Sky Heart Ltd. v. Lee Hysan Estate Co. Ltd.

FACV000009/1998

FACV No. 9 of 1998

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 9 OF 1998 (CIVIL)

(ON APPEAL FROM CACV No. 64 OF 1997)

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Date of Hearing: 1 and 2 December 1998

Date of Judgment: 14 December 1998

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J U D G M E N T

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Mr Justice Litton PJ:

Introduction

1. This appeal concerns the effect of covenants contained in an assignment of properties in Causeway Bay now owned by the appellant (defendant). The assignment is dated 26 April 1954. The properties are Nos. 6 and 8 Kai Chiu Road which form part of a block of 16 houses standing on Section Q of Inland Lot No. 29. Section Q was carved out of Inland Lot 29, a very large piece of land, which the respondent (plaintiff) had owned in its entirety at one time. Nos. 6 and 8 Kai Chiu Road stand on subsection 8 of Section Q.

2. The history giving rise to this appeal is as follows. In December 1953 the plaintiff entered into an agreement with one Pang Sang to sell to Pang Sang land "intended to be registered in the Land Office as Section Q of Inland Lot No. 29". The agreement provided for covenants to "keep and maintain ... European style dwelling houses of a uniform design to be completed within 18 months ... of cement concrete with steel windows teak-wood flooring and servants stairs besides the main stairs ... and to keep the minimum frontage of each house not less than 23 feet facing Kai Chiu Road and Pak Sha Road respectively but such houses to be without balconies or verandah ... with the general specifications and in conformity with the levels to be supplied by [the plaintiff], the plans of such dwelling houses to be first submitted to and approved by [the plaintiff] whose approval shall not be unreasonably withheld." The agreement allowed the use of the ground floor of the houses for business purposes, but certain business were expressly excluded, as were "offensive noisome and noxious trades cabarets studios or any other similar purposes". The agreement required Pang Sang and his assignees to permit the plaintiff "or owner or owners of the adjoining premises to make connections to the drains on either side of the adjoining premises". Pang Sang further agreed to prepare footpaths abutting the four sides of Section Q and to meet the cost of forming and surfacing half the width of the roads called Kai Chiu Road, Pak Sha Road, Yun Ping Road and Lee Garden Road abutting Section Q as shown on the plan attached to the agreement and to maintain the same to the satisfaction of the Public Works Department and Urban Council. The plaintiff agreed to grant a right of way over Kai Chiu Road and Pak Sha Road (then forming part of Inland Lot 29) until such roads were surrendered to the government.

3. Pang Sang sub-sold all of Section Q and thereafter acted as "confirmor" in the subsequent assignments: There were 11 assignments for the various sub-divisions of Section Q: ten were executed on 26 April 1954, the remaining one on 13 May 1954.

4. Nothing turns on the precise terms of the covenants in the assignments. They are in identical terms. As noted by the trial judge (Mrs Justice Le Pichon) they have the common features:

- All recited the registration of Section Q at the Land Office and the Pang Sang Agreement.

- Pang Sang was a party as confirmor and in cases where there had been more than one sub-sale as first confirmor.

- All were made by reference to a common plan prepared by an architect Wong Cho Tong showing Section Q and its various subsections (with dimensions) including a system of interlocking staircases between the houses to be erected. 16 houses were to be built.

- All were with the benefit of rights of way:

(a) over Kai Chiu Road and Pak Sha Road which were still vested in the Vendor;

(b) over such parts of the scavenging lane (which bisected Section Q) as did not form part of the premises assigned;

(c) over the common staircases shared with the adjoining building.

- All assignments were subject to the rights of way in paragraphs (b) and (c) above.

- All contained identical covenants by the purchasers in favour of the vendor 'with intent to bind all persons in whom the premises thereby assigned should for the time being be vested' but not so as to be personally liable after parting with the premises assigned.

- The covenants are identical to those in the Pang Sang Agreement save that in relation to the subsection assigned, the number of houses to be erected is specified: for the larger subsections namely, subsections 6, 8, 9, 10 and RP of Section Q, two houses rather than one were to be built and the words 'with the adjoining buildings' were added to the requirement that the houses be of a uniform design (which was in the Pang Sang Agreement).

5. In about May 1992 the plaintiff came to know of the defendant's purchase of No. 8 Kai Chiu Road so it wrote and reminded the defendant of the restrictive covenants. The plaintiff was told that the defendant's purpose in acquiring No. 8 was to use it as a restaurant and dormitory for the staff and the defendant had no intention of redeveloping No. 8.

6. In August 1992 the defendant acquired the ground and first floors of No. 6 Kai Chiu Road and the remaining three floors of No. 6 thereafter. In May 1994 the defendant's solicitors wrote to the plaintiff to say that it intended to redevelop Nos. 6 and 8. In response to the plaintiff's request for confirmation that the redevelopment would not constitute a breach of the covenants the defendant's solicitors, by letter dated 24 January 1995, said:

" We refer to your letter dated 16th November, 1994 upon which we have obtained Leading Counsel's opinion. We would like to inform you of our client's position as follows:-

1. Our client intends to redevelop its property by erecting a multi-storey commercial building with shops on the ground floors. Our client is in the course of doing so.

2. Your client has already disposed of the land for the benefit of which the restrictive covenant was taken. In the circumstances, your client can no longer enforce the restrictive covenant.

3. In any event, no court will enforce the restrictive covenant in the light of the complete change in the character of the neighbourhood...."

7. In April 1995 the plaintiff acquired the 1st floor of No. 10 Kai Chiu Road in order to strengthen its case for enforcing the covenants against the defendant.

The proceedings

8. The plaintiff issued its writ on 15 August 1995 seeking an injunction to restrain the defendant from acting in breach of the covenants and from interfering with the plaintiff's rights of way (as owner of the 1st floor of No. 10 Kai Chiu Road) over the defendant's property and for damages.

9. Le Pichon J, in a judgment remarkable for its clarity and care, found for the plaintiff and ordered an injunction to be issued. The effect of the judgment is as follows:

(a) She found as a fact that the covenants affecting each of the subsections of Section Q were intended to be enforceable by the owners of the respective properties inter se, as the covenants gave effect to a building scheme devised by the plaintiff for the 16 interlocking dwelling houses covering the whole of Section Q. The defendant failed to establish such change in the neighbourhood since 1954 as to destroy the object to be attained by those covenants. The plaintiff, as owner of the 1st floor of No. 10 Kai Chiu Road, was therefore entitled to the benefit of the covenants, and had the right in equity to enforce them.

(b) She also found that the plaintiff, as the original covenantee, was entitled to enforce the covenants under section 41 of the Conveyancing and Property Ordinance, cap 219.

(c) She held that an injunction was the appropriate remedy.

10. The Court of Appeal, by a majority, upheld Le Pichon J's judgment. The judges were unanimous in upholding the trial judge on point (a) as summarized above, but Godfrey JA dissented on point (c): He concluded that as the plaintiff had divested itself of all interest in Section Q after the assignments to the sub-purchasers, and did not claim to be entitled to enforce the covenants for the benefit of land outside Section Q, the plaintiff was not entitled to equitable relief. His reasoning for refusing an injunction is as follows: The plaintiff sought the intervention of equity, not for the purpose of protecting the 1st floor of No. 10 which it had acquired recently, but for an ulterior purpose, since the acquisition of part of No. 10 was purely for the purpose of litigation; it had no substantial interest in land to be protected by the grant of an injunction. The other two Justices of Appeal did not agree.

11. All three Justices of Appeal questioned the trial judge's construction of section 41 of the Conveyancing and Property Ordinance ("CPO"); they did not think that it went so far as to confer a right on a covenantee to enforce covenants after the covenantee has parted with the land to be benefitted. This however was not essential to the outcome of the appeal to the Court of Appeal, though it meant that as the trial judge had, in ordering the injunction, based her exercise of discretion on an erroneous basis, the discretion to grant equitable relief had to be exercised afresh.

Appeal to the Court of Final Appeal

12. In its notice of appeal the appellant contends:

"(1) The Court of Appeal was wrong to hold that Section Q of Inland Lot 29 constituted in Equity a building scheme or scheme of development.

(2) The Court of Appeal was wrong to hold that there was not such a change in the character of the neighbourhood so that the object of the building scheme or scheme of development as aforementioned was at an end.

(3) The Court of Appeal (Godfrey, J.A. dissenting) was wrong to hold that the Plaintiff was entitled in any event to a permanent injunction."

13. Before this court, ground (2) was abandoned by the appellant. Rightly so. The findings of fact made by the judge are well supported by the evidence. I need say no more about that ground.

14. What it boils down to is this: The appeal must fail unless the appellant is able to persuade this court to reverse the concurrent findings of the courts below as set out in ground (1), or succeeds in showing that the exercise of discretion by the majority of the Court of Appeal in granting an injunction was wrong in principle.

Equity versus common law

15. The difficulty which arises in this case is this. The deeds of assignment of the 11 subsections of Section Q do not say expressly that the assignee of each subsection binds himself to each of the other 10 assignees and their successors-in-title to observe the covenants, nor do they say that each assignee shall have the benefit of the covenants contained in the other 10 assignments. If the assignees are to have rights and obligations inter se with regard to the covenants, transcending the ordinary common law rules precluding the parties from suing in these circumstances, it must be because, first of all, there was a common intention that it should be so, and the circumstances are such that an equity arises which enables the assignees to enforce the covenants inter se. How, then, does this equity arise? The case law establishes that where, as a fact, a common vendor has laid out a piece of land in plots for the purpose of a general development, and puts forward a building scheme in relation to that piece of land, then such equity may arise, because the purchasers of the separate plots have a common interest in preserving the integrity of the development.

The common intention

16. The crucial question in this case is therefore this: Was there, at the time of the assignment of the various subsections of Section Q to the purchasers, a common intention that the covenants relating to those sub-divisions should be enforceable by the purchasers and their successors-in-title inter se? Or, more precisely, in relation to subsection 8 (Nos. 6-8 Kai Chiu Road), did the parties intend that the covenant to "maintain on the premises ... two European-style houses of a uniform design with the adjoining buildings" be enforceable by the owner of the adjoining lot, that is subsection 6, Nos. 10-12 Kai Chiu Road and his successors-in-title? The question can only be answered by an examination of all the underlying circumstances.

The Building Scheme

17. The judge discharged her fact-finding role with meticulous care. She noted that there were four sub-sales on the same day that Pang Sang entered into the agreement to purchase Section Q and that within a period of about 2 months all the subsections of Section Q had been sold. She noted the time when detailed building plans for the development were submitted to the Building Authority; from this and from other circumstances she concluded that there was, from the outset, a building scheme relating to the whole of Section Q. This finding is unimpeachable and was upheld by the Court of Appeal.

Reciprocity of obligations

18. What, then, follows from this finding? The judge, at p28 of her judgment, said this:

" The covenants were designed to achieve uniformity in the design of the buildings as well as uniformity of user. The user envisaged was primarily residential use with business being allowed on the ground floor subject to the prohibition of certain businesses and an anti-nuisance covenant. Implicit in the notion of uniformity in design is the creation of a sense of order to avoid the possibility of having a collection of incongruous buildings haphazardly arranged or juxtaposed on the site. Similarly, the user restriction was plainly aimed at ensuring that activities not in keeping with the development created could not be conducted. These restrictions together created a local law. Were they calculated to enhance the value of the lots offered for sale? I think the answer must be in the affirmative. In ascertaining the intention, one has to view the circumstances as at the time the restrictions were imposed, i.e. the early 1950s. I have little difficulty in finding that the local law was intended to enhance the value of the lots offered for sale."

19. The reference in the passage quoted above to local law is a reference to cases like, for example, Brunner v. Greenslade [1971] 1 Ch 993 where, at 1004-D, Megarry J referred to the "concept of a local law for the area of the scheme". Where the covenants in the deeds of assignment can be treated as constituting a local law for the area of scheme (here, Section Q) then it must follow that there is a community of interest and reciprocity of obligations as between the assignees and persons deriving title from them; the restrictions are for the benefit of all the covenantors, thus giving rise to the equity in a case such as this: see Spicer v. Martin [1889] 14 App. Cas. 12 at 25 to the same effect. In these circumstances the covenants are enforceable as between the covenantors and their successors-in-title inter se.

The appellant's case

20. Counsel for the defendant says this: The finding of a general development scheme relating to Section Q does not provide the whole answer. Section Q was only a small portion carved out of Inland Lot 29; in devising a development scheme for Section Q and selling Section Q to Pang Sang, the plaintiff could not have intended to relinquish control over Section Q as the original covenantee, leaving it to the sub-purchasers to decide whether or not to enforce particular covenants affecting Section Q; such a policy would have led to the depreciation of the neighbourhood and damage to the nearby properties belonging to the plaintiff. Counsel says that the inference to be drawn from all the facts is that the restrictions in the covenants were imposed solely for the plaintiff's benefit, to protect the value of its nearby properties, not for the benefit of the purchasers inter se. Thus the common intention necessary to give rise to the equity has not been made out.

21. Quite apart from the difficulty inherent in the defendant's present position - that of inviting us, as the final appellate court, to make a factual finding impliedly rejected by the two courts below - there is this further difficulty: The covenants are not expressed to benefit other land belonging to the plaintiff: The recital to the assignment merely refers to Section Q of Inland Lot No. 29 being vested for the residue of the term of years in the vendor; it refers to no other land of the vendor.

22. Counsel for the defendant is right to this extent: It would seem, as a matter of common-sense, that when the plaintiff devised the building scheme for Section Q in 1953, prior to its sale to Pang Sang, it must have thought that such a scheme would enhance the tone of the neighbourhood; it is hardly likely that the plaintiff intended a scheme which would have the effect of depreciating the value of nearby properties owned by it. But the inference of common intention is not excluded simply because the vendor has other land in the vicinity which would be benefitted by the scheme. This point was specifically dealt with by Rogers JA in the Court of Appeal when he said:

" 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 [the plaintiff] 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 at 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."

23. This is plain common-sense.

"Similar fact" evidence

24. Counsel for the defendant makes this further point: If the court examines how the plaintiff dealt with some other subdivisions of Inland Lot 29 from time to time, the court would be driven to conclude that the plaintiff's "policy" has always been to assert control over development within those subdivisions, by exacting the payment of premia for relaxing the restrictive covenants: a policy inconsistent with allowing the covenantors themselves to enforce the covenants inter se.

25. This argument, although slightly dressed up in different language, is not new. It was at the forefront of the defendant's case at trial. The judge examined some of the instances of relaxation of covenants in detail: in particular the transactions involving Sections O and K in Inland Lot 29. She concluded that the defendant's reliance on those transactions was misplaced: The plaintiff's dealings with Sections O and K could offer no clue as to the plaintiff's intentions vis-a-vis Section Q. The Court of Appeal went further. All three Justices of Appeal concluded that the evidence was a distraction and should not have been admitted. I agree.

26. The transactions, whereby the plaintiff received payment for relaxing restrictive covenants relating to other parts of Inland Lot 29, first took place, in respect of Section K, some 20 years after the assignments in question: and in relation to Section O even later: They could hardly constitute evidence as to the plaintiff's intentions back in 1954. I need say no more about this point.

27. What, then, is left of the defendant's case? The core of its case, as put to us by counsel, is this: The plaintiff imposed the restrictions on the use of Section Q for its own benefit (in the sense of being able to exact a premium for their relaxation) and for the benefit of other land in Inland Lot 29, not for the benefit of the purchasers inter se; therefore, as owner of the 1st floor of No. 10 Kai Chiu Road, deriving title from the original purchaser, the plaintiff cannot enforce the covenants against the defendant. But the defendant's argument suffers from this oddity: It has never been the defendant's contention that the covenants were expressed to benefit other land owned by the plaintiff: therefore the common law requirement that the benefit of the covenant must touch and concern the land of the covenantee has not, on the defendant's case, been made out either. And there is of course no privity of contract between the plaintiff and the defendant; they are strangers to each other; no claim can arise in common law. And since, on the defendant's case, no rights can arise from equity, what it means is that, on the defendant's argument, no one can sue to enforce the covenants: Neither the plaintiff as the original covenantee nor any of the covenantors or their successors-in-title; the covenants are dead letters. This is a startling result.

The remedy of injunction

28. As Rogers JA has noted in his judgment, the plaintiff's position with regard to the restrictive covenants affecting Section Q has been consistent throughout: It considered that those covenants should be maintained and observed. It matters not how its position is grounded in the law: that is, whether as owner of the 1st floor of No. 10 Kai Chiu Road suing in equity, or as the original convenantee, claiming under Section 41 of the Conveyancing and Property Ordinance, or both. If, as the Court of Appeal has found, it's claim to relief against the defendant rests purely upon equitable grounds, and it has no claim arising from statute, then the question must be asked: Has the plaintiff acted in such a way vis-a-vis the defendant as to make it inequitable for an injunction to be granted in the plaintiff's favour? It has not been suggested that the well-known bars to equitable relief - laches, acquiescence, waiver, misrepresentation - are remotely relevant in the present case. As put succinctly by Mortimer V-P in the Court of Appeal:

" 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.

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.

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."

29. And, as Rogers JA observed:

" 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 has taken place it would be almost certainly impossible to say that the building scheme remained intact."

30. Godfrey JA based his dissent upon this reasoning: That the plaintiff sought the intervention of equity not for the purpose of protecting its property (the 1st floor of No. 10) but for "an ulterior purpose": its desire to preserve the building scheme. At p.7 of his judgment he said:

" 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." (Emphasis added).

31. The words underlined in the above passage, as it seems to me, put a gloss on the "rule of equity" which is unwarranted. How are the "wishes" of the party to be ascertained and by what yardstick are they to be measured? What if, in answer to inquiries about his "wishes" he merely says: My wish is to assert a right of property which I am advised I have? What, in this context, does "collateral purpose" mean?

32. Godfrey JA, in his judgment, refers to Chambers v. Randall [1923]1 Ch 149. There, the covenant was expressed to be for the protection of adjoining land of the vendor; the vendor had disposed of that land before his death and his executors sought to enforce the covenant against an assignee of the covenantor: In other words, there was no longer any right of property which the covenant was intended to protect. Here, the opposite is the case. The Court of Appeal unanimously came to the view that there was a building scheme for Section Q, and that it remained intact: It follows that owners of units within the scheme have, in the eyes of the law, rights of property which the law would, by the exercise of its equitable jurisdiction, protect. Far from Chambers v. Randall being an authority for Godfrey JA's proposition, it seems to me to be against it.

33. In argument, counsel for the defendant says that the plaintiff has not shown bona fides in bringing proceedings against the defendant; that the 1st floor of No. 10 was acquired at a price which did not reflect commercial reality, and was purely for the purpose of stopping the defendant's proposed development; the court therefore ought not to go to the aid of the plaintiff.

34. As it seems to me, the plaintiff's position is simple: It is not suggested that the plaintiff has misled the defendant in any way or acted vis-a-vis the defendant unconscionably, beyond asserting its own right of property. Its entitlement to relief is no more and no less than that of the previous owner of the 1st floor of No. 10 and, as a plaintiff in court, seeking equitable relief, it matters not how or why the plaintiff became owner or what price it paid: Its rights vis-a-vis the defendant are the same.

35. I would uphold the majority of the Court of Appeal in ordering an injunction in favour of the plaintiff.

Section 41 Conveyancing and Property Ordinance

36. Section 41, as it stands is not an easy provision to construe. I have read Lord Hoffmann NPJ's judgment on this aspect of the appeal in draft and agree with it. The only observation I would make is this: It seems to me to strain the statutory language in subsection 2(c) to breaking point by saying that, in the circumstances of this case, the covenants were "expressed" to benefit the land of the covenantee (the plaintiff) and its successors in title. 10 of the 11 assignments were executed on the same day. At the time when the covenants were "expressed", the plaintiff held the bare legal title to the land: a title which it then immediately conveyed to the covenantors. It is difficult to imagine that subsection 2(c) was intended to cover such a situation.

Conclusion

37. For the reasons above, I would dismiss the appeal, with costs to the plaintiff.

Mr Justice Ching, PJ:

38. I agree with the conclusions and with the reasons given by the other members of this Court and I agree that this appeal is to be dismissed.

Mr Justice Bokhary, PJ:

39. I am in complete agreement with Mr Justice Litton PJ and Lord Hoffmann NPJ. For the reasons which they give, I too would dismiss this appeal with costs. There is only one matter in respect of which I propose to add something of my own, namely, the proper approach for this Court to adopt in regard to appeals against concurrent findings of fact. In concluding that a building scheme exists on Section Q of Inland Lot No. 29, the trial judge made factual findings to this effect: the section had been subdivided into 11 subsections; and it was the intention of the common vendor and the purchasers of those subsections to impose a scheme of mutually enforceable restrictions in the interest of those purchasers and their successors. Those findings were supported by the Court of Appeal. Accordingly the existence of such subdivision and intention comes to this Court by way of concurrent findings of fact. Nevertheless the appellant asks us to disturb those findings.

40. This appeal is the first one in which this Court has been invited to disturb concurrent findings of fact. The Judicial Committee of Privy Council's approach to appeals against concurrent findings of fact is well known. In the leading case of Srimati Bibhabati Devi v. Kumar Ramendra Narayan Roy [1946] AC 508 at pp 521-522 the Privy Council (in an advice delivered by Lord Thankerton) laid down eight propositions as to the general practice of their Lordships' Board in regard to appeals against concurrent findings of fact and the nature of the special circumstances which would justify a departure from such practice:

" (1.) That the practice applies in the case of all the various judicatures whose final tribunal is the Board.

(2.) That it applies to the concurrent findings of fact of two courts, and not to concurrent findings of the judges who compose such courts. Therefore a dissent by a member of the appellate court does not obviate the practice.

(3.) That a difference in the reasons which bring the judges to the same finding of fact will not obviate the practice.

(4.) That, in order to obviate the practice, there must be some miscarriage of justice or violation of some principle of law or procedure. That miscarriage of justice means such a departure from the rules which permeate all judicial procedure as to make that which happened not in the proper sense of the word judicial procedure at all. That the violation of some principle of law or procedure must be such an erroneous proposition of law that if that proposition be corrected the finding cannot stand; or it may be the neglect of some principle of law or procedure, whose application will have the same effect. The question whether there is evidence on which the courts could arrive at their finding is such a question of law.

(5.) That the question of admissibility of evidence is a proposition of law, but it must be such as to affect materially the finding. The question of the value of evidence is not a sufficient reason for departure from the practice.

(6.) That the practice is not a cast-iron one, and the foregoing statement as to reasons which will justify departure is illustrative only, and there may occur cases of such an unusual nature as will constrain the Board to depart from the practice.

(7.) That the Board will always be reluctant to depart from the practice in cases which involve questions of manners, customs or sentiments peculiar to the country or locality from which the case comes, whose significance is specially within the knowledge of the courts of that country.

(8.) That the practice relates to the findings of the courts below, which are generally stated in the order of the court, but may be stated as findings on the issues before the court in the judgments, provided that they are directly related to the final decision of the court."

41. To what extent should this Court's approach be different? As it seems to me, when a legal system devises its approach to appeals against concurrent findings of fact, its broad objective should be twofold:-

(1) An acceptable balance between, on the one hand, due access to the courts (including, where appropriate, the highest court) and, on the other hand, a reasonably early end to litigation.

(2) For the purpose of achieving that balance, a proper distribution of function between three court levels: first instance; intermediate appeal; and final appeal.

42. In the days when the Privy Council exercised the jurisdiction which this Court has exercised since 1 July 1997 their Lordships were, unlike this Court now, hearing final Hong Kong appeals as appeals from overseas. And the Privy Council always recognized that local conditions would naturally be better known to local courts than to their Lordships. Undoubtedly this was one of the reasons for, and one feature of, the Privy Council's reluctance to disturb concurrent findings of fact. But it was by no means the only reason for, or the only feature of, such reluctance. That is apparent from this passage in the Privy Council's advice delivered by Lord Hobhouse in Moung Tha Hnyeen v. Moung Pan Nyo (1900) LR 27 IA 166 at p.167:

"This case is one which very decidedly falls within the valuable principle recognised here, and commonly observed in second Courts of Appeal, that such a Court will not interfere with concurrent judgments of the Courts below on matters of fact, unless very definite and explicit grounds for that interference are assigned. In all probability their Lordships would be doing a great deal more harm than good if they were induced to disturb judgments arrived at by the local judges on such criticisms as have been assigned in this argument." (Emphasis supplied)

43. Exactly the same point may be made on the strength of what the Privy Council had said (also in an advice delivered by Lord Hobhouse) in the earlier case of Umrao Begam v. Irshad Husain (1894) LR 21 IA 163 at p.166:

"This is not only a question of fact, but it is one which embraces a great number of facts whose significance is best appreciated by those who are most familiar with Indian manners and customs. Their Lordships would be specially unwilling in such a case to depart from the general rule, which forbids a fresh examination of facts for the purpose of disturbing concurrent findings by the lower courts." (Emphasis supplied)

Indeed the same point emerges from the eight propositions laid down in Srimati Bibhabati Devi v. Kumar Ramendra Narayan Roy (supra). As we have seen, only the seventh proposition is directed to local conditions.

44. Let us now consider the House of Lords' approach to appeals against concurrent findings of fact. It is highly instructive to do so. This is because the House of Lords - unlike the Privy Council but like this Court - is a final appellate court whose capacity for revisiting the facts is never limited by an imperfect familiarity with local conditions.

45. I am unaware of - and doubt that there exists - any clearer statement of the House of Lords' current approach than this one by Lord Steyn in Smith New Court Securities Ltd v. Citibank NA [1997] AC 254 at p.275 A-C:

"While the jurisdiction of the House is not in doubt, it is most reluctant to disturb concurrent findings of fact. There are two reasons for this approach. First the prime function of the House of Lords is to review questions of law of general public importance. That function it cannot properly discharge if it often has to hear appeals on pure fact. This point is underlined by the fact that, despite the economy of presentation of counsel, the hearing on liability lasted more than three days. Secondly, in the case of concurrent findings of fact, the House is confronted with the combined views of the first instance judge and the Court of Appeal. A suggestion that the House can be expected to take a different view on concurrent findings of fact generally gives rise to an initial sense of disbelief." (Emphasis in the original)

46. Perhaps that approach involves a development since older decisions of the House of Lords such as Montgomerie & Co. Ltd v. Wallace-James [1904] AC 73. Perhaps not. For what Lord Davey said (at p.82) in that 1904 case is that the House of Lords did not follow "any rule of practice (such as is followed by the Judicial Committee in Indian appeals at any rate) that [the House of Lords] will not entertain an appeal on a question of fact where there have been concurrent findings in the Courts below". And, as we have seen, the Privy Council's practice is by no means so absolute as never at all to entertain an appeal against concurrent findings of fact under any circumstances.

47. The prime function of this Court is the same as that of the House of Lords as identified in Lord Steyn's first reason, namely, to review questions of law of general public importance. This is not altered by the fact that (by reason of s.22(1)(a) of the Hong Kong Court of Final Appeal Ordinance, Cap.484) an appeal lies to this Court "as of right" from any non-interlocutory judgment of the Court of Appeal in any civil cause or matter -

"... where the matter in dispute on the appeal amounts to or is of the value of $1,000,000 or more, or where the appeal involves, directly or indirectly, some claim or question to or respecting property or some civil right amounting to or of the value of $1,000,000 or more ..."

To begin with, prior to 1 July 1997 final appeals from Hong Kong to the Privy Council (whose strict practice in regard to concurrent findings we have seen) also lay as of right in circumstances such as those identified above. Moreover it would appear that certain appeals (namely non-interlocutory appeals from the Court of Session in Scotland save those under certain statutes) do lie to the House of Lords as of right: see 10 Halsbury's Laws of England, 4th ed., para. 741 at p.338. In any event, ironically or otherwise, the strongest consideration in the present connection may be this. If this Court is statutorily more exposed than the House of Lords to a flood of appeals on the facts, then that would seem a cogent reason why we ought to preserve our prime function by according at least as much respect to concurrent findings of fact as the House of Lords does nowadays.

48. It should of course be understood that that is not the only reason. The other, and complementary, reason is really as simple as this. Findings of fact are inherently difficult (although by no means impossible) to upset on appeal. And it is only natural that they become even more difficult (although still not invariably impossible) to upset once they have gained the added weight of having been affirmed on appeal. To upset them thereafter naturally requires something special.

49. The question of local conditions apart, I see no significant difference between the substance of the House of Lords' approach to appeals against concurrent findings of fact and that of the Privy Council. However the Privy Council's jurisprudence on the point has been the subject-matter of more frequent and detailed judicial pronouncements than that of the House of Lords. Accordingly one can gain more practical guidance by consulting the former than by consulting the latter.

50. I pause to mention that I have of course been interested to know what wisdom we may learn by consulting the practice of the High Court of Australia. It would appear that their Honours' position in this regard has, since 1 June 1984, been governed by legislation imposing a requirement for special leave. This statement is to be found in David O'Brien: Special Leave to Appeal, The Law and Practice of Applications for Special Leave to Appeal to the High Court of Australia (1996) at p.74:

"... a proposed appeal which exclusively involves or turns upon an error of fact ... will not attract special leave. A fortiori, where there are concurrent findings of fact by the primary judge and the intermediate appellate court."

The accuracy of Mr O'Brien's statement appears to be supported by the High Court of Australia itself in this passage from the joint judgment of Mason CJ and Deane, Dawson and Toohey JJ in Dart Industries Inc. v. Decor Corp. Pty Ltd (1993) 179 CLR 101 at p.121:

" It follows from what has been said above that, if special leave were granted, the cross-appeal would necessarily turn upon a question of fact upon which there are concurrent findings by the trial judge and the Full Court against Decor and Rian. It would for that reason be inappropriate to grant special leave to cross-appeal.

For these reasons we would dismiss the appeal and refuse special leave to cross-appeal."

McHugh J delivered a separate judgment, but (as one sees at p.136) agreed with the rest of their Honours that special leave to cross-appeal should be refused for the reasons which they gave.

51. In my judgment, this Court's proper approach to appeals against concurrent findings of fact must be the same as that of the Privy Council subject only to this. In those rare and exceptional cases in which an appellant has otherwise got a viable challenge to even concurrent findings of fact, he will never face in this Court the additional obstacle (which appellants before the Privy Council have sometimes faced) of appearing before a final appellate court less familiar than the courts below with local conditions. In using the expression "local conditions" I mean to cover how, in situations such as the one which any given case concerns, people like the parties to that case generally tend to behave, view things, go about their lives and businesses, understand each other and so on.

52. On the foregoing principles, I do not think that the appellant can begin to make good its attack on the concurrent findings of the subdivision and intention pertaining to the building scheme relied upon by the respondent. There is nothing exceptional about those concurrent findings of fact. True it is that the trial judge's findings of such subdivision and intention were based, not on forming an impression of witnesses or anything of that nature, but rather on drawing inferences and, what is more, doing so in respect of events of many years ago. But that means no more than that her findings were very properly open to review by the Court of Appeal. That court has conducted a proper review of her findings. And it has, in a judicial manner, arrived at the conclusion that her findings, likewise arrived at in a judicial manner, are to be affirmed. There the matter must rest.

Mr Justice Nazareth, NPJ:

53. I agree that the appeal should be dismissed for the reasons given by the other members of this Court.

Lord Hoffmann, NPJ :

54. I agree that the appeal should be dismissed for the reasons given by Litton PJ. I also agree, save on one point, with the admirably lucid and convincing judgment of Le Pichon J. It is only on the construction of s.41 of the Conveyancing and Property Ordinance, Cap. 219 that, in common with the Court of Appeal, I must respectfully differ.

55. Section 41 represents the third attempt of the legislature to adapt the common law and equitable rules concerning covenants which affect land to the special needs of Hong Kong conveyancing. The problems to which they were addressed arose chiefly out of the practice by which a developer of a block of flats held under a Crown lease disposes of the flats by assigning to each purchaser an undivided share in the whole building, carrying with it the right to occupy a particular flat: see Professor Willoughby's article The Enforcement of Obligations relating to Control and Management of High-Rise Buildings in (1977) 7 HKLJ 81. It is customary in such cases for the purchasers to enter into a Deed of Mutual Covenant with the vendor, dealing with such matters as the use of the flat, maintenance charges, payment of a share of the Crown rent, use of the common parts and so forth. The intention is that these covenants should be enforceable not only by the vendor (and sometimes a management company to which he may assign their benefit) but also by the flat-owners and their successors in title against each other. But common law and equity put two serious difficulties in the way of such a scheme. First, the burden of restrictive covenants can be made to run with the land but the burden of positive covenants (such as obligations to pay maintenance charges etc) cannot. Secondly, covenants have to be imposed on a servient tenement for the benefit of a dominant tenement. But the parties to such a scheme do not own separate tenements. Each is owner of an undivided share in the whole building.

56. The Law of Property (Enforcement of Covenants) Ordinance 1956 dealt with the first difficulty, but in rather a narrow way. The legislation was limited to flats and certain particular kinds of covenant. In 1984 it was replaced by s.41 of the Conveyancing and Property Ordinance, Cap. 219, which dealt with both points. It provided in general terms that a covenant should not be unenforceable by reason only of the fact that it was positive or was made between owners of the same land. It was thus framed in negative terms, removing the specified grounds upon which a covenant might not be enforceable at common law or equity but leaving it open to objection on any other ground which might be available. In 1988 it was replaced by the present s.41, of which I need quote only the following subsections:

(1) This section applies to an express covenant and a covenant implied by or under this Ordinance or any other law.

(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 or 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.

(3) Notwithstanding any rule of law or equity...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 though him or them.

......

(7) A covenant shall be enforceable under this section whether or not the covenant is between owners of the same land.

57. It will be seen that the legislative technique has changed. A covenant which satisfies the terms of subsections (1) and (2) will run with the land in accordance with s.(3), notwithstanding any rule of law or equity. In such a case, it is unnecessary to go beyond the terms of the Ordinance and the fact that for some other reason the covenant might not have run with the land at common law or equity is irrelevant. The section is therefore a partial codification of the law. It is a codification because, so far as it goes, it is complete in itself but partial because it does not prevent a covenant falling outside its terms from running with the land under the old common law and equitable rules.

58. In this case the plaintiff says that the relevant covenants fell within the code, in that they satisfied subsections (1) and (2) and that accordingly they ran with the land and were enforceable under subsection (3). The question of whether they satisfied the requirements of the section and in particular subsection 2(c) is by no means without difficulty - difficulties of which Le Pichon J was acutely conscious. It may be that the draftsman has not entirely avoided one of the common perils of codification, namely the choice of a form of words which does not do full justice to the complexity of the law it is intended to restate. It is certainly not easy to apply subsection 2(c) to covenants which are mutually enforceable under the principle of Elliston v. Reacher [1908] 2 Ch 164. Two problems were identified by the judge. First, paragraph (c), by its pointed contrast with paragraph (b), demands that the covenant be not only intended but also expressed to be for the benefit of the dominant tenement. It is however characteristic of building scheme cases that the rights of purchasers to enforce the covenants against each other are often based simply upon the intention of the parties, inferred from the terms of the terms of the covenants, the layout of the plots and other surrounding circumstances. Le Pichon J was able to hold that the covenants relied upon by the plaintiff satisfied the statutory requirements despite the fact that unlike certain other covenants in the same instrument (e.g against nuisance) they said nothing about the land intended to benefit. Secondly, the dominant land is required to be the land of "the covenantee and his successors in title or persons deriving title to that land under or through him or them." In the case of a building scheme, however, the covenants in all the conveyances after the first plot sold will be in part for the benefit of land which the common vendor has already sold. In the present case, Le Pichon J was able to hold the paragraph satisfied because the dominant plot, although contracted to be sold, had not yet been assigned. But that is a special feature of this transaction; it could easily have been the case that the conveyance of the dominant tenement had already taken place.

59. For my part, the overriding consideration is that s.41 must have been intended to apply to building schemes. The background material to which the judge referred makes this clear. Somehow, therefore, the language has got to be made to fit and this the judge valiantly attempted to do. I am inclined to think that her answer to the question of whether the covenants were "expressed" to be for the benefit of the rest of s.Q was right, but this may only show that for me, in a case like this, the distinction between "expression" and "intention" (objectively ascertained) is somewhat elusive. Nor would I disagree with her solution to the problem of previous sales. Another more general answer to the latter question may be that in cases such as building schemes in which the general law permits the benefit to be taken for land which has already been assigned, "successors in title" of the common vendor must be read to include persons who have already succeeded to his title in respect of other parts of the scheme. At any rate, I am willing for present purposes to assume that the judge was right in holding that the requirements of subsection (2)(c) were satisfied.

60. That, however, takes the plaintiff only part of the way. It means that the covenants will run with the land and be enforceable by the persons specified in subsection (3): "the covenantee and his successors in title etc.". The question is whether he qualifies as such a person. The plaintiff says that he is the covenantee. Once a covenantee, always a covenantee. It does not matter whether he has retained any interest in the land. Subsection (3), says Mr Chan SC, who argued this point, is expressed to override the rules of law and equity and in this instance has abolished the rule in LCC v. Allen [1914] 3 KB 642 which requires a plaintiff enforcing a covenant to have an interest in land for the benefit of which it was taken.

61. I do not agree. It is true that a code should not be interpreted on the assumption that it was not intended to change the previous law (Bank of England v. Vagliano Brothers [1891] AC 107, per Lord Herschell at pp. 144-145), particularly when the words "notwithstanding any rule of law or equity" make it clear the some change was intended. It does not follow, however, that every previous rule of law and equity was intended to be changed. The changes which s.41 undoubtedly makes in the rules about positive covenants and jointly owned land are sufficient to provide work for the opening words on which Mr Chan relies. And in cases of ambiguity, it is permissible to look at the previous law as an aid to the construction of the code.

62. Mr Chan says there is no ambiguity. Covenantee means covenantee. But in my view an ambiguity, to say the least, is raised by the anomaly to which Mr Chan's construction would give rise. To qualify at all, the covenant must, under subsection (2)(c) be "expressed and intended to benefit the land of the covenantee". To this extent, the section reflects the rule in LCC v. Allen [1914] 3 KB 642. A restrictive covenant in gross will not run with the land. On Mr Chan's construction, however, once this initial qualification has been satisfied, the covenantee can at once dispose of all interest in the land but continue to be able to enforce what, so far as he is concerned, is now a mere covenant in gross. This seems to me a whimsical result. The various changes in the common and law and equity which are made by s.41 can all be related to the particular needs of Hong Kong conveyancing. But there is no rational explanation for the change which Mr Chan claims to have been made.

63. If one then looks at the general law of restrictive covenants, it becomes apparent that the plaintiff's argument would not merely change some rule of law or equity but completely alter the accepted juridical character of a restrictive covenant. For some twenty years after Tulk v. Moxhay (1848) 2 Ph. 774, English law entertained the idea that the basis of a restrictive covenant was contractual and that rights under a contract affecting any kind of property could be enforced against a successor in title who had notice. The course of this lengthy flirtation is charted by Scrutton J in LCC v. Allen [1914] 3 KB 642; its high point is the notorious judgment of Knight Bruce LJ in De Mattos v. Gibson (1858) 4 De G. & J. 276. But in London and South Western Rlwy v. Gomm (1880) 20 Ch 562, 583, Jessel MR said that a restrictive covenant was not a mere contract but an interest in land, analogous to a negative easement. It is by nature a right appurtenant to a dominant tenement; there is no other form in which it can exist as a proprietary interest of which the burden runs with the servient tenement. This view of the matter was established beyond doubt in LCC v. Allen [1914] 3 KB 642 and is, as I say, reflected in subsection (2) of section 41. I therefore agree with the Court of Appeal that it is inconceivable that subsection (3) was intended to change the very nature of a restrictive covenant. As for positive covenants, the object of the legislation is to equate positive with restrictive covenants and it cannot therefore have been intended to treat them differently. It follows that in my opinion, "covenantee" in subsection (3) means a covenantee who still has an interest in the land for the benefit of which the covenant was taken.

Mr Justice Litton PJ:

64. This appeal is dismissed with costs to the plaintiff.

Representation:

Sir John Swaine SC and Mr J J E Swaine (instructed by Messrs M K Kwan & Co.) for the Appellant

Mr Denis Chang SC, Mr Edward Chan SC and Mr Wong Yan Lung (instructed by Messrs Johnson Stokes & Master) for the Respondent