Lok on Co Ltd v. Attorney General
Read the full judgment text of HCMP 561/1982 on BabelCite. This High Court CFI judgment was delivered on 26 November 1982.
1. In the entitled action the respondent in this application, the Lok On Company Limited, seek a number of declarations with regard to the construction of Crown Leases which relate to Marine Lots No. 456 and 477. The respondent is the registered owner of the two lots which are situated at 147 and 148 Connaught Road West. In 1972 when the lots were owned by Premier Development Company, the respondent's predecessor in title, a prewar building on each lot was required to be demolished by the Buildi
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HCMP000561/1982 Headnote - Summons for declarations that demand for premium required to be paid to obtain extension of time to comply with rebuilding requirement under Demolished Buildings (Redevelopment of Sites Ordinance Cap. 337 was improper. Application by Crown to strike out summons. Contention that amount of premium governed by amount Court would order be paid upon application for relief from forfeiture rejected. Summons struck out.
IN THE SUPREME COURT OF HONG KONG HIGH COURT MISCELLANEOUS PROCEEDINGS ____________
__________ BETWEEN
___________ Coram: Hon. Power, J. Date: 26 November 1982 ___________ JUDGMENT ___________ 1. In the entitled action the respondent in this application, the Lok On Company Limited, seek a number of declarations with regard to the construction of Crown Leases which relate to Marine Lots No. 456 and 477. The respondent is the registered owner of the two lots which are situated at 147 and 148 Connaught Road West. In 1972 when the lots were owned by Premier Development Company, the respondent's predecessor in title, a prewar building on each lot was required to be demolished by the Building Authority pursuant to Section 3 of the Demolished Buildings (Redevelopment of Sites) Ordinance. By re-development orders the Premier Development Company was required to re-develop the lots within the period of four years from the date of service of the orders. 2. The Premier Development Company decided to amalgamate these 2 lots with two adjoining lots and carry out a joint redevelopment. For this purpose the company acquired Marine Lots 414 & 415 which, amalgamated with the subject lots, gave then ownership of the land known as 144 to 148 Connaught Road West. No re-development had, in fact, been commenced by September 1976. On l6th November 1977 Premier Development Company submitted an application for permission, under Section 6 of the Town Planning Ordinance, which indicated they wished to erect a 26-storey building complex of 113, 651.2 sq. ft. comprising car-park, a podium for shops and floors of offices and residential units on the four lots. On 31st January 1978 the Town Planning Board rejected their proposal but gave approval for the erection of a building of 91,756 sq. ft.. In the latter half of 1978, the respondent purchased both the interest of the Premier Development Company in 144 to 148 Connaught Road West and the interest of another owner in premises situated at No.149. The respondent then owned land at 144 to 151 Queen's Road Nest properly described as Marine Lots 414 S.J.R.P., 455, 456, 457, 477, 457, 458 and 459. Originally it was the intention of the respondent to re-develop this land by erecting a commercial/domestic building thereon. The respondent later decided to erect a purely Commercial building on the land and it applied, under Section 6 of the Town Planning Ordinance, on 1st April 1980, for permission for a 42-storey complex building comprising shops and offices of 20,473 sq. metres. Approval was given by the Town Planning Board on 28th May 1980. Certain of the properties were tenanted and court orders, giving the respondent possession, were not made until 30th August 1979. 3. It will be recalled that the Town Planning Board had given qualified approval to the proposal of Premier Development Company for a 26-storey complex building on 31st January 1978. Premier Development had been granted extensions of the time limited for re-development, at premiums, up until September 1979. 4. After the expiry of this extension on 29th September 1979 the Registrar General's Department by a letter of 25th October 1979 indicated to the respondent that upon payment of a further premium of $62,600 the Crown would not enforce its right of re-entry but would grant a further extension until 29th September 1980. The letter went oil to say "Subject to this, however, the Crown reserves all its rights under the Crown Lease, including its right to re-entry. In the event of your not completing the said re-development within the extended time limit, further extension of the time limit, if any, would only be granted subject to the payment of additional and increased premium." The respondent paid the premium and the extension was granted. This letter referred to Lot 456. As regards Lot 477 there was a similar letter and a similar extension upon the payment of a premium of '59,400. 5. As regards Lot No. 456 a letter was written on 1st October 1980 offering a further extension to 29th September 1981 at a premium of $125,200. A similar letter was written as to Lot 477 offering an extension at a premium of $118,700. Both offers were accepted and the premiums were paid. On 11th August 1981 about a month before the expiry of the then current extensions the Crown Land and Survey wrote to the respondent asking them to explain the reasons for the delay so that the Chief Estate Surveyor could consider whether a further extension should be granted subject to the payment of a penalty. 6. On 15th August the respondent's architect wrote telling the Chief Estate Surveyor that the delay had occurred because of the difficulties involved in the joint redevelopment.. He said, however, that piling was to commence on 28th April 1981 and asked for an extension of 30 months. 7. In a letter of 16th November 1981 the Estate Surveyor said that he would be prepared to grant a six-month extension, subject to the payment of a premium ''on the basis that the building contract for the superstructure work grill be let during the extension period". In letters of 25th November 1981 the Crown formally offered a six-month extensions as regards both Lot 456 and Lot 477 on the payment of premiums of $626,000, as regards the former, and $593,600, as regards the latter. On the 25th of November, Chu & Lau, the solicitor for the respondent wrote requesting exemption from payment of the premium. This request was refused by a letter dated 14th of January and by a letter dated 15th March 1982 the respondent's solicitors said that they would make the payment "under protest". On 7th April 1982 the respondents issued an originating summons seeking the following relief:-
8. The Attorney General now applies to strike out that originating summons, under 0.18 r.19 of the Rules of the Supreme Court and under the inherent jurisdiction of the Court, upon the ground that it discloses no reasonable cause of action. 9. Mr. Barlow, who appeared for the Attorney General initially sought to establish that, in circumstances such as the present one, there is no difference between "a lease granted by a public body, or indeed the Crown, and a private lease". He contended, on the authority of Hang wah Investment. Co.Ltd. v. A.G. (1) at p.1145 that it was not for the Crown to establish the reasonableness of a demand for a premium. In this regard he relied upon the words of the judgment, delivered by Lord Edmond Davies, at p.1146, where it was stated "It is sufficient for present purposes, simply to say that, the applicant seeking a concession from the landlords in relation to the development of land leased, the landlords were entitled to make the granting of that concession conditional upon the payment of a premium". It was submitted that if the lessee wanted to vary any of the terms of his lease, one of which was the building covenant, then the Crown, like any other lessor, was entitled to demand what it considered to be appropriate in return for its granting the concession requested. He submitted that paragraphs 2,3, and 4 of the originating summons were unarguable because no question of reasonableness entered into the matter. He suggested that paragraph 6 was asking for a declaration which this Court could not make as it raised an entirely hypothetical situation. He submitted that this situation would only arise, as a matter of fact, when and if the Crown did actually re-enter. He submitted that paragraph 7 was unarguable as the sums had, in fact, been paid and the lease was still afoot. He suggested that the statement that the payment was made "under protest" was of no effect at all as the fact of the matter was that a legal demand for a payment had been made by the lessor and this had been met by the lessee. As to paragraph 1 of the relief claimed he submitted that the requirement to redevelop bore no relation to an ordinary covenant under the Crown lease and that no question of entitlement to a reasonable time was maintainable. 10. Mr. Barlow developed his argument that the Court was being asked to deal with an entirely hypothetical situation by referring to the legislation involved. The Demolished Buildings (Redevelopment of Sites) Ordinance Cap.337 provides, in s.4(3), that requirements to redevelop made under that ordinance:-
The Crown Rights (Re Entry and Vesting Remedies) Ordinance Cap. 126 provides, in s.8, as follows:-
11. Mr. Barlow submitted that the present case was on the same footing as Howard v. Pickford Tool Co. Ltd. (2). In that case there had been an unaccepted repudiation of a contract of employment and the aggrieved party had continued in his employment. Lord Asquith at 421 said "An unaccepted repudiation is a thing writ in water and of no value to anybody: it confers no legal rights of any sort or kind. Therefore a declaration that the defendants had repudiated their contract with the plaintiff would be entirely valueless to the plaintiff if it appears at the same time, as it must appear in this case, that it was not accepted." 12. Mr. Barlow suggested that, as the respondent had not refused to pay the premium demanded and then sought relief from forfeiture but had preferred to pay the premium and keep the contract afoot, the present circumstances were very similar to those in Howard's case. He submitted that the plaintiff company had no right to have any hypothetical question determined which involved considerations as to what would have been the position had it not paid the premium. He contended that any submission that the Court should make an assessment of an amount that would have been payable if there had been a re-entry and an application for relief must take the Court into an entirely hypothetical area. 13. He cited Fred Jackson v. Attorney General (3) in support of his contention that there is no jurisdiction in the Court to make a declaration in respect of a hypothetical or academic question. 14. Mr. Swain who appeared for the plaintiff company submitted that neither the Hang Wah Investment Co. Ltd. case nor Viscount Tredegar v. Harwood (4) which was cited with approval in that case, had any application to the present circumstances. He agreed that those cases held that the Court would not override or modify existing contractual rights in circumstances where any question of modification was a matter for the parties and that the lessor would, therefore, be entitled to ask for any amount, reasonable or otherwise, from a lessee in consideration of his agreeing to vary the terms of a lease. He submitted, however, that this was held to be so in circumstances where the result of the lessee not paying the amount would have no effect other than to leave the parties with their rights under the lease intact. He submitted, on the other hard, "that a lessor was not entitled to ask for more than "reasonable compensation" from a lessee in consideration of his agreeing to a modification of the lease in circumstances where the lessee's failure to agree to any such an amount gave a right of re-entry against which, if exercised, the lessee would be entitled to apply for relief against forfeiture. He submitted that, in such circumstances, the whole matter must hinge upon the amount which the Court would, in the end, order the lessee to pay to obtain relief against forfeiture and that the amount of the lessor's demand must not be greater than that amount. 15. He submitted that in the present the amount demanded was more than the amount of "reasonable compensation" that would be order if relief was given and that the applicants were entitled to a declaration that the premia demanded were unreasonable. Mr. Swaine relied in this regard on Shiloh Spinners v. Harding (5). He pointed particularly to the Speech of Lord Simon of Glaisdale, at 726, where he said, "The last hundred year have se many examples of relaxation of the stance of regarding contractual rights and obligations as sacrosanct and exclusive of other considerations: though 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. “He relied also upon the judgment of Lord Wilberforce at 723 where he stated "I would fully endorse this: it remains true to day 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 Court 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 production of that result." He submitted that the result sought by the Crown in the present case, i.e. rebuilding upon the subject lots, would be, in due course, obtained and that all that the Crown should be entitled to, given that the result would be obtained, would, in the words of Lord Erskine in Sanders v. Pope (6) cited at 722 of the Shiloh Spinners' case, be "Full compensation". He said that this must be assessed by ascertaining the loss which the Crown had actually sustained by reason of the delay. This argument proceeded upon the basis that such loss must be very considerably less than the premium demanded, e.g. loss of rates during the period when the building should have been completed and when it was actually completed. This submission seemed to proceed upon the basis that the Crown would, fur some reason, be debarred from contending that the "full compensation", if relief was to be given, should be in the full amount of the unpaid premium. 16. However that may be, for the purpose of this application, I accept that, if an application for relief against forfeiture was made in circumstances such as would exist if the Crown entered in the present case, the Court would assess the amount that the lessee was to pay to obtain relief at a lesser amount than the amount of the premium demanded by the Crown. As Mr. Swain's argument developed it became clear that what he was really asking for was a declaration as to amount the applicant would have to pay to obtain relief against forfeiture. He, of course, put it upon the basis that what he was asking for was a ruling as to the proper amount that could be demanded as a premium but, from the nature of his argument, he was forced to concede that this amount could only be ascertained by assessing the amount that would be awarded in an application for relief against forfeiture. 17. He conceded that the Court could not consider purely hypothetical questions but submitted that this was not a purely hypothetical question. He argued that this was a question as to an amount presently payable and that it bore an hypothetical aspect only because the Court had to look to hypothetical considerations when arriving at its conclusion. 18. In this regard it seems to me that the contentions of Mr. Barlow must be right. I am satisfied the Crown, as an ordinary contracting party, was entitled, properly and lawfully, to make a demand as to any amount, which it saw fit to assess, before it would agree to extend the time for rebuilding. It may be that if the lessee refused to pay this amount of premium and the Crown re-entered and the lessee then sought relief against forfeiture that a Court would assess the amount to be paid at a figure lower than the amount of the premium demanded. This does not affect the fact that the Crown was making lawful demand as to which the lessee had only two options he could either accept it or reject it. 19. Mr. Swain suggests that, as the lessor, in the outcome, can get no more than the Court determines is the proper amount, a prudent lessor will not make a demand for a premium in any greater amount than that which the Court would determine. This may be so but it does not, in my view, in any way derogate from the right of a lessor to fix the amount of the premium at the figure he assesses at the time when he is being asked to grant an extension. What the Court might later do on an application for relief is completely hypothetical. It seems to me clear that the lessee will only be entitled to the Court's assessment of the amount he has to pay as compensation if he refuses to make the payment of the premium demanded and the Crown re-enters. If the lessee pays the amount of premium demanded then the contract is afoot and the Court cannot interfere with the rights of the parties thereunder. It is not, I am satisfied, arguable that the am bunt of the Crown's demand must be in accordance with the amount that would eventually be awarded to it as compensation after re-entry and an application for relief from forfeiture. I can see no sustainable argument as to paragraphs 2 and 4. As to paragraph 3, given that the applicants nowhere suggest that they were unaware of the building covenants at the time of purchase of the 2 lots, I can see no sustainable argument that the Crown when assessing the amount of a premium should differentiate between the applicants and purchasers of Crown land "in breach of building covenants freely entered into by such purchasers". 20. As to paragraph 7 Mr. Barlow submitted that if the respondent was unsuccessful in showing an arguable case with regard to any of the other grounds of relief they could have no tenable argument that the money should be repaid. He submitted that the assertion that the money was paid “under protest" meant nothing as the facts established that the respondent had elected, after lawful demand, to make the payment in order to avoid forfeiture and had then, the lease being afoot, continued to occupy. These submissions were, I am satisfied, correct and I accept them. There is, I am satisfied, no arguable case to support grounds 2, 3, 4,6 & 7. 21. Mr. Tang, the junior counsel for the applicants, dealt with the relief claimed in paragraph 1 and 5. Paragraph 1 sought a declaration that the respondent was entitled to a reasonable time to complete the redevelopment and paragraph 5 sought a declaration that the Crown was not entitled to re-enter because of the failure of the respondent to complete the redevelopment before the 29th September 1981. The relief sought in both of these paragraphs arose out of the contention that time was not of the essence as regards the rebuilding stipulation. 22. Mr. Tang firstly pointed to Section 4(3) of the Demolished Buildings (Redevelopment of Sites) ordinance Cap. 337 which provides that the requirements in an order for redevelopment shall be “deemed to be covenants, conditions or stipulations in the Crown lease of the property to which the order relates". 23. He submitted that, because of this section, the requirement as to rebuilding in the present case was deemed to be incorporated as a covenant in the Crown lease and that an examination of the Crown lease showed that it contained no stipulation that time was to be of the essence of the contract. He pointed to the statement in Halsburys Laws of England, paragraph 1451 of Volume 16 of the 4th Edition which states that the rule of equity is:-
He submitted that in the present case the parties had not expressly so stipulated. As to the latter alternative, he said that the Court must bear in mind that this was a nine hundred and ninety years lease and that, given such a period, it was not arguable that the nature of the contract required that stipulations as to time be construed as being strictly binding upon the parties. Mr. Tang pointed out that the Encyclopaedia of Forms & Precedents, Volume 11 at 378, sets out a specimen building covenant which stipulates that "........ in case any of the said houses or buildings hereby agreed to be erected shall not be completed and made fit for immediate occupation within the respective periods hereinbefore limited (time for all the purposes of this clause being of the essence of the contract)" the landlords would have full right and liberty to re-enter and take possession of the land. He submitted that this was a clear indication that it was not inherent in a building covenant that time should be of the essence and that, if the parties wished to make it so, they must expressly, state that it was so. In this regard he referred to the words of Lord Denning at page 708 of williams v. Greatrex (7) where he said at 708:-
Mr. Tang submitted that similar considerations applied in the present case. He submitted that we were here dealing with a Crown lease for a period of 999 years which contained no stipulation that time should be of the essence and that, in such circumstances, it must be at least arguable that the requirement as to rebuilding became a covenant of the lease and that the stipulation as to time therein was not strictly binding upon the parties. 24. Mr. Tang's arguments that the Crown lease did not stipulate that time should be of the essence and that the nature of the lease did not require that it should be so cannot, I am satisfied, be correct if the Demolished Buildings (Redevelopment of. Sites) Ordinance itself makes it clear beyond argument that the lessee must comply with the requirement as to rebuilding within the period stated i.e. if the ordinance itself makes time of the essence. Section 4(1) gives the director power to "by Order in writing served on the owner require the redevelopment of the site of the property, within such time as he may prescribe, by replacement of the building thereon or formally thereon with anew sum and substantial building, completed fit for occupation, confirming to the covenants, conditions and stipulations of the Crown lease, and, subject to the provisions of the Building Ordinance of no less volume than the building replaced.” It is clear then that the Director is empowered to prescribe the time during which the site must be redeveloped. The owner is given the poorer to appeal to the Land Tribunal against such order and if he does not do so or if he appeals, and is unsuccessful, then that order is, under Section 4(1), binding upon him. It is true that Section 4(3) states that the requirements of the order shall be deemed to be a covenant in the Croon lease but it goes on to state that "failure to comply with any such requirement shall entitle the Croon to enter upon the property under and in accordance with the provisions of the Crown rights (Re-entry and Vesting Remedies) Ordinance." It is to be noted that this does not say that failure to comply with "the deemed covenant" shall entitle the Crown to re-enter but says that failure to require to comply with "the requirement" shall so entitle the Crown. S.4(1) under which the requirement is made is clear in its terms. If it stood alone there could be no argument that the requirement in the order of the Director was binding upon the owner. It is true that sub-section 3 deems it to be a "covenant", but it goes on to make it quite clear that failure to comply with "the requirement" gives the Crown the right to re-enter. I have no doubt that the legislature intended that the requirement should be binding as to time upon the owner and it is, in my view, not arguable that the requirement becomes an ordinary covenant in the Crown lease. I wish to make it clear that, when so holding, I in no way call into question the correctness of Mr. Tang's contention that the Crown rights (Re-entry and Vesting Remedies) Ordinance cap. 126 does not of itself give any right of re-entry. S.3, and other sections, of the ordinance make it plain that the ordinance only comes into play when a right of reentry has accrued and I accept that one must look elsewhere to determine whether or not such a right has accrued. 25. I am satisfied that Section 4 of the Demolished Building (Redevelopment of Sites) Ordinance makes it clear beyond argument that the Crown is entitled to re-enter if an owner fails to comply with the requirements of an order for redevelopment. 26. The respondents have not demonstrated to me' any arguable case to entitlement to any of the relief claimed and that the originating summons must, therefore, be struck out. The respondents are ordered to pay the applicants costs to be taxed.
(1) (1981) 1 W.L.R. 1141. (2) (1951) 1 K.B, 417 (3) (1980) H.K.L.R. 323 (4) (1929) A.C. 72 (5) (1973) A.C. 691 (6) (1806) 12 Ves. Jun. 282 (7) (1956) 3 ALL E.R. 705 Representation: Mr. J. Swaine Q.C. & Mr. R. Tong (Chu & Lau) for Respondent/plaintiff. Mr. Barlow & Mr. Strawbridge Counsel for applicant/defendant. | |||||||||||||||||||||||||||||||||||||||||||||||||||