Wong Wan Leung and Others v. Director of Lands
Read the full judgment text of LDMR 10/1996 on BabelCite. This LDMR judgment was delivered on 28 June 2002.
1. This Application has a history dating back to the beginning of the last century. By a Block Crown Lease dated 18 March 1905 ("the 1905 Block Crown Lease") made between the Crown as the lessor and Wong Wai Tsak Tong ("the Tong" or "WWTT") as the lessee, the Tong were the registered lessee and were entitled to possession of over 90% of the land in the island of Cheung Chau ("the Island"). The background for the making of the 1905 Block Crown Lease remains a mystery even until today. However, th
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LDMR000010C/1996 LDMR 10/1996 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION APPLICATION NO. MR10 OF 1996 ____________________
___________________ Coram: HH Judge Lok, Presiding Officer Date of hearing: 4-6, 11-15, 18-22, 25-27 March, 9-11, 24-26, 29-30 April, 2-3 May 2002 Date of handing down of judgment: 28 June 2002 _______________________________ RULING ON PRELIMINARY ISSUES _______________________________ Background of this Application 1.This Application has a history dating back to the beginning of the last century. By a Block Crown Lease dated 18 March 1905 ("the 1905 Block Crown Lease") made between the Crown as the lessor and Wong Wai Tsak Tong ("the Tong" or "WWTT") as the lessee, the Tong were the registered lessee and were entitled to possession of over 90% of the land in the island of Cheung Chau ("the Island"). The background for the making of the 1905 Block Crown Lease remains a mystery even until today. However, the right of the Tong as the direct lessee of the Crown is recognized by the Block Crown Lease (Cheung Chau) Ordinance, Cap. 488 ("the Cheung Chau Ordinance"). 2.There were some 600 lots of land included in the schedule annexed to the 1905 Block Crown Lease. Throughout the years of the Tong's ownership, it had surrendered some of the land to the Government in exchange for further land, and each incident of surrender and re-grant took place under a New Grant. For lot numbers exceeding those stated in the schedule of the 1905 Block Crown Lease (ie. 619), they were assigned to land obtained by the Tong under the New Grants. The terms and conditions of the Crown leases under these New Grants were different from those of the 1905 Block Crown Lease. However, all such Crown leases, whether they were under the 1905 Block Crown Lease or the New Grants, and by operation of s. 4(1) of the New Territories (Renewable Government Leases) Ordinance, Cap. 152 and s. 6 of the New Territories Leases (Extension) Ordinance, Cap. 150, expire on 30 June 2047. 3.Since the making of 1905 Block Crown Lease, most of the land owned by the Tong was sub-leased to various sub-lessees in the Island, from whom the Tong collected annual rents. All sub-leases provided for a term of 5 years from the 7th day of November of the 5th year and 10th year of a decade, and renewable on the same terms until the termination of the head Crown lease. 4.Under the 1905 Block Crown Lease and the New Grants, the annual Crown rents payable by the Tong to the Government were quite nominal, usually in the amount of $1 or $0.5 for the lots under the 1905 Block Crown Lease, or in a sum not exceeding $300, with a few exceptions, for the lots under the New Grants. According to the record complied by the Tong, the amounts of rent stipulated as payable under most of the sub-leases were double the amounts of the Crown rent payable by the Tong to the Government. 5.As mentioned above, the sub-leases were made for a term of 5 years renewable on the same terms until the termination of the head Crown lease. Prior to 1981, the renewal of sub-leases and the collection of annual rents were done on a rather informal basis, and the sub-lessees could perform their obligations any time they liked without the need to worry about the consequences. However, that was changed in 1981. In that year, an executive committee of the Tong ("the Executive Committee") was formed, and it was decided by such committee that, inter alia: (i) a fee of $300 would be charged from all the sub-lessees for the renewal of each 5-years' term of a sub-lease; and (ii) the renewal of sub-leases and the collection of annual rents had to be performed in a systematic manner. 6.Prior to the establishment of the Executive Committee, or perhaps for the few years thereafter, the Tong and the sub-lessees enjoyed a rather harmonious relationship. Unfortunately in the end of the 1980's, the sub-lessees in the Island were not happy with certain policies adopted by the Executive Committee relating to the renewal of sub-leases, and their relationship then deteriorated. There was also a special committee formed under the Cheung Chau Rural Committee ("CCRC"), which was an association for the residents in the Island, with a view to protect the interests of the sub-lessees. 7.The dispute between the Tong and the sub-lessees mainly related to the renewal of the so-called "broken sub-leases". As the sub-leases were granted on a term of 5 years, they should have been renewed for a fresh term every 5 years. However, some of the sub-lessees did not renew for one or more terms, and this resulted in the so-called "broken sub-leases". Prior to 1981, the sub-lessees could renew the broken sub-leases any time they liked without any penalties. However, some time in 1989, the Executive Committee decided to impose penalties or conditions for the renewal of broken sub-leases. The CCRC was not satisfied with this arrangement, and as a result there was heated debate between the Tong and the CCRC on this issue. Apart from the broken sub-leases, there were also cases in which the sub-lessees were late in the payment of their annual rents. The Executive Committee also wanted penalties to be paid for these late payment cases, and this widened the differences between the Tong and the CCRC. 8.By reason of the Tong's refusal to renew the broken sub-leases unconditionally, there was a stage of deadlock between the parties, and the conveyance of the real properties in the Island came to a standstill. After some discussion in the public arena, the Cheung Chau Ordinance was passed as a private member's bill in 1995 terminating the right of the Tong as the Crown's direct lessee. S. 10 of the Ordinance provides that the Tong is entitled to claim for compensation for the loss of its right, and the amount of the compensation is to be determined by the Lands Tribunal and in accordance with ss. 10, 11 and 12 of the Lands Resumption Ordinance, Cap. 124. Consequentially, the Applicants, as the managers of the Tong, lodged the present Application in the Lands Tribunal. The Split Trial 9.In accordance with the time limit of 12 months as provided for in the Cheung Chau Ordinance, this Application was commenced in the Lands Tribunal on 3 September 1996. There were then exchanges of pleadings, documents and witness statements between the parties, and the case was fixed on 10 April 2001 for trial before a presiding officer and a member commencing on 4 March 2002 with an estimated time of 45 days. 10.On 17 August 2001, the Respondent took out a summons seeking directions from this Tribunal for, inter alia,: (i) split trial of liability and quantum; and (ii) trial by samples. On 21 November 2001, my learned brother, Chow DJ, refused the application for trial by samples, but he made an order in the following terms:
11.Since the Applicants are entitled to compensation under s. 10(1) in any event, it is not clear what Chow DJ meant by referring to "issue of liability" in his order. It seems that what my learned brother was in mind was to divide the trial into two parts: the legal principles governing the assessment of compensation would be determined in the first part of the split trial, while the actual assessment itself would be heard subsequently in the second part. Unfortunately, my learned brother has failed to identify the precise issues that have to be dealt with in the first part of the split trial. In order to clarify this matter, I, in the first pre-trial review hearing on 13 January 2002, directed the parties to agree on the preliminary issues for consideration by the Tribunal in the following pre-trial review hearing. However in the second hearing on 28 January 2002, only the Respondent complied with my direction and submitted its list of preliminary issues. As the Applicants had not done the same, no preliminary issue could be framed in that hearing. Nevertheless, I was told by the senior counsel for both parties that they would try to frame the issues before the commencement of the first part of the trial. 12.The first part of the trial commenced on 4 March 2002 as scheduled. With considerable effort by counsel for both parties, they, after some discussion in the first few days of the trial, submitted a list of common issues for determination in the first part of the split trial. During the hearing, they also tried to reach consensus on a number of issues, and as a result the parties submitted two lists of concessions before this Tribunal. In this regard, I must express my gratitude to the counsel for their valuable effort. Without these well-defined common issues and lists of concessions, we may have to spend much longer time in court in resolving various tedious factual issues, and more importantly, the first part of the trial would not have served its intended purpose in finalizing all the legal principles relating to the assessment of compensation. The Statutory Framework for Compensation and the various Schedules 13.Before I outline the common issues, I should perhaps give a brief introduction about the statutory framework for compensation under the Cheung Chau Ordinance and the various schedules included in the Statement of Particulars of the Applicants' Notice of Application. 14.Under s. 3 of the Cheung Chau Ordinance, which came into operation on 8 September 1995, the Block Crown Lease granted to the Tong was terminated. S. 10(1) provides that the Tong is entitled to claim compensation:
As defined in s. 2, the term "Block Crown Lease" here refers not only to the 1905 Block Crown Lease but also all subsequent New Grants made to the Tong. 15.S. 10(1) further provides that the amount of the compensation is to be determined in accordance with ss. 10, 11 and 12 of the Lands Resumption Ordinance, Cap. 124, as if the land or undivided shares in land were resumed under that Ordinance on the commencement of the Cheung Chau Ordinance or on the date of the deemed surrender. As further explained in the latter part of this judgment, the date of the deemed surrender was, for our present purposes, 6 November 1999. 16.The Applicants' claim is founded on both limbs of s. 10(1). The first limb relates to what is described in the Applicants' claim as Schedule A land, and the second limb relates to Schedule B land. 17.What then is Schedule B land? I deal with this first. According to s. 9 of the Cheung Chau Ordinance, there were certain sub-leases known as "special sub-leases". Such section provides:
18.The right of the Tong in respect of these special sub-leases was expropriated in the manner as provided for in ss. 4(2), 5(2) and 6(2), which read as follows:
19.The sub-lessees in Schedule B land did renew their sub-leases for period extending beyond 9 November 1994, usually for the 5 years' term from 7 November 1994 to 6 November 1999. Hence, Schedule B does not involve broken sub-lease cases, and it is not possible for the Tong to say that these sub-lessees had lost the rights of renewal. Indeed, whether such right had been lost is the most important issue in the first part of the trial. If the sub-lessees had lost such rights, the Applicants argue that the Tong is entitled to possess the land but for the Cheung Chau Ordinance, and so the compensation for such land should be assessed on the basis of its capital value. 20.For the Schedule B land, since the Applicants are not claiming for the capital value, the differences between the parties are much narrower. Basically, the Applicants concede that the compensation for these lots of land should be assessed subject to the interest of the sub-leases, and the Applicants' claim is only limited to the claim for "loss of rental receipts", which includes: (i) the amounts being the differences between the Crown rents and the annual rents; and (ii) loss of other payments such as renewal fees and modification premiums. For the first part of the trial, Schedule B land may have some relevance to Issues 4 and 5 relating to the right of the Tong to claim for rent which is double the amount of the Crown rent and for renewal fee. Apart from that, we do not need to concern with Schedule B land in the first part of the trial. 21.I then turn to Schedule A land which forms the main dispute between the parties. This Schedule involves land with no sub-lease granted for any period extending beyond 9 November 1994. It is the Applicants' case that the Tong's right for these lots of land has been expropriated in the manner as provided for in ss. 4(1) and 5(1), and so they are entitled to compensation under the first limb of s. 10(1). Ss. 4(1) and 5(1) read as follows:
The term "sub-lease" is defined in s. 2:
22.If ss. 4(1) and 5(1) are not applicable to the land concerned, the Tong would become the direct lessee of the Government as provided for in s. 6(1), which reads as follows:
As the Tong would become the direct lessee of the land and there is no expropriation of right, no compensation would be payable to the Tong in respect of the same. 23.The Applicants have grouped all the land to which ss. 4(1) and 5(1) apply in Schedule A. According to the Applicants' claim as originally pleaded, all the sub-lessees in such Schedule had lost the rights of renewal, and so the compensation for such land should be assessed on the basis of the capital value. Such allegation forms the main dispute in the first part of the trial. 24.By reason of the different arguments put forward by the parties in the pleadings, the Applicants further sub-divided Schedule A into the following schedules: Schedules C, D, E, F and N, depending on the history of renewal of the sub-lease and payment of annual rent by the sub-lessee of the land concerned. In order to appreciate the differences between these schedules, one may have to go back to the history of this case, in particular the commencement of a High Court action in 1990. 25.As I have mentioned above, the Tong and CCRC had serious dispute over the renewal of broken sub-leases in the late 1980's. The CCRC then decided to take the matter to court, and it raised fund from the residents in the Island to finance the intended legal proceedings. As a result, High Court Action No. A1944 of 1990 ("the High Court Action") was commenced, with several sub-lessees as the plaintiffs claiming for, inter alia, the following relief against the Tong:
26.The High Court Action was first commenced as a representative action. However when the case came before Liu J., as he then was, in October 1991, the learned judge granted leave to the plaintiffs to amend their pleadings with the effect that, inter alia, the action ceased to be a representative action. 27.After some further negotiation in the hearing, the parties decided to settle the High Court Action. According to the terms of the relevant consent order dated 22 October 1991 ("the Consent Order"), the Tong permitted the following 4 categories of sub-lessees ("the 4 Categories") to renew their respective sub-leases despite the fact that they had not renewed the same for the term commencing on 7 November 1989:
28.Further, the managers of the Tong undertook to publicize the notice attached to the Consent Order ("the Consent Order Notice") by posting its copies up in various specified locations in the Island for 3 consecutive days. According to such notice, all qualified sub-lessees under the 4 Categories had to renew their sub-leases on or before 1 April 1992, failing which the Tong would not renew the same. 29.A lot of the sub-lessees in the Island did respond to the Consent Order Notice and applied to renew their sub-leases. There were some disputes over the entitlement to renew in certain cases, but most of them could be resolved. The implementation of the Consent Order was monitored by the officials of the District Office, the solicitors acting for the plaintiffs in the High Court Action, Messrs. T. C. Foo & Co. ("T. C. Foo"), and representatives of the Tong. Nevertheless, some of the qualified sub-lessees did not renew their sub-leases in accordance with the terms of the Consent Order Notice. 30.I then turn back to the various sub-schedules under Schedule A. The first one is Schedule F, which contains the land with sub-lessees who did formally execute a renewal for the 5-years' term from 7 November 1989 before and without the assistance of the Consent Order. 31.The second sub-schedule is Schedule E, which contains all the land with the sub-lessees qualified under the 4 Categories. The Applicants further make the following sub-classification under such schedule:
There is also a particular sub-group under Schedule E2 known as Schedule E2A. According to the Applicants, all the sub-lessees under such schedule fall within the third category of qualified sub-lessees under the Consent Order. In other words, they all paid rent up to 1988 and yet they had not renewed their sub-leases pursuant to the terms of the Consent Order. 32.There is also a related schedule known as Schedule H. Such schedule contains the land with sub-lessees under the 4 Categories who complied with the Consent Order Notice and renewed the 5-years' term commencing from 7 November 1989, but nevertheless did not formally execute a renewal for the following term commencing from 7 November 1994. In other words, it contains all the land in Schedule E-1 with the exception of the land also included in Schedule B (see: p. 253 of Bundle L). 33.The other sub-schedules of Schedule A are Schedules C and D: the former consists of land with sub-leases for which no formal renewal was executed after 30 June 1973, while the latter contains land with sub-lessees falling outside the 4 Categories under the Consent Order. In other words, the sub-lessees under these two schedules had not renewed their sub-leases or paid the annual rents for quite some time, and so they were not qualified under the 4 Categories. The only distinction between these two schedules is that for Schedule C land, no formal renewal of any sub-leases was ever executed after 30 June 1973. The reason why such date is important is because, at the initial stage of the proceedings, the Applicants seek to argue that, for land under which the Crown lease was expressed to expire on 30 June 1973, sub-lessees who did not formally renew their sub-leases after such date had automatically lost the rights of renewal, despite the fact that, by operation of s. 4(1) of the New Territories (Renewable Crown Leases) Ordinance, the right of renewal under the head Crown lease was deemed to have been exercised by the Tong. However, the Applicants in the hearing concede that s. 4(4) of the said Ordinance may come to the rescue of the sub-lessees in this regard, and so he does not pursue such line of argument. In such circumstances, we can, for the purpose of the first part of the trial, treat Schedules C and D as one group. 34.Depending on the date of the last payment of annual rent, Schedule C is further sub-divided as follows (see: paragraph 5 of the supplemental witness statement of Ms. Leung Sau Yee Carmen):
35.In the hearing, the parties always referred to Schedules C1-C7. Actually, there is no sub-schedule known as C-1. But in order to avoid any further confusion, I use the same description, Schedules C1-C7, to refer to all the cases under Schedule C. 36.There is also another schedule known as Schedule N, which, according to the Applicants, contains all the Schedule A land which does not fall within the other sub-schedules. At present, there are two pending High Court actions, HCA No. A16329/1999 and HCA No. 16270/1999, which relate to the land in this schedule, and so the parties agree to adjourn the assessment of compensation of Schedule N land sine die with liberty to restore pending the outcome of the said two High Court actions (see: paragraph 2 of the Further List of Concessions dated 10 April 2002). 37.In order to give a rough idea as to the distribution, the approximate numbers of sub-leases included in the various schedules are listed out as follows:
Since there were always changes to the contents of the schedules, I emphasize that these are all approximate figures. 38.The Statement of Particulars also contains other schedules. However, for the purpose of determining the common issues in the first part of the trial, we need not concern with these schedules. In the latter part of the judgment, reference would also be made to a special group known as "A43 cases". According to paragraph 9 of the supplemental witness statement of Mr. Wong Kam Por, all the cases where there were express undertakings by the sub-lessees to pay annual rents which were twice the amounts of Government rents prior to 1 July 1997 and thereafter at 6% of the rateable values are included in this group of cases. 39.In the hearing, I had ascertained from counsel for both parties whether they required this Tribunal to make factual findings as the truth of the contents of the various schedules. In this regard, I am pleased to learn that the parties have reached consensus on most of the contents of the schedules (see: paragraphs 4 to 10 of the Further List of Concessions). Indeed, the history of renewal and payment of rent in respect of a particular lot of land can be ascertained quite easily by checking the available records kept by the Tong, and so the parties contemplate that the remaining limited differences can be resolved among themselves before the second part of this trial. Even if they cannot do so, it would not be too difficult for this Tribunal to determine such matter in the second stage. Evidence adduced in the Trial 40.So far as the evidence is concerned, there is not much factual dispute between the parties. In the hearing, the Applicants have called 3 witnesses to testify, while the Respondent has called none. 41.The first Applicants' witness is one Mr. Wong Kang Ying (AW1). He is a professor in computer science and has actively involved in the Tong's affairs since 1988. Between 1992 to 1997, he was the manager of the Tong, and he is now the chairman of its Executive Committee. He is the main witness for the Applicants. The second witness is one Mr. Wong Kam Por (AW2). He is now a retired Correctional Services Department officer, one of the managers of the Tong and the vice-chairman of its Executive Committee. He has involved in the Tong's affairs since 1988, and has been a member of the Executive Committee since 1992. In the trial, he basically confirmed the truth of the records that he had complied, but apart from that, his evidence is not particularly helpful. The third Applicants' witness is one Mr. Wong Wan Leung (AW3). He worked as a police officer for 38 years and is now retired. He served as a manger of the Tong for two terms, and has been a member of its Executive Committee since its formation in 1981. Prior to that, he had taken part in some of the discussion relating to the Tong's affairs. 42.I generally accept all of them to be honest witnesses. However, by reason of the length of time and the inconsistencies between their evidence and the other documentary evidence, I do not find that all their evidence is reliable. In dealing with the common lists of issues below, I will list out the evidence to which I do not accept. Issue 1: Rights of Renewal 43.As I have mentioned above, it was the Applicants' original claim that all the sub-lessees in Schedule A had lost their rights of renewal, and as a result the compensation of the land concerned should be assessed on the basis of its capital value. If the Applicants succeed in their original claim, the total quantum of compensation for Schedule A land alone would, according to the Applicants' experts, amount to about $4,344,318,176. 44.However, in the beginning of this trial, Mr. Chang for the Applicants very sensibly conceded that the sub-lessees in schedules other than Schedules C1-C7, D1 and E2A had not lost the rights of renewal. In such circumstances, the right of renewal issue is now only confined to these three main Schedules. Further, as the Applicants cannot find out the last rental payment dates in respect of the last 21 "na" items in Schedules C1-C7, the Applicants concede that the assessment of compensation of these cases should be made on the basis of encumbered interest, in other words, subject to the interest of the sub-leases. Hence, I only have to deal with the remaining cases in Schedules C1-C7, and of course, all the cases in Schedules D1 and E2A. 45.The main issue in the first part of the trial, Issue 1, now reads as follows:
46.As I have mentioned above, the parties agree that whether the sub-lessee of a particular lot of land had lost the right of renewal at the operative date of the Cheung Chau Ordinance is the key issue in determining the basis upon which such lot of land should be valued for the purpose of compensation. In paragraph 3 of the First List of Concession dated 25 March 2002, the Respondent concedes that in any cases where the option to renew is held to have been lost, the assessment of compensation in second part of the trial will then be based on the loss of capital value of the land concerned. On the other hand, if the right is held not to have been lost, the Applicants, in paragraph 4 of the same list of concessions, accept not to claim for loss of capital value, whether as a matter of legal right or as a matter of prospect. In other words, the assessment of compensation for the land will be subject to the encumbered interest of the sub-lease. 47.These concessions are important. Imagine there are no such concessions, it can still perhaps be possible for the Applicants to argue in the second part of the trial, say, even if the sub-lessees had not in law lost the rights of renewal, it was still probable that these sub-lessees would not have gone to court to ask for relief, as it happened in the case of the sub-lessee in Wong Wan Leung & Ors v Secretary for Transport [2001] 2 HKC 257. In such circumstances, there is still some prospect for the Tong to recover possession of the land. If the Applicants run this sort of argument, they may still be entitled to claim some compensation despite an unfavourable ruling on Issue 1. The determination of the right of renewal issue then becomes less relevant, and the first part of the trial may not serve its intended purpose in finalizing all the principles governing the assessment of compensation. Fortunately, with the concessions made by the parties as mentioned in the last paragraph, this sort of argument can now be put to a rest. (a) The legal principles 48.One thing common is that all the sub-lessees in these 3 Schedules had failed to formally renew their sub-leases for more than one terms prior to the operative date of the Cheung Chau Ordinance. Further, they had not paid any rent to the Tong after 1988, and so the Applicants contend that these sub-lessees had lost the rights to renew their sub-leases. 49.The question to be asked in the present case is under what circumstances would the sub-lessees have lost the rights of renewal. This is very different from the issue as to whether a particular sub-lessee has exercised such right. 50.In this regard, there is some authority for the proposition that under an option to renew a lease in which no time is fixed for its exercise, such option must be exercised during the duration of the original term of the lease: Lewis v Stephenson (1898) 67 LJQB 296. However even Mr. Chang is not seriously advocating such proposition, as most of the other English and Canadian authorities seem to suggest the contrary. It is now generally accepted that where no time is specified for the exercise of the option, the right of renewal continues so long as the relationship of landlord and tenant subsists between the parties: Moss v Barton (1866) LR 1 Eq 474, Buckland v Papillion (1866) 2 Ch App 67, 70, Allen v Murphy [1917] 1 IR 484, Rider v Ford [1923] 1 Ch 541. 51.Apparently, the principle was best summarized by Duff J. in the Canadian case of Guardian Realty Co. v John Stark & Co. (1922) 70 DLR 333. The learned judge, after analyzing all the relevant authorities, said the following in page 343:
Brodeur J. also said the following in p. 347 of the judgment:
52.What then is the difference between the parties? As I see it, the main issue now turns on the effect of the Tong's notices purportedly calling upon the sub-lessees to exercise the options to renew. According to the evidence of Mr. Wong Kang Ying (AW1) and Mr. Wong Wan Leung (AW3), the Tong had sent notices, by post and through insertion in letter boxes, to all the sub-lessees in 1977, if not before, demanding them to renew their sub-leases. Since then, annual notices in similar wordings were sent to all the sub-lessees up to the time of the commencement of the High Court Action in 1990. As the sub-lessees in Schedules C1-C7 and D1 had failed to respond to these notices and renewed their sub-leases, they, according to the Applicants, had lost the rights of renewal. 53.The considerations for the sub-lessees in Schedule E2A are different. They fell within the third category of sub-lessees under the Consent Order, and so they were qualified to renew their sub-leases despite the fact that they had not done so before. The Consent Order Notice, which called upon sub-lessees of the 4 Categories to exercise the options, was not served on the sub-lessees individually. However, since such notice was widely publicized in the Island, the Applicants say that the sub-lessees in Schedule E2A must have had knowledge of the same. Further, it is the Applicants' case that such sub-lessees were bound by the terms of the Consent Order Notice, as they were either parties of the High Court Action or that such action had been commenced with their consent or authority. As these sub-lessees had failed to respond to the Consent Order Notice, they likewise lost the rights of renewal. 54.In response to the Applicants' arguments, Mr. Tang for the Respondent replies as follows. Firstly, sub-lessees who failed to respond to the notices did not lose the rights of renewal automatically. As the governing principle relating to the loss of such right is one of laches, the Tribunal is still required to look at all the circumstances of the case to see whether it is just to deprive the sub-lessees of their rights to specifically enforce the options. Secondly, Mr. Tang submits that if a notice has the effect of terminating the rights of the sub-lessees to renew, the terms of the notice must be clear and unequivocal. However, as the terms of the Applicants' notices were far from clear in the present case, sub-lessees who failed to respond to such notices should not be regarded as having lost their rights of renewal. Thirdly, sub-lessees of Schedule E2A were excused from responding to the Consent Order Notice, as: (i) such notice was not sent to them individually; and (ii) they were not bound by the terms of such notice in the manner as alleged by the Applicants. I will deal with these arguments in turn. (b) The effect of the notice 55.What is the effect of the notice calling upon the sub-lessees to exercise the rights of renewal? According to the submission of Mr. Chang, the authorities do support the proposition that a lessee would lose his right of renewal if he fails to respond to the lessor's notice. In Moss v. Barton, Lord Romilly MR, cited his earlier decision of Hersey v. Giblett (1854) 18 Beav. 174, held that an option can be exercised "at any time, if no time is stipulated for within which it is to be exercised, unless the landlord calls upon him to do so and he makes default, in which case the landlord may determine the tenancy." (supra, at p. 476) In Buckland v. Papillon, Lord Chelmsford LC, accepted that the option to renewal might be preserved after the expiration of the original lease, "and if the landlord wished to know upon what terms the tenant held, he might have called upon him to say whether he meant to have a lease or not." (supra, at p. 70) Further, in the Guardian case, Duff J., after analyzing all the relevant authorities, said the following (supra, at p. 342):
56.According to Mr. Chang, all these authorities recognized that a lessor is entitled to call upon his lessee to exercise the option to renew the lease, and there is a correlative obligation on the part of the lessee to exercise it. If the latter then does not respond to the lessor's notice, his right to renew lapses, as the learned author of Barnsley's Land Options, 2 ed. at page 217 put it:
57.In reply, Mr. Tang starts with the proposition that in the case of an option to renew with no time fixed for its exercise, and the lessee stays in the premises after the term of the original lease without the interference of the lessor, then mere lapse of time would not result in the loss of the right of renewal. The lessor can, by a notice in clear and unequivocal terms, call upon the lessee to exercise the right. However, if the lessee fails to respond, then, to borrow the words used by Lord Romilly in Hersey v Giblett, "any laches, after that time, must be taken strongly against the person who committed them. It is quite clear, however, that the acceptance of rent after that time would cure any such defect." (supra, at pp. 177-178) In other words, the failure on the part of the tenant to respond only amounts to a "defect" which is curable. Such defect, says Mr. Tang, can be cured not only by the payment of rent, but by any subsequent conduct on the part of the lessor which affirms the continuing subsistence of the landlord and tenant relationship. 58.Mr. Tang's argument even goes beyond that. As Lord Romilly has put it, if a tenant fails to respond to the landlord's notice, then "any laches, after that time, must be taken strongly against the person who committed them". Hence, the true principle governing the loss of the right to renew, says Mr. Tang, is one of laches, and the tenant does not lose his right automatically after his failure to respond to the landlord's notice. As laid down by the various authorities, mere delay, however unreasonable, does not amount to laches. The court would not refuse specific performance unless it can be shown that as a consequence of that delay, it would be unjust that the plaintiff should obtain such relief (see: Snell's Equity, 30 ed., paras. 3-16 and 3-19, The Principles of Equitable Remedies by Spry, 6 ed., at pp. 225-237). In the present case, bearing in mind the substantial value of the land, the default on the part of the sub-lessees in exercising the options became very insignificant. Further, as the sub-lessees enjoyed perpetual rights to renew the sub-leases, the remaining interest of the Tong in respect of the land was in substance very limited. In such circumstances, it can only be just to enable the sub-lessees to enforce the options by way of specific performance. 59.However, if Mr. Tang's submission is correct, it would be extremely difficult, and in the present case virtually impossible, for a landlord to terminate the option of his tenant, even if he has done all he could by sending a notice demanding renewal and the tenant just sits there and does nothing. This cannot be right. In my judgment, the propositions put forward by Duff J. in the Guardian case and the learned author in Barnsley's Land Options must be correct. If there is no time fixed for the exercise of the option, mere lapse of time would not result in the loss of such right. However, if the lessor sends a notice demanding the lessee to exercise the option, there is then a correlative obligation on the part of the lessee to exercise it. If he does not, his right lapses. 60.In the course of the submission, there has been some debate about the true nature of an option. Mr. Chang relies heavily on the Privy Council's decision in Markfaith Investment Ltd. v. Chiap Hua Ltd. [1991] 2 AC 43 and says that an option to renew is only "an offer to grant such a term which the lessor was contractually precluded from withdrawing so long as the option remained exercisable." (at p. 59, citing the passage of Buckley J. in Beesly v Hallwood Estates Ltd. [1960] 1 WLR 549) Mr. Tang, on the other hand, tries to argue that an option is something more. According to Duff J. in the Guardian case, an option would operate to vest in the tenant immediately upon the granting of the option an equitable estate for a further term, defeasible on a condition subsequent depending upon the election of the tenant to continue or to drop his possession. That is a vested right, and the equitable estate for the further term has already been carved out of the lessor's reversion (supra, at p. 342). 61.In my judgment, the Tribunal needs not go into this debate in resolving the issue. Whether an option is just only an irrevocable offer or it confers a vested interest on the tenant, it remains a right which needs to be exercised. To allow the tenant to keep such right after due notice would tantamount of saying that the tenant needs not exercise such right at all. The tenant can just sit there and do nothing, and yet he may not lose the right of renewal. In my view, this cannot be right and it would destroy the whole concept of option, which ultimately is a right which needs to be exercised by the tenant. Mr. Tang's submission would actually result in the tenant obtaining an interest more than an option, and so if a tenant does not exercise the option after being called upon to do so, he has to face the consequence of losing such right. 62.Laches is a different consideration. The only way that a tenant can enforce the right of renewal is through an order of specific performance by the court. Being a discretionary remedy, the court is always required to consider the issue of laches in determining whether to grant the relief. If the tenant is guilty of laches, he may lose the right to enforce the renewal irrespective of the fact that whether a notice has been served. Hence in my judgment, laches is not the only governing principle relating to the loss of right of renewal. Instead, it is a separate consideration. 63.I understand that the circumstances of the present case were quite peculiar. The relationship between the Tong and the sub-lessees was not purely a commercial one, and the latter enjoyed perpetual rights to renew the sub-leases. Subject to the payment of nominal annual rents, the sub-lessees were in substance the "owners" of the land and the structures thereon, and they were free to sell or otherwise dispose of the land. As shown by the expert report prepared by the Applicants, the value of the land is very substantial. However, even taking these factors into account, as the relationship between the parties was governed by a lease with an option to renew, the Tribunal has to give effect to such kind of arrangement. To me, it is still possible for a sub-lessee to lose the right of renewal if he did not respond to the Tong's notice demanding for renewal, otherwise, as I have said, the sub-lessee would have been enjoying a right which is more than an option. 64.However, as conceded by Mr. Chang, the right, though lost, can be revived. Obviously, such right cannot be revived just by the fact that the Tong had not taken out legal proceedings after the notice or the sub-lessees just stayed on in the land. Such conducts, as opposed to payment and receipt of rent, cannot be construed as acts acknowledging the continuing subsistence of landlord and tenant relationship, and therefore something more is required. In the present case, it is quite arguable that the sending of a fresh notice by the Tong every year and the Tong's policy in the period between 1981 to 1989 amount to such acknowledgment on the part of the Tong, and it may be more convenient for me to deal with this argument after I analysis the meaning of the annual notices in the next part of the judgment. (c) Notice for sub-lessees in Schedules C1-C7 and D1 65.Although I accept that a sub-lessee could lose the right of renewal if he failed to respond to the Tong's notice, I do not find that the notices in the present case were clear enough to deprive the sub-lessees of such right. In this regard, I will deal with the notices for Schedules C1-C7 and D1 cases first. 66.According to the undisputed facts of the present case, the Tong's policy relating to the renewal of sub-leases was rather relaxed prior to 1981. Sub-lessees could pay rents and renew their sub-leases any time they liked without the need to worry about the consequences. However, the Applicants now say that the sub-lessees had failed to respond to the Tong's notices sent to them annually in the period from 1977 to 1989 ("the Annual Notices"), and so these sub-lessees had lost the rights of renewal. 67.In my judgment, if the Tong wished to depart from the previous practice and sought to take away the sub-lessees' rights of renewal, the notice had to fulfill the following requirements:
To borrow the words of Lord Romilly in Hersey v Giblett, the notice must be clear to the effect that "if you do not exercise your option, the tenancy will be at an end" (supra at p.177). Indeed, it is a basic legal requirement that for any notice to be legally effective, it must be clear and intelligible. 68.Did the Annual Notices have such effect? In this regard, we need to look at the wordings of the notices. The notices sent out in 1977 were drafted in the following terms:
English translations:
69.It is common ground that these notices were sent to all the sub-lessees in the Island by post or insertion through letter boxes in 1977. After that, notices in similar wordings were sent to all the sub-lessees annually from 1978 to 1981. Starting from 1982, or maybe earlier, the Annual Notices were drafted in slightly different terms:
English translations:
Such notices were sent in the same way to all the sub-lessees up to 1989. 70.Basically, these Annual Notices can be divided into two parts: the first part relates to the time period for the collection of annual rent, and the second part is about the renewal of sub-leases. As I see it, the first part of the Annual Notice merely set out the period within which rent would be received for that year. Notwithstanding the statement that there would be no extension of the period, it did not say that rent due but not paid in any particular year could not be paid in the following or indeed any subsequent year. Nor did the Annual Notice set out the consequence for non-payment of rent. Further, there was no demand for renewal of sub-leases in this part of the Annual Notice. 71.I now turn to the second part. Although the last sentence contained a reminder of the possible consequence of non-renewal, it did not tell the readers in clear and unequivocal terms that non-compliance would be treated by the Tong as abandonment of the right to renew. Further, the words "loss to property title/right" may refer to things other than loss of the right of renewal, for example, difficulty in proving ownership or delay in selling the property. 72.Obviously, the meaning of the Annual Notice needs to be interpreted against the background of the case. As I have mentioned above, there had been great laxity and informality with regard to payments of rent and renewals prior to 1981, and the sub-lessees considered that they could renew the sub-leases any time they liked. In such circumstances, how could a sub-lessee reading the second part of the Annual Notice expect that he would lose the right of exercising the option, or to him the land itself, if he did not renew on time? On proper reading, the words used in the second part of the Annual Notice can at most be described as "good advice" or "reminders". Indeed, Mr. Wong Kang Ying (AW1) used the latter term to describe the contents of the Annual Notice in his oral testimony. This is important. After so many years of informal arrangement, if the contents of the Annual Notice were not clear to the effect that the sub-lessees would lose their rights after failing to respond, they might not appreciate the significance of such Notice. In such circumstances, such kind of Notice should not be given the effect of putting a sub-lessee to election between exercising the option and abandoning it, nor such notice had the effect of depriving the sub-lessees of the rights of renewal. 73.Furthermore, there is evidence that the Tong had been sending out notices since 1965. Although we do not know the exact terms of the notices prior to 1977, one can safely assume that these notices had something to do with the payment of rent, or possibly renewals, otherwise there would have been no point in sending out any notices at all. However, despite the long history of sending out notices, the Tong had adopted an informal system for renewing sub-leases. In such circumstances, even if the words used in the Annual Notice amount to a proper demand for exercise of option, which I do not accept, the effect of such Notice had been tuned down by the continuing relaxed policy of the Tong relating to renewals at least up to 1989. Hence, if the Tong was seeking to take away the sub-lessees' rights, in particular the land concerned was so valuable, the Tong should have used much stronger wordings in the Annual Notices. 74.In the case of Hersey v Giblett, Lord Romilly did not treat certain conversation between the parties there to amount to an insisting that the plaintiff should exercise his option. In the words of the learned judge (supra, at p. 178):
In my judgment, the words used in the Annual Notices had the same effect. 75.Assuming that I am wrong and that the Annual Notices amount to repeated demands to the sub-lessees to exercise the options, there is still another reason why I say that the sub-lessees had not lost the rights of renewal. It is common ground that these notices were not addressed to particular addressees. Instead, they were addressed to all the sub-lessees, with no differentiation made between sub-lessees whose sub-leases were current and those whose sub-leases were not, and the Tong adopted the practice of sending out these notices annually. 76.This way of distributing notices may pose certain problems for the Tong. If the Annual Notices had the effect as alleged by the Applicants, the Tong's practice of sending out a fresh notice every year was by itself an affirmation by the Tong of the continuing subsistence of the option and the landlord and tenant relationship. As in the case of a demand for exercise of an option, such demand must have been made on the premises that such right still subsisted, otherwise there was nothing for the sub-lessees to exercise upon. To me, such conduct would have the same effect as the receipt of rent after the lapse of a tenant's right of renewal. By such conduct, the Tong was affirming the continuing subsistence of the landlord and tenant relationship, and so the sub-lessees should not be regarded as having lost their rights of renewal at least up to 1989, which was the last year for the issuance of Annual Notices. 77.Indeed, the Tong's acknowledgment about the subsistence of the right was also clear from the Tong's policy relating to the renewal of broken sub-leases in the period from 1981 to 1989. During that time, despite the Annual Notices sent to the sub-lessees, the latter could still renew the broken sub-leases without any penalty apart from the payment of the renewal fees. According to the evidence of Mr. Wong Kang Ying's (AW1's), it was only after 1989 that the Tong adopted a stance or policy of requiring such sub-lessees to negotiate with the Tong on further renewals. In such circumstances, as the Tong was not treating the Annual Notices as having the effect as alleged by them, such Notices should not have had the effect of terminating the sub-lessees' rights of renewal. The Tong's affirmation of the continuing subsistence of the sub-leases can also be seen from the Tong's demands for payment of rent made in 1990 and 1991 (pp. 184 and 185 of Bundle E). 78.In his witness statement, Mr. Wong Kang Ying (AW1) did mention that, prior to the commencement of the High Court Action, "the Tong decided to forfeit the sub-lease upon failure to renew on time, usually 3 to 5 months after 7th November of the renewal year". However, I do have grave reservation about this allegation. Firstly, it is contrary to the stance of the Tong relating to renewal of broken sub-leases in the period from 1981 to 1989 as mentioned in the last paragraph. Secondly, there is no documentary evidence to support such allegation. As I see it, if that was the position adopted by the Tong by that time, there should have been some documents such as correspondence and minutes to record the stance of the Tong, and I therefore find it strange that the Tong cannot produce any documentary evidence to substantiate such allegation. I therefore reject Mr. Wong's evidence in this regard. 79.By reason of the aforesaid, the sub-lessees had not lost the rights of renewal at least up to 1989. In that year, the Executive Committee decided that broken sub-leases, such as those in Schedules C1-C7 and D1, could only be renewed on terms. Further, it was resolved that rent would not be accepted for cases involving broken sub-leases and late payment of rents. In particular, Mr. Wong Wan Leung (AW3) was specifically tasked to put his signatures on the "yellow cards" to remind rent collectors not to receive rent in such cases. As I have mentioned above, sub-lessees in these schedules should not be regarded as having lost their rights of renewal, and so the Tong was not justified in imposing conditions for them to renew their sub-leases. In such circumstances, the sub-lessees in these schedules should be excused for their inaction after 1989, and their rights of renewal still subsisted at the operative date of the Cheung Chau Ordinance in 1995. 80.In his submission, Mr. Chang also seeks to rely on a notice known as Notice 1 published together with the Consent Order Notice on 28 October 1991. However, I am of the view that such notice does not advance the Applicants' case any further. Firstly, it was published in 1991 after the Tong had decided to impose penalty for the renewal of sub-leases in Schedules C1-C7 and D1 cases. Secondly, such notice was not served on the sub-lessees individually. Thirdly, such notice was posted up together with the Consent Order Notice, which was described as Notice 2, and in such circumstances, sub-lessees reading the two notices together side by side might genuinely believe that Notice 1 did not concern them. I should perhaps elaborate on these points when I later deal with the notices for Schedule E2A cases. 81.In his final submission, Mr. Chang seems to abandon his earlier argument of relying on the notices, advertisements and renewal application forms published in 1994 and 1995 (pp. 200-204 of Bundle E) in support for the loss of rights of renewal in Schedule C1-C7 and D1 cases. In any event, the Applicants' case cannot benefit from these notices. Apart from the fact that the words used in such notices or publications did not amount to proper demands for exercise of options and the Tong sought to impose unjustified conditions for renewals in the same, I am further of the view that the sub-lessees were quite justified in not responding at that particular stage. As the bill for the Cheung Chau Ordinance was going to be passed in the near future, it was quite reasonable for such sub-lessees to adopt a "wait-and-see" altitude pending the enactment of the new Ordinance. Hence, based on all the aforesaid analysis, I do not find that the sub-lessees in Schedules C1-C7 and D1 had, but for the Cheung Chau Ordinance, lost their rights of renewal. (d) Notice for sub-lessees in Schedule E2A and the High Court Action 82.For the Schedule E2A cases, the Applicants mainly rely on the Consent Order Notice which called upon the renewals of sub-leases before 1 April 1992. As the sub-lessees in such schedule fell within the third category of qualified sub-lessees, they should have renewed their sub-leases before the specified date. 83.The effect of the Consent Order Notice must be considered in the light of the history of the High Court Action. According to Mr. Wong Kang Ying (AW1), the circumstances surrounding the progress of the High Court Action in 1990 and 1991 were in fact quite chaotic. He mentioned that "other than the few so called plaintiffs, ... a great portion of the people didn't know what was going on". He also described that certain sub-lessees were unhappy about the handling of the litigation by the representatives of the CCRC, and this apparently persisted throughout the proceedings. Mr. Wong also testified that some sub-lessees had actually demanded their money back and wanted to back out from the litigation. There was even a commotion and "a lot of people questioned what was going on with the High Court case, particularly when they [had] banquets to [raise] money again". 84.Unlike the previous practice relating to the Annual Notices, the Consent Order Notice was not served individually on any of the sub-lessees. Instead, copies of such notice were only advertised in newspapers and posted up in various locations in the Island. In such circumstances, was the Consent Order Notice properly served on all the sub-lessees in Schedule E2A? 85.In my judgment, the answer must be no. The Applicants try to argue that the publication of the Consent Order Notice in the aforesaid manner was sufficient notification, otherwise solicitors acting for the plaintiffs in the High Court Action, T. C. Foo, would not have agreed to this arrangement. However, what T. C. Foo had actually agreed is quite irrelevant. Supposedly a landlord intends to serve a notice on the tenant, he must serve it on the latter either personally, by post or through insertion in letter box. The notice must be addressed to that particular tenant. If the tenant then does not read the notice, he has to take consequence. What the landlord cannot do is just to post up the notice in a prominent place near the premises or advertising it in newspapers, hoping that the tenant can read the notice himself. 86.Indeed, the notification of the Consent Order Notice represents a significant departure from the mode of service of Annual Notices in the past. In such circumstances, a sub-lessee, even if he had seen the former notice, was quite entitled to assume that if the notice affected them and was meant to affect them, they would receive a notice in due course as they had in the past. This is particularly crucial as a lot of the sub-lessees in the Island were illiterate. Hence, as the Consent Order Notice was not properly served on the sub-lessees, I do not find that those sub-lessees who failed to respond to such notice had lost their rights of renewal. 87.Despite the lack of proper service, the Applicants seek to rely on the following evidence to show that all the sub-lessees in Schedule E2A must have had knowledge of the Consent Order Notice:
88.However, in my judgment, the evidence above at most shows that the Consent Order Notice had been widely publicized in the Island and a lot of the sub-lessees did know about its contents, it does not in any way prove that all the sub-lessees in the relevant schedules had had knowledge about the same. As I have mentioned above, the circumstances surrounding the progress of the High Court Action were quite chaotic by that time, and so it was quite possible that some of the sub-lessees did not know what had happened in such action, or that the action was in any way related to them. Indeed, if they had had such knowledge, one would certainly query why they did not respond to the Consent Order Notice and renewed their sub-leases unconditionally. The stake was so high, and I cannot think of any sensible reason why these sub-lessees, with clear knowledge, would have done nothing at all. Hence, I do not accept that the Tribunal can infer that these sub-lessees must have had knowledge about the Consent Order Notice. 89.The aforesaid reasoning is sufficient for this Tribunal to hold that the sub-lessees in Schedule E2A had not lost their rights of renewal. But apart from that, there are other reasons. Firstly, the wordings of the actual notices are far from satisfactory. As shown in pages 196 and 197 of Bundle E, the Consent Order Notice, which was described as Notice 2, was posted up together side by side with another notice known as Notice 1. Whilst Notice 2 was drafted in more or less identical terms with the Consent Order Notice, Notice 1 was drafted differently:
English translation:
90.According to the evidence of Mr. Wong Kang Ying (AW1), it would seem that both notices were meant to be read together, and he described Notice 1 as prescribing the "follow-up actions". As I see it, such form of presentation might create confusion in the mind of the sub-lessees. Firstly, the preamble in Notice 1 expressly referred to the proceedings and the settlement between the parties. In such circumstances, it would be quite reasonable for a reader of Notice 1 who was not a party to the proceedings to stop reading from there on and not to proceed to Notice 2. Secondly, it is apparent that while Notice 2 defined the 4 Categories of sub-lessees eligible to have their sub-leases renewed before 1 April 1992, Notice 1 prescribed the procedures for doing so. Such procedures, according to Notice 1, were said to apply to all the sub-lessees. Although the stated purpose of setting out the procedures in Notice 1 was to enable all the sub-lessees to understand the renewal procedures with a view to avoid unnecessary dispute in the future, paragraph 1 of Notice went on to provide that renewals of sub-leases would thenceforth only be processed by the Tong within a reasonable time before the expiry of the term. When the sub-leases made no provision for the time within which the options had to be exercised, the attempt to impose such limitation was certainly unlawful. 91.As I have mentioned above, the Applicants do attempt to rely on Notice 1 as a demand to the sub-lessees in Schedules C1-C7 and D1 to exercise the options. However, for these sub-lessees reading the Notice, they would probably have given up any attempt to understand the details of the Notice, for they would have been led to think that they would be excluded from the operation of the procedures laid down for renewals. For the sub-lessees in the 4 Categories, they received special treatment because they did not have to follow the procedures in Notice 1 in renewing the sub-leases before the expiry of the term. However, such distinction was not apparent from the way that both notices were published. Sub-lessees qualified under the 4 Categories might genuinely believe that they had to follow the procedures set out in Notice 1 for renewals. 92.In short, the objection with the Consent Order Notice (Notice 2) was that it was placed together with Notice 1. Notice 2 related to the renewals for sub-leases under the 4 Categories, and Notice 1 was about the renewals for other cases or future renewals. However, such distinction was not made clear by the wordings of the notices. It bound to create confusion in the mind of the sub-lessees, and in such circumstances, the Consent Order Notice should not be given the effect of depriving the sub-lessees of their rights of renewal. 93.There is perhaps one more point that I would like to make in respect of the Consent Order Notice. Instead of the sub-lessee receiving a simple demand addressing to him, as it would normally be the case for an ordinary commercial tenancy, Notice 2 was purportedly addressed to all the sub-lessees. In such circumstances, it put the burden on the individual sub-lessees to find out whether they fell within the 4 Categories or not. As it has been demonstrated in the course of the trial, it was not an easy task even for the Tong itself to know whether a particular sub-lessee was qualified under the 4 Categories. Such task became more difficult for sub-lessees who were illiterate and uneducated, in particular the terms of the Consent Order Notice were drafted in legal rather than simple language. 94.In P. Phipps & Co. v Rogers [1925] 1 KB 14, a notice requiring the lessee to quit and deliver up "on the earliest day your tenancy can legally be determined by valid notice to quit given at the date of service hereof" was struck down on the ground that the lessor was not entitled to so draft his notice as to place the burden upon the lessee of solving difficult questions of law as to the earliest date when the tenancy could legally be determined and also as to whether the notice to quit was a valid one. Although the wording of the notice in the present case was clearer, it nevertheless placed the burden on the sub-lessees, some of them were illiterate and uneducated, to find out whether they were so qualified. As the sub-lessees might lose their valuable land, why could they not entitle to a simple demand for the exercise of the option just like any other commercial tenancies? Hence, unless the terms of the notice were absolutely clear, which I do not find it to be the case, such kind of notice should not be given the effect as alleged by the Applicants. 95.Mr. Chang then seeks to ask this Tribunal to hold that the sub-lessees in Schedule E2A, in particular the 3 sub-lessees included in the Annexure of the Statement of Claim of the High Court Action ("the Annexure"), were bound by the terms of the Consent Order Notice. As the High Court Action was first commenced as a representative action, Mr. Chang argues that either these sub-lessees were parties to the proceedings, or that such action had been commenced with their consent or authority. As such, they should be bound by the terms of the order made in the proceedings. To deal with this argument, we may have to revisit the history of the High Court Action and to examine the nature of a representative action. 96.According to the pleadings, the High Court Action was first commenced as a representative action, with 7 named-plaintiffs each representing the interests of different groups of sub-lessees in the Island. In the first day of the hearing before Liu J. on 14 October 1991, the learned judge granted leave to the plaintiffs to amend the Statement of Claim with the effect that, inter alia, the action ceased to be a representative action. None of the sub-lessees in Schedule E2A was named as a plaintiff in the High Court Action. 97.Obviously, the sub-lessees in Schedule E2A, including the 3 sub-lessees in the Annexure, were not parties to the proceedings. However, can it be said that, by reason of the fact that the High Court Action was a representative action, such action must have been commenced with the consent or authority of these sub-lessees, and as a result they should be bound by the order made in the proceedings? 98.In my judgment, the answer must be no. Firstly, there is nothing in the Rules of the High Court, Cap. 4, or the Rules of the Supreme Court at the time of the High Court Action, that requires persons who are to be represented in a representative action to give consent or authority before the commencement of such kind of action. This particular point has indeed been considered by the court before. In the case of In the Matter of the Pentecostal Mission, Hong Kong and Kowloon [1962] HKLR 171, Blair-Kerr J. quoted with approval a passage of the judgment by Fletcher Moulton LJ in Markt & Co. Ltd. v. Knight Steamship Co. Ltd. (1910) 2 KBD 1021:
99.Based on the aforesaid, there is simply no basis for this Tribunal to say that the High Court Action must have been commenced with the consent or authority of any of the sub-lessees in Schedule E2A. Indeed, the facts of the case seem to suggest the contrary. Prior to the commencement of the High Court Action, T. C. Foo, purported to represent all the sub-lessees in the Island, made a tender of $50,000 as payment of all the outstanding rents for the sub-leases in the Island. However, when T. C. Foo was demanded by the Tong's solicitors to provide proof about their authority, T. C. Foo only managed to supply the signatures of about 130 sub-lessees. Coupled with the chaotic circumstances surrounding the progress of the High Court Action as mentioned above, T. C. Foo probably did not have the authority to represent all the sub-lessees in the Island. Hence, in the absence of any express consent or authority, it is not justified for this Tribunal to hold that all the sub-lessees in Schedule E2A were bound by the terms of the order made in the proceedings. In any event, the High Court Action ceased to be a representative action after 14 October 1991, and so the sub-lessees should not be bound by the Consent Order which was made after such date. 100.Despite the aforesaid, Mr. Chang submits that at least the 3 Schedule E2A sub-lessees who appeared in the Annexure must be bound by the terms of the Consent Order. Although these 3 sub-lessees technically were not parties to the High Court Action, such action, says Mr. Chang, must have been commenced with their authority or consent, and hence they should be bound by the terms of the order made in the proceedings. In order to determine whether this is a valid argument, one may need look at the pleading itself and to examine the purpose of listing out such sub-lessees in the Annexure. 101.In paragraph 17 of the Re-Amended Statement of Claim filed in the High Court Action, the plaintiffs pleaded that the Tong was wrong in demanding certain payments from the sub-lessees for renewals, and many of the Tong's sub-lessees or sub-lessees by assignment had since the expiry of their sub-leases continued to occupy the land with the knowledge and consent of the Tong. Particulars of these sub-lessees were then supplied in the Annexure. The question to be asked is therefore: Based on such pleading, can the Tribunal say that the High Court Action must have been commenced with the consent or authority of these 3 sub-lessees, such that they were bound by the terms of the Consent Order? 102.In my judgment, the Tribunal cannot make such inference. As these 3 sub-lessees were not named as the plaintiffs of the High Court Action, they were not parties to the proceedings. Indeed, the circumstances surrounding the progress of the High Court Action were quite chaotic by that time, and a lot of the residents might not know what had happened in the proceedings. The particulars pleaded in paragraph 17 might have been obtained by T. C. Foo from other sources such as land registration records without approaching these 3 sub-lessees. Even if the solicitors had approached them, the latter might have rendered assistance to the plaintiffs not as parties to the proceedings but as witnesses. In such circumstances, there is simply no reason to treat these 3 sub-lessees as if they were parties to the proceedings. Hence, in the absence of any evidence that they had given authority or consent for the commencement of the High Court Action, they should not be bound by the order made in the proceedings. As I have mentioned above, if these 3 sub-lessees actually gave their authority for the commencement of the action on their behalf and they knew about the Consent Order Notice, I cannot think of any sensible reasons why they did not renew their sub-leases unconditionally in the first place. 103.In his submission, Mr. Chang relies on the case of R v IRD and Anor. ex parte T. C. Coombs & Co. [1991] 2 AC 283 and argues that, as the Respondent does not attempt to call the relevant sub-lessees or the staffs of T. C. Foo to testify in the trial, the Tribunal is entitled to infer that the High Court Action must have been commenced with the consent or authority of the sub-lessees in Schedule E2A. That case involved an application for judicial review against a statutory notice issued by the Inland Revenue, and there was an issue as to whether the evidence adduced by the Revenue was sufficient. To deal with such issue, Lord Lowry said the following in page 300 of the judgment:
104.However, as qualified by Lord Lowry, the proposition established in the Coombs case is only applicable if there are "matters which are, or are likely to be, within the knowledge of the silent party and about which that party could be expected to give evidence". In the present case, the situation facing the Respondent was very different. Firstly, both sides were free to call these persons to testify in the trial. Secondly, as the Respondent's stance on the issue of the applicability of ss. 4(1) and 5(1) of the Cheung Chau Ordinance might be contrary to the interests of these sub-lessees, there was simply no incentive for these persons to help the Respondent or to reveal their evidence to the Respondent prior to the trial. Thirdly, details of the instructions given by the CCRC during the conduct of the High Court Action were subject to legal professional privilege, and so the staffs of T C. Foo might properly refuse to render any assistance to the Respondent. As the latter did not have any control over these matters, one should not draw any adverse inference against it by reason of the lack of evidence in this regard. The burden remains on the Applicants to prove that all the relevant sub-lessees had had knowledge about the Consent Order Notice or they had given consent or authority for the commencement of the High Court Action on their behalf. As there is no such evidence in the present case, I do not accept that these sub-lessees were bound by the terms of the Consent Order Notice, and their failure to renew after such notice should not result in their loss of the rights of renewal. (v) The effect of the non-payment of Annual Rent 105.Before I leave the topic of the rights of renewal, there is one more point that I would like to make. In paragraph 11 of the Statement of Particulars, the Applicants plead that it was an implied term of each of the sub-leases that the right to renew was conditional upon the respective sub-lessee's compliance with all the covenants of the sub-lease. As the sub-lessees in Schedules C1-C7, D1 and E2A had not paid any rent to the Tong after 1988, they were in breach of the covenants in the sub-leases and therefore had lost their rights of renewal. 106.Although this argument had been raised briefly in the Applicants' opening submission, it was not further developed in Mr. Chang's final submission. In any event, I do not accept it to be a valid argument. Firstly, there is simply no basis for the Tribunal to imply such a term in the sub-leases. Secondly, there is nothing in the authorities to suggest that the subsistence of the right to renew would depend on the lessee's compliance with all the covenants of the lease. Thirdly, it is settled law that not every default by a lessee would disentitle him from seeking specific performance of his option to renew, whether the default was committed before or after the expiry of the old lease. In Hare v Burges (1857) 4 K & J 45 (confirmed on appeal (1857) 5 WR 585) and Gourlay v the Duke of Somerset (1812) 1 V & B 68, it was decided that in the case of a breach of covenant, specific performance will not be refused where relief would have been granted had proceedings been brought to forfeit the lease. Based on the facts of the present case, even assuming that there was a forfeiture clause for non-payment of rent in the sub-leases and there had been proper demands for payment of rent, of which I have great reservation, I have no doubt in my mind that in the case of a forfeiture of a sub-lease by the Tong on the ground of non-payment of annual rent, the court would certainly grant relief against forfeiture in favour of the sub-lessee (see: Hare v Elms [1893] 1 QB 604, Megarry's Law of Real Property, 6 ed. at 14-136 to 14-141, s. 21F of the High Court Ordinance Cap. 4 and s. 69 of the District Court Ordinance Cap. 336). In such circumstances, the sub-lessee is still entitled to ask the court to enforce the option to renew. Fourthly, a perpetual option to renew cannot be made subject to a condition precedent. It is settled law that the Rule against Perpetuities has no application to options to renew, even if perpetual. However, if the right to renew at the end of every 5 years which is otherwise perpetual is made subject to a condition precedent that the lessee should have duly observed or performed all the covenants in the lease during the 5 years' term which has just expired, it will be a contingent interest void for perpetuity. Fifthly, s. 58 of the Conveyancing and Property Ordinance requires the service of a notice prior to any action for re-entry. As no such notice was served in the present case, no question of re-entry could possibly arise. Hence in my judgment, non-payment of annual rent does not have the effect of depriving the sub-lessees of the rights to enforce the options to renew. 107.Based on the aforesaid, I do not find that the sub-lessees in Schedules C1-C7, D1 and E2A had, but for the Cheung Chau Ordinance, lost the rights of renewal, and the answer of Issue 1 is therefore: "No". Issue 2: Application of sections 4(1) and 5(1) of the Cheung Chau Ordinance 108.Issue 2 has been formulated by the parties as follows:
109.It is the Respondent's case that ss. 4(1) and 5(1) of the Cheung Chau Ordinance have no application in the case that the sub-lessee of the land concerned had lost the right of renewal. In such circumstances, the Tong would become the direct lessee of the Government in respect of such land after the commencement of the Cheung Chau Ordinance, and so the Tong has no right to ask for compensation under s. 10(1). 110.In view of my ruling on the first issue that none of the sub-lessees had, but for the Cheung Chau Ordinance, lost the right of renewal, the second issue now becomes academic. However, as this issue has been extensively argued by counsel for both parties in the hearing, I feel obliged to give my ruling on the same. 111.Interestingly, the Respondent actually argued the contrary proposition in the earlier case of Wong Wan Leung v. Secretary for Transport, supra., and it was only after the judgment of that case that the Respondent adopted this argument as a possible defence in this Application. 112.As for the present purpose, the key provisions are ss. 4(1), 5(1) and the definition of "sub-lease" in s. 2. In fact, the meaning of these sections have already been dealt with by the Court of Final Appeal in the Wong Wan Leung case. In that case, the court was asked to determine whether the Tong was entitled to the compensation for a lot of land resumed under the Roads (Work, Use and Compensation) Ordinance, Cap. 370. The sub-lease of the land was first granted to the managers of a tong known as "Cheung Chau Kai Fong". In 1993, the Tong sought to forfeit the sub-lease by legal proceedings in the High Court against the sole manager of Cheung Chau Kai Fong, who opposed the proceedings. In January 1997, the sole manager died and his solicitors ceased to act. No new manager was appointed in his place. The Tong then obtained an order in July 1997 for the action to continue in a fictitious name. In June 1997, part of that lot was resumed by the Government pursuant to the said Ordinance, and the Tong then lodged a claim in the Lands Tribunal for compensation on the basis that it was the registered owner under the Block Crown Lease. One of the main issues in that case was, therefore, whether the Tong still had such right after the commencement of the Cheung Chau Ordinance in 1995, and the Lands Tribunal ruled against the Tong on such issue. Such decision was affirmed by the Court of Appeal. 113.In the Court of Final Appeal, the managers of the Tong as the appellants contended that the Cheung Chau Kai Fong could not be treated as party 'entitled under the sub-lease' in terms of s. 4(1) of the Cheung Chau Ordinance on 8 September 1995 (the operative date of the Cheung Chau Ordinance). The writ for possession had been issued, served and registered in the Land Registry prior to the said operative date, and so, by virtue of the doctrine of 'relation back', upon judgment of possession being given, the law would regard the sub-lessee as having no entitlement at that date. On the other hand, the respondent contended that, inter alia, the rights of the parties were governed by the entries in the Land Registry. By reason of the definition of "sub-lease" in s. 2, the Cheung Chau Ordinance operated to vest a direct lease from the Government in the sub-lessee so long as the registration of the relevant sub-lease subsisted on the operative date. 114.The Court of Final Appeal rejected the respondent's contention and allowed the appeal. Litton, NPJ, in delivering the judgment, said that the correct approach for the construction of the provisions of the Cheung Chau Ordinance should be as follows (in p. 265):
In pp. 268-269, His Lordship went go and dealt with the respondent's argument mentioned above:
115.In his submission, Mr. Chang for the Applicants argues that Wong Wan Leung is only a case with respect to forfeiture or at most surrender. The Court of Final Appeal was not addressing the problems peculiar to renewals of tenancy under options to renew. In substance, what Litton NPJ has rejected is only an argument along the following lines: "Look at the statutory definition of sub-lease. It brings within its ambit even sub-leases (registered prior to the commencement of the Cheung Chau Ordinance) which had expired years ago without being renewed. For all we know all the rights of renewal had lapsed yet the Cheung Chau Ordinance in effect says it matters not whether the tenancy was or was not renewed. Does this not show that there was no requirement under s. 4(1) of a subsisting lease so that it also matters not whether a sub-lease had been forfeited or surrendered so long as it had been registered?" 116.The short answer of course, says Mr. Chang, is that it does matter. The only reason why it does not matter for purposes of application of ss. 4(1) and 5(1) whether a sub-lease within the statutory definition had expired through non-renewal, is because the Cheung Chau Ordinance itself expressly caters for the situation and effectively treats the relevant sub-leases to be still subsisting for purposes of s. 4(1), subject to and as part of the statutory scheme whereby the Tong's leasehold interest, whether in fact encumbered or not at common law, was terminated in return for rights of compensation. In other words, Mr. Chang argues, it is the Cheung Chau Ordinance which supplied the entitlement under s. 4(1) in relation to sub-leases which, but for the Ordinance, might have ceased to exist through non-renewal along with all the sub-lessees' rights. 117.With respect to Mr. Chang, I do not think that I can adopt such interpretation. Although Wong Wan Leung is a case concerning forfeiture, the reasoning and the construction adopted by Litton NPJ in respect of ss. 2, 4(1) and 5(1) of the Cheung Chau Ordinance, which form part of the ratio decidendi, are directly applicable in the present case. In other words, the court still needs to address the issue of "entitlement" in deciding whether s. 4(1) is applicable, and "the statutory definition of 'sub-lease' [in s. 2] cannot invert the meaning of s. 4(1), as if entitlement in the section meant 'whether entitled or not'". Indeed, on the question of "entitlement", no meaningful distinction can be maintained between forfeiture and surrender on the one hand, and the lost of the right to renew on the other. In either case, the sub-lessee was not entitled to hold the land under the sub-lease, and it would be quite artificial to draw a line between them. Hence, I consider myself bound to apply the construction of Litton NPJ in respect of the relevant sections of the Cheung Chau Ordinance. 118.One may perhaps ask the question: what is the meaning or the significance of words "whether renewed or not" in the definition of "sub-lease" in s. 2? In my judgment, such words refer only to the question of whether as a matter of fact there was formal renewal by the execution of documents. Indeed, whether or not there had been such formal renewal at law is an entirely separate question from whether or not a sub-lessee is entitled in equity to specific performance of his option to renew. A sub-lessee who had not formally renewed his sub-lease may, nevertheless, be entitled to hold the land so long as his option to renew had not been lost. Conversely, a sub-lessee who had lost his option would not be entitled. Hence, "whether renewed or not" would not be crucial in determining the question of entitlement in s. 4(1), and what is material is whether the sub-lessees are entitled to the sub-leases and whether the rights to renew had been lost. As such, the words "whether renewed or not" do not have the effect as contended for by the Applicants of deeming the continuance of all the sub-leases. 119.Mr. Chang also tries to seek support for his argument from the wording of s. 5(1)(b) of the Cheung Chau Ordinance. According to such provision, all sub-leases, as from the commencement of the Cheung Chau Ordinance, "are deemed extended, from the date on which each sub-lease would, apart from this Ordinance, expire, until the expiry of 30 June 2047, without payment of any additional premium". Such wording, Mr. Chang argues, seems to suggest that the Cheung Chau Ordinance does have the effect of deeming the continuance of the all the sub-leases which would otherwise have expired by virtue of non-renewal. 120.However, in my judgment, s. 5(1) can only be referring to those sub-leases in respect of which there were subsisting current terms as of the commencement date of the Cheung Chau Ordinance but which were going to expire after that date, and the words "all sub-leases are extended" cannot have the effect of reinstating those sub-leases which had not been renewed and in respect of which the right to renew had already been lost prior to the commencement date of the Cheung Chau Ordinance. Indeed, the language of s. 5(1)(b) seems to have been borrowed from s. 6 of the New Territories Leases (Extension) Ordinance, and so the former provision should not be given such a wide implication as contended for by the Applicants. 121.Further, the provisions for extending sub-leases in s.5 of the Cheung Chau Ordinance only apply to those sub-leases in respect of which there were subsisting current terms as at the commencement date of the Ordinance is also made clear by the wording of s. 5(2), which refers to "As from the date immediately after the expiry of the current term ...". Obviously, the provision for extending special sub-leases in s. 5(2) is the mirror image of the provision for extending the non-special sub-leases in s. 5(1). Hence, I do not find that s. 5(1)(b) does in any way support the Applicants' argument. 122.In his submission, Mr. Chang has also urged the Tribunal to adopt a purposive construction of s. 4(1). The problems which needed to be addressed at the time of the enactment of the Cheung Chau Ordinance, says Mr. Chang, had little to do with the Tong purporting to forfeit sub-leases before their expiry for breach of covenant or with surrenders of sub-leases. The disputes between the Tong and the sub-lessees in the Island were over such matters as rights of renewal, conditions for renewal and the rights of the Tong to ask for payments such as modification premiums. In such circumstances, it is not surprising that the definition of "sub-lease" is worded in such manner. If the Tribunal's construction of s. 4(1) as mentioned above is correct, it would mean that the disputes over renewal rights would continue to exist as between the Tong and the sub-lessees, and the latter still have to face the risk of eviction for not having renewed their sub-leases. 123.This is a rather attractive submission. If the words "whether renewed or not" in s. 2 have the effect of deeming the continuance of all the sub-leases, whether the sub-lessees had lost the rights of renewal or not, this would put an end to all the disputes relating to such issue in the Island. However, such construction would also mean that the public revenue would have to pay compensation to the Tong to bail out the sub-lessees. I am not certain whether this was the real intention of the legislature. As Mr. Tang has put it, the purpose of the Cheung Chau Ordinance may well only be to avoid the inconvenience of requiring sub-lessees to make further renewals in the future, rather than to confer an interest on the sub-lessees who had already lost the rights of renewal. In any event, and in the absence of further materials, it is not for me to speculate the real purpose of the Cheung Chau Ordinance, and so in such circumstances, there is little room for the application of the alleged purposive construction in the present case. 124.Further, I also have the opportunity to look at some of the letters written by certain Government officials prior to the enactment of the Cheung Chau Ordinance contained in Bundle J. In these letters, the officials briefly mentioned that according to the provisions of the Government bill, which was different from the private member's bill which was later passed as the Cheung Chau Ordinance, all the sub-leases registered in the Land Registry at the commencement date of the legislation should be deemed to be renewed, and that was the sole criteria determining the question of the deemed continuance of the sub-leases. If that was the alleged intention of the Government or its officials, that had been expressly rejected by the Court of Final Appeal in the Wong Wan Leung case. Their Lordships were of the view that entitlement, and not registration of the sub-leases, is the main factor in determining the applicability of s. 4(1) of the Cheung Chau Ordinance. 125.Based on the aforesaid, I answer Issue 2 as follows:
Issue 3: Terms implied by Form E 126.Issue 3 is formulated as follows:
127.Since the beginning of the last century, certain leases in the New Territories were subject to the inclusion of implied terms provided for by statutes. Under s. 40 of the New Territories Ordinance, No. 34 of 1910, leases made in the form known as Form E were subject to certain implied terms including, inter alia,: (i) the duty on the part of the lessee to pay "all rates, taxes and assessments payable"; and (ii) the right on the part of the lessor to re-enter the premises 21 days after the default of payment of rent. The said Ordinance was repealed in 1964 and replaced by the New Territories Ordinance (1964 ed.) ("the 1964 Ordinance"), with the implied terms more or less the same as provided for in s. 28 of the 1964 Ordinance. On 1 November 1984, the 1964 Ordinance was repealed by the Conveyancing and Property Ordinance, Cap. 219, and since then, there has been no more Form E or statutory implied terms. 128.I am given to understand that the Applicants are seeking to rely on the said two implied terms in the 1964 Ordinance in the second part of the trial. With a right of forfeiture implied in the sub-leases, the Tong would have been in a much stronger position to negotiate with the sub-lessees for various payments in the case of the latter's default of payment of rent, and hence the parties require the Tribunal to determine this issue in the first part of the trial. 129.In this regard, we need to look at what happened in a meeting held in January 1985 ("the 1985 Meeting"), which was arranged by the District Lands Office, Island to discuss the new form of sub-leases to be used after the repeal of the 1964 Ordinance. According to the minutes of the 1985 Meeting included in pages 6-8 of Bundle J, the managers of the Tong and the chairman and vice-chairman of the CCRC did attend the meeting. 130.I have no reason to doubt the accuracy of the minutes of the 1985 Meeting. The relevant part of the minutes is listed out as follows:
131.One thing is clear from the minutes. The Tong's and the CCRC's representatives had agreed, after some discussion, to omit the reference to Form E and s. 28 in the new sub-leases. It was a deliberate decision on their parts. In such circumstances, it is very difficult for the Applicants to maintain the argument that the former provisions were still implied in the new standard sub-leases. 132.In his submission, Mr. Chang relies on the case of Suen Sun Yau v Wong Wai Kwan & Anr. [1988] 2 HKLR 71, in which Rhind J. held that after 1984, the same covenants under the 1964 Ordinance would be implied in any renewal of the sub-lease, since the renewal was to be on the same terms as the last 5 years' sub-lease. However, in my judgment, a distinction has to be drawn between the following two cases:
133.In the case of the former, the Respondent concedes that s. 28 had effect. As there was no execution of any new sub-lease after 1984, the equitable interest held by the sub-lessee would entitle him to no more than what he would have been able to obtain by specific performance of his option to renew. Thus, if an option to renew provides for renewal on the same terms as the old pre-1984 sub-lease, the equitable estate for the renewed term vested in the sub-lessee would always be subject to the same terms as those contained in the old lease. Suen Sun Yau was exactly a case of this nature. 134.However, the position is not the same with regard to a sub-lessee who has executed a new lease after 1984. Even though an option to renew may provide for renewal on the same terms as the old lease, it does not necessarily follow that the parties would not enter into a new lease upon different terms. The covenants implied into the old lease by force of statute could no longer take effect as the new lease was executed after the repeal of s. 28 in 1984, and so the only question is, therefore, whether or not on the evidence it was the common intention of the parties that the covenants should be implied into the new lease. As I have mentioned above, the Tong's and the CCRC's representatives deliberately omitted the reference to the implied terms after considerable discussion. That being the case, there is no room for this Tribunal to incorporate the former implied terms into the new standard sub-leases executed after 1984. 135.In his submission, Mr. Chang argues that adopting the new standard sub-leases was only a convenient "shorthand" way of doing thing. In fact, the discussion in the 1985 Meeting only related to the "form" and not the "substance" of the new sub-leases, and there was no indication that the Tong intended to give up any of its former rights under the old sub-leases. Further, when the Government's officials first drafted a sub-lease to replace Form E, they actually sought to incorporate expressly all the terms formerly implied by s. 28. But despite the aforesaid, it was also clear from the minutes that the CCRC's representatives did at one stage raise objection to some former implied terms, and this showed that the discussion in the 1985 Meeting was not just about the "form" but also the "substance" of the new sub-leases. 136.Further, even Mr. Wong Kang Ying (AW1) agreed that omitting the reference to the former implied terms was for the purpose of assisting the sub-lessees to obtain mortgages from the banks. The question then to be asked: why did the banks dislike the implied terms? The simple answer is that they did not want the Tong to enjoy the rights under such terms. In such circumstances, it is not open for the Tong to say that certain "secret implied terms" were incorporated into the sub-leases, and that they were deliberately left unexpressed because the parties knew that the sub-lessees' mortgagee banks would object to the inclusion of such terms. Obviously, an implied term cannot be binding on the sub-lessees without being also binding on their mortgagee banks. Facing with such circumstances, the Tong still agreed, with their eyes open, to the omission of such terms in the new sub-leases. Hence, I do not accept that the former implied terms were still incorporated into the new sub-leases executed after 1984. 137.One may perhaps ask the question: why did the Tong agree to waive its rights under the old sub-leases? However, in ascertaining the intention of the parties in the execution of the new sub-leases, the Tribunal does not just look at the subjective intention of the Tong's representatives, but objectively at the conduct of the parties. In the present case, it is common ground that: (i) the CCRC's representatives did object to the inclusion of the former implied terms; and (ii) after some discussion, the parties deliberately omitted the reference to the former implied terms in the new sub-leases, such conduct would be sufficient for this Tribunal to rule the issue in favour of the Respondent. Further, as seen from paragraph 6 of the minutes, the Tong had not made any attempt to enforce the rights under the former implied terms, and so the right to forfeit the sub-leases was of little practical value to the Tong. In such circumstances, whether such right was included in the new sub-leases was not a matter of grave concern to them, and this might explain why they agreed to the omission of those terms. 138.In the premises, I answer both questions in Issue 3: "No". Issue 4: Right of the Tong to claim for compensation calculated by reference to rent being twice the amount of Government rent 139.It is the Applicants' case that the rights of the Tong to the following payments should be taken into account in assessing the compensation under the Cheung Chau Ordinance:
140.I deal with the Modification Premium first. Prior to the commencement of the Cheung Chau Ordinance, the Tong, as the Crown's direct lessee, had on various occasions received payments from sub-lessees for assisting them to apply to the Government for modifications of the terms of the Crown leases, land exchanges, changes of land use or waivers, and it is the Tong's case that the loss of such payments after the enactment of the Cheung Chau Ordinance should be taken into account in the assessment of compensation. 141.Fortunately, the parties have reached consensus on this issue. According to paragraphs 1 and 2 of the First List of Concessions, the Respondent concedes that the Tong is entitled to be paid compensation for the loss of its right as immediate landlord, and with it the loss of the opportunity and the prospects which the Tong had and would but for the Cheung Chau Ordinance have of using its right to refuse consent in connection with any modification applications, as a means to procure the sub-lessees to pay various sums including Modification Premiums. The Respondent also concedes that, according to such cases in the past, the usual Modification Premium would be an amount equivalent to 20% of any premium payable to the Government. Having reached the above consensus, the parties agree to leave the assessment of the value of the Tong's right in this regard and of its prospects of receiving such payments to the second part of the trial. Hence, Modification Premium is no longer an issue at this stage. 142.However, the rights of the Tong to payments of rent being twice the amount of Government rent and renewal fees remain live issues, and they are dealt with in Issues 4 and 5 respectively. Issue 4 reads as follows:
143.As I have mentioned above, under the Block Crown Lease and the New Grants, the annual rents payable by the Tong to the Government were quite nominal, usually in the amount of $1 or $0.5 for the lots under the Block Crown Lease, or in a sum not exceeding $300, with a few exceptions, for the lots under the New Grants. According to the record complied by the Tong as exhibit A18 (pp. 221 to 251 of Bundle E), the amount of rent stipulated as payable under most of the sub-leases was double the amount of the Crown rent payable by the Tong to the Government. In such circumstances, the Applicants claim that the Tong is always entitled to charge an annual rent the amount of which is double that of the Government rent. 144.This becomes significant after the change of sovereignty in 1997. Under s.6 of the New Territories (Extension) Ordinance, the terms of the leases granted under the Block Crown Lease, and renewed by the New Territories (Renewable Crown Leases) Ordinance, were extended beyond 30 June 1997 until the expiry of 30 June 2047 without payment of any additional premium. The terms of the leases under the New Grants were also similarly extended. Further, s. 6 of the Government Rent (Assessment and Collection) Ordinance, Cap. 515 provides that the new rent payable by the lessees for the said extended terms would be an amount equivalent to 3% of the rateable value from time to time of the land leased. As there was such an increase in the Government rent, the Applicants contend that the amount of annual rent payable under the respective sub-leases after 1 July 1997, but for the Cheung Chau Ordinance, should have been increased correspondingly, and the amount of the annual rent should therefore be 6% of the rateable value of the land concerned. As the Tong is deprived of such additional payments, it is argued that the same should be taken into account in the assessment of compensation. 145.According to the First List of Concessions, the Respondent concedes that, but for the Cheung Chau Ordinance, there was a prospect for the Tong to obtain such an amount of annual rent, whether by negotiation or otherwise, from a sub-lessee if the latter intended to make a modification application, or in the case that the sub-lessee was in default of payment of rent or renewal of sub-leases. Indeed, in most of these cases in the past, the Tong managed to obtain undertakings from the sub-lessees to pay double the amount of Government rent after 1 July 1997. So far as I understand, the parties want this Tribunal to determine, irrespective of the cases above, whether the Tong is nevertheless entitled to ask a sub-lessee to pay annual rent of such an amount. 146.Mr. Chang for the Applicants, quite sensibly, concedes that the actual wording of the standard sub-leases does not support his claim. A standard sub-lease was usually drafted in the following terms:
147.The important thing to note from these terms is that all these sub-leases stipulate for the payment of the annual rent at a fixed sum without reference to the amount of the Crown rent payable by the Tong to the Government under the respective sub-leases, and, as a matter of construction, a covenant to pay a fixed sum as rent cannot be construed as a covenant to pay rent at double the amount of whatever may be the Crown rent payable from time to time. 148.Further, a standard sub-lease also contains a covenant by the sub-lessee "to pay any increase in the Crown Rent" after the date of the sub-lease. The presence of such covenant suggests that the parties did in fact contemplate for any future increase in the Government rent, and the sub-lessees' obligation was only to pay the amount of any increase in the Government rent, and not double the amount of whatever might be the Government rent from time to time. The Applicants' contention is actually contrary to this express term of the standard sub-lease and should not therefore be accepted. 149.Facing with this difficulty relating to the terms of the sub-lease, Mr. Chang seeks to rely on the following to establish the Applicants' claim:
150.However, I do not find that these factors can advance the Applicants' case any further. Firstly, this "understanding" was not stipulated as terms of the sub-leases. As I have mentioned above, such "understanding' was not consistent with the express terms in the sub-leases and should therefore be discarded. Secondly, the Applicants' evidence can, at best, establish an unilateral intention on the part of the Tong to charge rent at double the amount of whatever might be the Government rent payable from time to time. The fact that a sub-lessee had been paying his rent at the fixed amount, which happened to be twice the amount of the Government rent payable at the time of execution of the sub-lease, cannot give rise to any inference that the sub-lessee had intended or agreed to pay rent at double the amount of whatever might be the Government rent payable from time to time. In particular, the amounts of the Crown rents and the annual rents were usually quite nominal. The fact that a sub-lessee agrees to pay $1 now, which is double the amount of the Crown rent of $0.5, is very different from an agreement to pay double whatever the amount of the Government rent in the future. 151.Thirdly, the evidence in fact shows that the Tong's unilateral intention was not shared by the sub-lessees. According to the evidence of Mr. Wong Kang Ying (AW1), as early as 1990, the Tong was trying to persuade sub-lessees in the course of negotiations for renewals to enter into sub-leases with express undertakings to pay rent at the rate of twice the Crown rent up to 30 June 1997 and thereafter at the rate of 6% of rateable value, but this was rejected by the sub-lessees. Further, the sub-lessees also protested the payment of such an amount of annual rent in the Petition to the then Governor dated 30 October 1991, and such protest is also evidenced by the minutes of a meeting on 28 November 1991 attended by certain Government officials and the Tong's representatives and the pleadings in the High Court Action. It was true that the sub-lessees in A43 and Schedule B cases did agree to pay the double rent, but this might due to the fact that they wanted to proceed with the modification applications and they needed the co-operation of the Tong. The fact that these sub-lessees had agreed to pay, probably under pressure, should not lead to the inference that the "understanding" alleged by the Tong existed. 152.Based on the aforesaid, I answer Issue 4 as follows: "Subject to the concessions made by the parties in the two Lists of Concessions, no." Issue 5: Right of the Tong to claim for loss of renewal fees as compensation 153.Issue 5 is formulated as follows:
154.Prior to 1981, the Tong had been renewing sub-leases free of charge. However in that year, the Executive Committee decided that the Tong would charge a renewal fee of $300 for each term of renewal to cover its administrative expenses. According to Mr. Wong Kang Ying (AW1), the renewal fees covered the following work of the Tong:
Apart from indemnifying its costs, the Tong seems to suggest that the fees also covered certain "profit" element. 155.The first sub-issue relates to the propriety of the demand for renewal fees in the period between 1981 and 1989. As the Respondent contends that the Tong was not entitled to demand such sum of money during that period of time, the sub-lessees should then be excused for not renewing their sub-leases. The determination of first sub-issue is only relevant to this extent. As I have already ruled in favour of the Respondent on Issue 1, it is not necessary for me to deal with this sub-issue any further. In any event, I will deal with the question of legal entitlement to such payment in the next sub-issue. 156.As formulated, the second sub-issue deals with the legal entitlement of the Tong to the renewal fees, whilst the third sub-issue relates to the prospects to receive such kind of payment. In support of the claim to legal entitlement, Mr. Chang relies on the case of Poole v Hill (1840) 6 M & W 835. In that case, Lord Abinger C.B. held that in a contract for the sale of land, unless it is stipulated otherwise, the conveyance is to be at the expense of and to be prepared by the purchaser. Mr. Chang further says, according to s. 2 of the Conveyancing and Property Ordinance, the term "assignment" is defined to include a lease, and hence the sub-lessees should likewise be responsible for the payment of all the renewal costs. 157.Mr. Tang for the Respondent accepts that the Tong is entitled to claim for the costs of the conveyance of the renewed lease. However, Mr. Tang argues, the costs of conveyance is to be distinguished from the costs of execution. The rule that the purchaser pays for his conveyance only refers to the costs of drawing up the deed, and it is well-settled that the costs attending the execution, the costs of perusal and the costs of all matters essential to the validity of the deed as a perfect conveyance fall on the vendor (see: Darts on Vendors and Purchasers, 7 ed., p. 714). Applying such principle, the Tong should not be allowed to charge for the work mentioned above. In particular, the sub-lessees could not be required to pay because the Tong's records were not kept properly. In addition, the managers only had to execute the sub-leases before the District Officers by reason of s. 15 of the New Territories Ordinance, Cap. 97. All these expenses cannot be said to have incurred for the benefit of the sub-lessees. 158.Having perused the authority supplied by Mr. Tang, I agree with him that the obligation on the part of the purchaser or lessee to pay for the costs of the conveyance is rather limited. Imagine that this is a private lease made between a landlord and a tenant, one certainly would not expect the tenant to pay for the costs on the part of landlord in keeping his records, nor would the tenant be required to pay for the transportation costs incurred by the landlord in attending a certain place for the execution of the lease. Mr. Chang has referred me to the cases of Fitzsimmons v Lord Mostyn [1904] AC 46 and In re Baylis , a solicitor [1907] 2 Ch 54. However in both of these cases, there were express provisions in the agreements that the lessees had to pay for the costs of the renewal, and the courts there were only asked to determine as to what would amount to reasonable such costs. Hence, these two cases are not applicable in the present case. Indeed, without express provision, the obligation on the part of the sub-lessees was only to pay for the costs of the conveyance of the renewed leases, and not all the costs of the renewal. 159.Based on evidence of Mr. Wong Kang Ying (AW1), the sum of $300 claimed by the Applicants certainly covered some of the items which cannot properly be regarded as costs of the conveyance. Hence, in respect of the question of legal entitlement, I rule that the Tong was entitled to the costs of the conveyance and not all the costs of the renewal, and applying such principle, the sum of $300 was more than the amount that the Tong was entitled to charge. If necessary, the assessment of the proper conveyance costs would be left to the second part of the trial. 160.In reaching the aforesaid conclusion, I do have some sympathy for the Applicants. In most of the cases, the Tong was only receiving nominal annual rents from the sub-lessees, and yet they could not charge the sub-lessees for the modest renewal fees to cover its expenses. However, having said that, the rights and the liabilities of the parties have to be governed by the terms of the sub-leases. In the absence of any express term relating to the costs of the renewal, the Tong is only entitled to claim what it is entitled under the law. I imagine in most cases, the sub-lessees would have had no difficulty in agreeing to pay for such a modest sum of money, but it remains the case that the Tong was, in the absence of agreement, not entitled in law to charge for such fees. 161.The third sub-issue relates to the prospects of the Tong to obtain such payments but for the Cheung Chau Ordinance. The sub-issue refers to cases where the option to renew is not claimed or held to have been lost. In view of my ruling on Issue 1 above, there should be no more cases under such categories. However, as I have mentioned above, there were certainly prospects that the Tong would have been able to secure such modest payments, whether by negotiations or otherwise, from the sub-lessees but for the Cheung Chau Ordinance, in particular in the following three kinds of cases: (i) the sub-lessees were in default of payment of rents or renewal of sub-leases; (ii) the sub-lessees had renewed their sub-leases prior to 8 September 1995 and they had paid renewal fees to the Tong in respect of such renewals; and (iii) the sub-lessees intended to make modification applications to the Government. For these cases, the valuation of the Applicants' loss and the prospects of securing such agreements would be left to the second part of the trial. 162.However, there is one more observation that I would like to make in relation to such claim. After the enactment of the Cheung Chau Ordinance, it would no longer be necessary for the Tong to incur any more expenses in renewing the sub-leases, and so there should be no loss to the Applicants in this regard. However, Mr. Chang for the Applicants relies on the Baylis case and argues that the costs of renewal should cover profit element, and hence, even after the commencement of the Cheung Chau Ordinance, the Tong would still have lost the profit deriving from the payment of the renewal fees. However in my judgment, the obligation on the part of the lessee to pay for the costs of the conveyance, at most, only covers the costs incurred by the landlord. In other words, the landlord is not entitled to obtain any profit from such payments. If the work of preparing the conveyance justifies the engagement of lawyers, the lawyers are then entitled to charge their profit costs as it happened in the Baylis case. To me, the Baylis case is no authority for the proposition that landlord such as the Tong is entitled to obtain profit from the renewals. Hence, as there should be no damages suffered by the Applicants for the loss of the renewal fees, the dispute between the parties on this issue is more apparent than real. 163.Based on the aforesaid, I answer Issue 5 as follows:
Issues 6 and 7: Application of section 12(c) of the Lands Resumption Ordinance 164.Issues 6 and 7 relate to the application of s. 12(c) of the Lands Resumption Ordinance, which reads as follows:
165.Issues 6 and 7 are now formulated as follows:
166.The Applicants say that section 12(c) has no application in the assessment of compensation in the present case, but also if it has, it is ineffective as being contrary to Articles 6 and 105 of the Basic Law. On both issues, the Respondent concedes that the Tribunal is bound to answer the questions in the negative as a result of the Court of Appeal's decision in Yin Sheun Enterprises Ltd. v. Director of Lands CACV 376/2001 and CACV 1636/2001 (the Basic Law argument was not advanced in the case). However, counsel inform me that the said case is going to the Court of Final Appeal with the hearing probably fixed in the end of this year, and so the Respondent reserves its position in the event of an appeal. 167.In the premises, I answer both questions in Issues 6 and 7: "No". Costs 168.That concludes my judgment on the preliminary issues. As it may not be appropriate for me to decide on the issue of costs just after the first part of trial, I make an order nisi that the costs be reserved. The order nisi is to be made absolute after the expiration of 21 days from the date of the handing down of this judgment. 169.Finally, I would like to express my gratitude to the counsel for both parties for their able submissions and the assistance that they have provided to this Tribunal. Despite the confusion that existed at the commencement of the trial, they have put considerable effort in framing the issues that have to be determined in the first part of the trial. Further, numerous sensible concessions were made, without which we may have to spend much longer time in court in resolving various tedious factual issues, and more importantly, the first part of the trial would not have served its intended purpose in finalizing all the principles governing the assessment of compensation. With the preliminary issues now determined, I can only hope that the remaining disputes between the parties can be resolved as soon as possible, and we can put an end to these long-standing disputes arising out of the sub-leases in the Island.
Representation: Mr. Denis Chang, S.C., Ms. Winnie Chan and Ms. Isabella Chu instructed by Messrs. Joseph P. K. Pang & Co. for the Applicants Mr. Robert Tang, S.C., Mr. Ambrose Ho, S.C., and Mr. Michael Yin instructed by the Department of Justice for the Respondent | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
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Further hearings and rulings under LDMR 10/1996