intention of Condition 6 to be one which deliberately restricts the intensity of development. This is a matter which directly affects the value of the land and would have been taken into account when the lease was granted in 1931. I see nothing improper therefore in the Crown's demanding a premium if the Plaintiff wishes now to have those restrictions lifted.

20. I too would dismiss the appeal.

Zimmern, J.:

21. I also agree that the appeal should be dismissed.

31st October 1979.