Chan Hung Kay v. Attorney General

HCMP001128/1980

-----------------

Coram: Liu, J. in Chambers.

Date of Judgment: 12th February, 1981.

-----------------

JUDGMENT

-----------------

1. On the 27th July, 1976, the plaintiff took a Crown lease of Peng Chau Lot No. 450 for $60,000. The grant was made subject to a building covenant to be completed some 35 months thereafter on the 30th June, 1979. Prior to the expiration of the time stipulated for the completion of the said building covenant, a year's extension to the 30th June, 1980 was granted by the District Office on a premium of $1,200. The said building covenant was unfulfilled. On the 29th August, 1980, a notice of the registration of a memorial of re-entry by the Crown was published in the Government Gazette.

2. Wilful default was admitted by the plaintiff. It was submitted that this was by no means the worst case of moral culpability which would bar a grant of relief against forfeiture. By an Originating Summons, the plaintiff sought relief against re-entry pursuant to s.8(1)(b)(ii) of the Crown Rights (Re-entry and Vesting Remedies) Ordinance. At the conclusion of these proceedings, the plaintiff's application was dismissed with costs. Thereupon, the parties were informed of the court's intention to give reasons at a later date, which I now do.

3. The general power vested in the High Court to relieve against forfeiture in breaches of contractual bargains can at best be said to be tolerably clear. In Sanders v. Pope⁽¹⁾, Lord Erskine favoured an unfettered jurisdiction to grant relief in all cases including wilful breaches, but in Hill v. Barclay⁽²⁾, Lord Eldon declined to recognize the court's general power to grant relief save for fraud, mistake, accident or surprise. These old doctrines were recently reviewed in Shiloh Spinners Ltd. v. Harding⁽³⁾. Shiloh Spinners was a case of wilful breaches of stipulations as to fencing, support and bricking up of openings. Lord Wilberforce was emphatic that the general power of the court to relieve against men's bargains was not pertinent to the issues for determination. In fact, at p.101d/e, Lord Wilberforce cautioned that no decision in their Lordships' House would involve "the establishment or recognition directly or by implication of any general power - that is to say, apart from the special heads of fraud, accident, mistake or surprise - in courts exercising equitable jurisdiction to relieve against men's bargains." It was concluded "Lord Eldon LC's firm denial of any such power in Hill v. Barclay" did not than "call for any revision or review." The learned law lord read both of these old cases as having in principle accepted that relief from forfeiture might be granted when the covenant was to lay out a sum of money on property."⁽⁴⁾ The "root of disagreement" between the liberal view of Lord Erskine and the strict view of Lord Eldon was said to lie only in "whether equity would relieve against a wilful breach."

4. For relief against a breach of a covenant to invest on property, the learned law lord recognized the undesirability of aiding the defaulting party nave in exceptional cases. At p.103b, Lord Wilberforce continued:

"Established and in my opinion sound principle requires that wilful breaches should not, or at least should only in exceptional cases, be relieved against, if only for the reason that the assignor should not be compelled to remain in a relation of neighbourhood with a person in deliberate breach of his obligations."

Lord Wilberforce expressed reluctance to interfere with the view arrived at by the trial judge on the evidence and held that "a case of clear and wilful breaches of more than one covenant" was not "on established principles one for relief."

5. Lord Pearson and Lord Kilbrandon concurred with the speech delivered by Lord Wilberforce. Viscount Dilhorne was content to refer to the rarity of instances in which wilful breaches were relieved against. Lord Simon also found himself in general agreement, but in a "marginal comment" he was not prepared to set any bounds to the general power of a court in equity. At p.104b, he had this to say:

"The last 100 years have seen many examples of relaxation of the stance of regarding contractual rights and obligations as sacrosanct and exclusive of other considerations: although these examples do not compel equity to follow - certainly not to the extent of overturning established authorities - they do at least invite a more liberal and extensively based attitude on the part of courts which are not bound by those authorities. I would therefore myself hold that equity has an unlimited and unfettered jurisdiction to relieve against contractual forfeitures and penalties. What have sometimes been regarded as fetters to the jurisdiction are, in my view, more properly to be seen as considerations which the court will weigh in deciding how to exercise an unfettered jurisdiction."

6. However, Lord Simon echoed "the undesirability to condone flagrant and contemptuous disregard of obligations."

7. It was evidently not intended in Shiloh Spinners to define the limit of the general power or jurisdiction of a court in equity to relieve against breaches of a man's contractual undertakings. Lord Simon stood out singularly in his staunch support for an "unlimited and unfettered jurisdiction to relieve against contractual forfeitures and penalties." There seemed to be no judicial discord on relief against breaches of the covenant "to lay out a sum of money on property." It was generally accepted that only in rare and exceptional cases should wilful breaches be granted relief. Speeches given in their Lordships' House were so wide-ranging that in the headnotes of the same case reported in the All England Law Reports and the Law Reports, the editors were not ad idem as to what precisely had been decided. In para. 1-1921 at p.858, Woodfall, 28th ed., still advocates "no equitable relief for wilful breach." The 16th ed. of Hill and Redman's Law of Landlord & Tenant in its para. 394 at p.p.379 and 380 remains unswayed by the observations made in their Lordships' House in Shiloh Spinners.

8. In KUNG Wai-ying v. A.G.⁽⁵⁾, the view of Li, J., as endorsed by Leonard, J. at p.429 in the same volume, was that the High Court had jurisdiction to relieve against a wilful breach. Despite the statements in Woodfall and Hill & Redman, Li, J. decidedly applied the true ratio in Shiloh Spinners. The parties to these proceedings readily accepted that I had jurisdiction, and submissions were confined to the exercise of judicial discretion. Within the narrow compass of relief against a breach of covenant to build, I rest content on the conclusions reached by Leonard and Li, JJ., as they then were, and no more need be said.

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

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

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

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

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

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

11. On the 27th July, 1976, the plaintiff obtained a grant of Peng Chau Lot No. 450 with slightly more than 35 months to complete the building covenant. The site is 4,000 square feet, and the plaintiff was permitted to erect only a two-storeyed building not higher than 25 feet above the mean formation level with a coverage of not more than 30% of the site i.e. a maximum built-over area of about 1,300 square feet. Only some 17 months later on the 7th January, 1978, did the plaintiff succeed in submitting through his architect building plans for approval. The plans so submitted balantly exceeded the permitted building height both in footage and tiers. There might have been financial incentive for attempting at such patent excesses which entailed considerable amendments. One amendment was approved on the 15th May, 1978 and another on the 28th September, 1978. It was not until the 26th September, 1978 that the plaintiff's architect invited the District Office to set out the lot. There was no explanation as to why such invitation could not have been made with wore promptitude. Further delay was caused. On the 6th April, 1979, the District Office was understandably inquisitive about the cause for non-completion, and on the 29th May, 1979, the plaintiff's architect assured the authority that tenders had been given out and tenderers were required to complete in 6 months by December, 1979. On the 7th June, 1979, an extension for one year was granted on the premium of $1,200. I was urged to ignore the past conduct of the applicant prior to the grant of the extension for a further year. I could not accede to counsel's request. The past conduct of the plaintiff reflected his indifference and dilatoriness.

12. Again little progress was made, and on the 29th April, 1980, the Senior Estate Surveyor of the District Office demanded an explanation from the plaintiff as to why building works had not commenced. The reply came over two months thereafter on the 9th July, 1980, in which the plaintiff through his solicitors complained of the difficulty to procure a contractor on account of the site location and gave the District Office his assurance that a detailed explanation of the delay would be forthcoming from the architect. The belated reply of the plaintiff's did not satisfy the District Office. There was no further details from the architect. No mention was then made of his alleged financial predicament or unexpected rise in building cost; nor was then any reference made to his alleged distraction by litigation involving his residence. In the light of the plaintiff's past conduct and his then attitude to enquiries made by the District Office, it was only right that public interest should not be further deferred.

13. A house was completed in November, 1977 on a similar site adjoining the plaintiff's Peng Chau Lot No. 450. That house had shown no sign of occupancy at least up to the end of January, 1981. The circumstances suggested a preponderant element of land speculation. The plaintiff had throughout been dilatory and should not be granted further indulgence for gaining time in the hope of a more favourable market condition. The plaintiff admitted wilful default but sought now to rely on financial difficulties, rise in construction cost and distraction by litigation. He disclosed his stock activities for 1979, 1980. He valued his investments in the region of $350,000 in a depressed market. His revelation was fragmentary, limited and selective. Even with alleged available fund of $350,000, there was no explanation as to why the plaintiff had made no effort to secure banking facilities. As for construction cost, it would hardly provide any excuse as it was not anticipated that construction cost would come down in the foreseeable furture or at all. The alleged distraction of his then litigation involving his residence was apparently the last straw. As early as May 1979, plans for construction were virtually all approved and tenders had been given out with a requirement for completion in six months. The plaintiff's architect estimated completion of a two-storeyed building covering some 1,300 square feet to be in December, 1979. No businessman can possibly be forgiven for any inability to supervise a small building undertaking in the course of a court action threatening his accommodation.

14. The plaintiff purchased the site for $60,000. He would also lose interest on the purchase price. He has allegedly spent some $114,400 on the professions, but he has had his years of expectation. He has had almost four years to play the market. Insincerity has throughout been shown in the plaintiff's dilatory conduct and his indifferent response to enquiries of the authorities. There must be a limit to running counter to public interest. There were no exceptional circumstances in this case to warrant a grant of relief against a wilful breach. This is not, in my judgment, an appropriate case in which equity should come in aid of the plaintiff. For all these reasons, I dismissed his application with costs to the respondent.

Representation:

Mr. Warren Chan instructed by Messrs. Chan & Cheng for Plaintiff.

Mr. Kaplan and Mr. Strawbridge counsel for the Defendant.

(1) (1806) 12 Ves. Jr. 282

(2) (1811) 18 Ves. Jr. 56

(3) [1973] 3 A.E.R. 90; (1973) A.C. 691

(4) At p.100 f/g

(5) (1975) H.K.L.R. 1