Galore Rise Investments Ltd v. Secretary for Justice (for Director of Lands)

HCMP 750/2022

[2023] HKCFI 2967

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 750 OF 2022

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J U D G M E N T

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Background

1.The plaintiff had since 24 June 2011 been the registered owner and government lessee of Lot 594 (the “Lot”) in Demarcation District 128 situated in Yuen Long.

2.By letter dated 18 June 2020, the District Lands Office (the “DLO”) informed the plaintiff that an unauthorised structure (the “Structure”) was newly detected on the Lot which constituted a breach of Special Condition No.1(a) in Government Notification No. 364 of 1934 as amended by Government Notification No.50 of 1940 (“Special Condition 1(a)”), which reads:

“No Building of any description shall be erected on the lot.”

3.There is no dispute that the Structure was a house made of containers. There is also no dispute that the Structure was straddled between the Lot and the neighbouring piece of government land.

4.On 30 December 2021, the Lands Department registered an Instrument of Re-Entry dated 16 December 2021 against the Lot. The reason for re-entry was specified to be a breach of Special Condition 1(a).

5.By an Originating Summons filed on 15 June 2022, the plaintiff sought:

1)  an Order that the re-entry to the Lot was wrongful; or alternatively

2)  relief against re-entry by the defendant; and

3)  the Lot be re-vested in the plaintiff.

6.By the time written submissions were received, the plaintiff had abandoned the argument that re-entry was wrongful, and sought only relief against re-entry and the re-vesting of the Lot in the plaintiff.

Issues

7.There is no dispute that the plaintiff was in breach of Special Condition 1(a) and that the re-entry was lawful.

8.The plaintiff submitted that the breach was not a wilful breach and that in the circumstances of the case it was inequitable or unreasonable for the defendant to have re-entered the Lot. The defendant on the other hand argued that this is a clear case for re-entry and the plaintiff had not done enough to warrant relief against re-entry to be granted.

The Law

9.The applicable legal provisions are sections 8 and 10 of the Government Rights (Re-entry and Vesting Remedies) Ordinance (Cap 126) (the “Ordinance”):

“8. Right to apply for relief against re-entry or vesting

(1) Subject to subsections (3) and (4), where a memorial of re-entry has been registered under section 4 in the Land Registry, the former owner may—

(a) petition the Chief Executive to grant him relief against the re-entry;

(b) apply to the Court of First Instance in its equitable jurisdiction for relief against the re-entry—

(i) if he disputes the right of the Government to re-enter; or

(ii) if the circumstances are such that he would have been entitled to apply for relief against re-entry had the lessor been a private party and exercised his right of re-entry.

10. Powers of Court of First Instance in respect of application for relief

On the hearing of an application to the Court of First Instance under section 8, the Court may exercise the same powers and make the same decree or order as in an action between private parties for the same relief and may order the cancellation of the memorial of re-entry so far as it affects the lands and tenements in respect of which the application was made or the cancellation of the vesting notice so far as it affects the relevant interest in respect of which the application was made.” (emphasis added)

10.Principles on how the court should exercise its discretion in an application for relief against a breach under section 8 of the Ordinance can be found in Chan Hung Kay v the AG[1]:

“Next, I turn to consider the question of discretion. There are no rigid rules for guiding the exercise of judicial discretion in granting relief against forfeiture. All the circumstances and the conduct of the parties must be taken into consideration. In Shiloh Spinners' case, at p.101e/f, Lord Wilberforce had this to say:

“It remains true today that equity expects men to carry out their bargains and will not let them buy their way out by uncovenanted payment. But it is consistent with these principles that we should reaffirm the right of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result. The would 'appropriate' involves consideration of the conduct of the applicant for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach.”

The learned law lord was not unmindful of the reality that “different considerations apply to different covenants.”

At p.104d, Lord Simon enumerated the material considerations in an application for relief against forfeiture:

“Prominent but not exclusive among such considerations is the desirability that contractual promises should be observed and contractual rights respected, and even more the undesirability of the law appearing to condone flagrant and contemptuous disregard of obligations. Other such considerations are how far it is reasonable to require a party who is prima facie entitled to invoke a forfeiture or penalty clause to accept alternative relief (e.g. money payment or re-instatement of premises) and how far vindication of contractual rights would be grossly excessive and harsh having regard to the damage done to the promisee and the moral culpability of the promisor. (I do not intend this as an exhaustive list.)”

To that list must be added the consideration that it is clear Government policy to ensure reasonably zealous development of Crown land and deter unnecessary speculation in landed properties.

11.Parties agreed that when dealing with a case involving the government and a government lessee, the Court’s approach should be the same as when dealing with a case involving two private parties. Thus, section 58(2) of the Conveyancing and Property Ordinance (Cap 219), which is the provision on relief against forfeiture between private parties, is also referred to:

“Where a lessor is proceeding, by action or otherwise, to enforce such a right of re-entry or forfeiture, the lessee may, in the lessor’s action, if any, or in any action brought by himself, apply to the court for relief; and the court may grant or refuse relief, as the court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, thinks fit; and in case of relief may grant it on such terms, if any, as to costs, expenses, damages, compensation, penalty, or otherwise, including the granting of an injunction to restrain any like breach in the future, as the court, in the circumstances of each case, thinks fit.” (emphasis added)

Steps taken by the plaintiff

12.The following chronology shows the timing of the interactions between the plaintiff and the defendant:

Date	Events/Actions
29 August 2018	The trespasser was convicted of the offence of failing to comply with a notice issued by the DLO on 8 August 2017 to cease occupation of the Lot. (There is no dispute that the plaintiff was not aware of this until 13 November 2020.)
22 January 2020	The trespasser was fined upon a second conviction of the offence of failing to comply with a notice issued by the DLO on 8 August 2017 to cease occupation of the Lot. (There is no dispute that the plaintiff was not aware of this until 13 November 2020.)
18 June 2020	DLO first informed the plaintiff of the breach of Special Condition 1(a) (the “Warning Letter”).
5 October 2020	DLO registered the Warning Letter in the Land Registry against the Lot.
13 November 2020	Plaintiff issued a warning notice on 13 November 2020 and posted such notice on the Structure demanding the containers to be removed from the Lot.
30 November 2020	Meeting between DLO and the plaintiff
9 December 2020	DLO issued final warning letter for plaintiff to remove the Structure within 28 days, failing which the DLO would re-enter the Lot without further notice.
	DLO posted a warning notice on the entrance of the Structure.
6 January 2021	Land Chartering Limited, on behalf of the plaintiff, by a letter dated 6 January 2021, confirmed to the DLO that legal action was being taken against the trespasser.
20 July 2021	DLO informed the plaintiff that re-entry would proceed if the Structure was not removed.
30 September 2021	Plaintiff issued a letter to the trespasser demanding him to immediately demolish/remove the Structure.
27 October 2021	Plaintiff’s solicitors invited the DLO to join as co-plaintiff to initiate legal proceedings against the trespassers.
16 November 2021	DLO confirmed to the plaintiff that the trespasser was convicted for occupying government land. The DLO indicated by letter dated 16 November 2021 that any legal proceedings would be a private matter between the plaintiff and the trespasser.
16 December 2021	DLO registered a notice of re-entry against the Lot.
3 May 2022	DLO started clearing off the Structure from the Lot.
2 August 2022	Clearance works on the Lot completed by the DLO.

13.Of note from the above chronology is that it took the plaintiff 5 months from the time they received the Warning Letter before it took the first step and posted a warning notice on the Structure on 13 November 2020.

14.The DLO issued a final warning to the plaintiff on 9 December 2020 to the effect that if the Structure was not removed before 7 January 2021, the DLO would re-enter the Lot without further warning.

15.Instead of purging the breach, the plaintiff, through its surveyors indicated to the DLO on 7 January 2021 (the original deadline imposed) that legal action would be taken against the trespasser. However, no such action was taken.

16.Eventually, more than a year after the Warning Letter was issued, DLO issued another final warning on 20 July 2021 that re-entry would proceed if the Structure was not removed. A notice of re-entry was registered by the DLO on 16 December 2021.

Defendant’s arguments

17.The plaintiff had since November 2020 at the latest been aware of the location of the Structure. The DLO re-entered the Lot in December 2021. Mr Lam, counsel for the defendant, submitted that the plaintiff had an obligation to purge a breach of lease condition. Yet during the 18 months between the Warning Letter and re-entry, the conduct of the plaintiff showed that the plaintiff did not take its obligation seriously and as such did not deserve the indulgence of relief against re-entry. The following criticisms were made by Mr Lam against the plaintiff’s conduct:

1)  The plaintiff claimed that the government did not specify the location of the Structure and it took a long time to locate the Structure within the Lot. This is said to be unbelievable as the relevant photo showed that the only structure standing on the Lot was the Structure.

2)  During the 13 months between when the plaintiff claimed it first located the Structure and the date of re-entry, the only action the plaintiff took was issuing warning notice and warning letters against the trespasser and posting them on the Structure.

3)  Despite the trespasser’s failure to remove the Structure as demanded in the warning letters and notice, the plaintiff had not actually commenced any legal proceedings with the view of purging the breach of Special Condition 1(a).

4)  The government has no obligation to incur legal costs and join in with the plaintiff in any legal proceedings against the trespasser in order for the plaintiff to regain possession of the Lot and remove the Structure. Indeed, Mr Lam submitted that it was unnecessary for the government to be joined in for an action between the trespasser and the plaintiff.

5)  Mr Lam submitted that the lack of any effective action being taken by the plaintiff was an indication that the plaintiff had no real intention to purge the breach.

18.Mr Lam further reminded the Court that as there were very few case law on under what circumstances should relief against re-entry by the government be granted, granting relief in this case would set a precedent and potentially send the wrong message to all government lessees: that they would not have to actively purge breaches of conditions of grant and could just wait for the government to re-enter, purge the breach for them and then seek relief from re-entry.

The plaintiff’s arguments

19.Mr Lau, counsel for the plaintiff fairly accepted that in hindsight, the plaintiff could have and should have done more to purge the breach. He submitted that however, the special feature of this case, namely, that the Structure straddled between government land and private land, created extra difficulties for the plaintiff, which in turn justified the lack of action or the delay on the plaintiff’s part in purging the breach.

20.I do not agree that the fact that the Structure straddled the Lot and the government land was an insurmountable difficulty. Given that the government had asked for the removal of the Structure, all the plaintiff needed to do was to seek the government’s consent on whether they could remove the Structure from their land, and whether they could enter the government’s land in the course of removing the Structure. This simple first step, the plaintiff had failed to do.

21.Mr Lau further submitted that even though the plaintiff could be criticised for not having carried out sufficient actions, re-entry was disproportionate:

1)  The area occupied by the Structure was only less than 5 % of the area of the Lot.

2)  The breach was not a wilful breach by the plaintiff.

3)  The condition breached was not a positive duty to carry out certain obligations.

4)  It took the government 5 months to evict the trespassers after re-entry and another 5 months before the Structure was removed. Taking into account the fact that the plaintiff had more hurdles to cross than the government did, 13 months was not an unduly long time for the plaintiff to comply with the DLO’s request for removal of the Structure.

Deliberation

22.In the present case, I consider the following factors as relevant when deciding whether to grant relief against re-entry. These are by no means exhaustive nor universally applicable as different facts might lead to different considerations becoming relevant:

1)  Whether the breach was caused or created by the lessee; if so, was the breach wilful;

2)  Whether the lessee benefited, in monetary terms or otherwise, from the breach;

3)  What was the effect of the breach on the Government and on the public;

4)  What was the course of conduct undertaken by the lessee to purge the breach;

5)  If there was a lack of action on the lessee’s part, was the lack of action deliberate;

6)  What would have been a reasonable time for the lessee to purge the breach and whether the lessee was given reasonably sufficient time to do so.

23.Having considered the circumstances and the facts of the case, and bearing in mind the principles set out in Chan Hung Kay v the AG (supra), I am of the view that it is appropriate for the Court to exercise its discretion in granting relief for the following reasons:

1)  There is no dispute that the breach was not a wilful breach as the plaintiff did not put the Structure on the Lot, nor did the plaintiff use the Structure or derive any benefit from the Structure.

2)  The effect of the breach was that the government’s attempt in tackling the wide-spread blatant breach of government leases on private agricultural land in the New Territories would be delayed.

3)  There was no evidence of inconvenience or immediate risk of physical danger posed by the Structure to the public.

4)  Although the Structure lied partly on government land, the DLO itself had not sought fit to remove the Structure as and when the trespasser was convicted of the offence of failing to cease occupation of the Structure in 2017. Instead, the removal itself took place only after re-entry, i.e., after the Lot was re-vested back to the government. Mr Lam fairly accepted that when the Structure lied on two pieces of land owned by different land owners, considerations concerning the other land owner’s rights would need to be taken into account before the Structure could be removed. I am of the view that additional reasonable period of time ought to have been given for the plaintiff to tackle the issue of the Structure lying on two separate lots with two separate land owners.

5)  Given the non-action of the occupier, there is no dispute that the plaintiff would have to commence legal proceedings against the trespasser before it could have legally removed the Structure, as it was at the time occupied. Given the occupier was a trespasser, it might be necessary for the plaintiff to obtain orders for substituted service before they could proceed. Assuming the trespasser did not acknowledge service, the plaintiff would need to proceed with application for judgment in default. Thereafter, if the trespasser did not surrender possession, an application for an order for possession based on Judgment might be necessary. The time it would take for such procedures to be completed could take up to 1.5 years. If the trespasser makes a counterclaim (e.g. for adverse possession), the time frame would be much longer.

6)  The fact that it took the government 10 months to remove the Structure after it became the owner to both pieces of land on which the Structure lied is also relevant. It shows that even with no impediment on title, it still took 10 months for removal to be successfully completed.

7)  Yet, the time between the Warning Letter and re-entry was only 18 months.

8)  Although the plaintiff had admittedly not commenced any legal action which would trigger the above course of procedures, the plaintiff was not sitting by the side-lines and did nothing. Some attempts to purge the breach were made, however ineffective, misguided and delayed those attempts were. I consider such attempts to be indication that the plaintiff was willing to comply with the DLO’s request.

9)  There was no suggestion on the DLO’s part that the plaintiff had deliberately withhold legal actions against the trespasser for ulterior motives.

10)  Mr Lau had indicated at the hearing that the plaintiff would be willing to pay the DLO costs of the enforcement (including the present proceedings), should relief against re-entry be granted. Mr Lau also accepted that there was no basis to argue why such costs should not be borne by the plaintiff on an indemnity basis.

24.I must stress that in granting relief against re-entry in this particular case, the Court in no way condones the way the plaintiff handled the purging of the breach. Clearly, such attempts by the plaintiff were misguided and ineffective. There was also no explanation given for the periods of delay in between the plaintiff’s actions. Government lessees should not be led to think that similar non-actions on their part would lead to relief against re-entry being granted similarly, as the facts of their particular case might not justify such inaction.

Costs

25.I am of the view that the plaintiff ought to pay for the costs of and occasioned by the government in enforcing the breach of Special Condition 1(a) as well as the costs of these proceedings, with certificate for Counsel on an indemnity basis, to be taxed, if not agreed for the following reasons:

1)  there was a breach of Special Condition 1(a);

2)  the plaintiff had the obligation to purge the breach;

3)  the plaintiff had failed to take sufficient steps towards the purging of the breach;

4)  this failure led to the Lot being re-entered, as such the re-entry was lawful; and

5)  the plaintiff is thus seeking the Court’s indulgence.

26.This costs order will be a costs order nisi and will become absolute if no application to vary is made within 14 days hereof.

Order

27.Upon payment by the plaintiff of:

1)  the costs incurred by the government in enforcing the breach of Special Condition 1(a) in Government Notification No. 364 of 1934 as amended by Government Notification No. 50 of 1940; and

2)  costs of and occasioned by these proceedings, with certificate for Counsel

on an indemnity basis, to be taxed, if not agreed,

It is ordered that:

relief be granted against the re-entry of Lot No. 594 in Demarcation District 128 (the “Lot”) by the registration of a memorial of an Instrument of Re-entry dated 16 December 2021 against the Lot in the Land Registry on 30 December 2021 under memorial number 21123001120010.

28.Parties do submit an agreed minute of order for the Court’s approval within 14 days hereof.

29.I thank Counsel for their assistance.

Mr Roy Lau, instructed by A Lee & Partners, for the plaintiff

Mr Justin Lam, instructed by the Department of Justice, for the defendant