Ying Ho Co Ltd and Others v. The Secretary for Justice
Read the full judgment text of FACV 17/2003 on BabelCite. This Court of Final Appeal judgment was delivered on 23 September 2004 before Bokhary PJ, Chan PJ, Ribeiro PJ, Cons NPJ, Richardson NPJ.
Land law – government lease – building covenant – Master Layout Plan approval – DDH clause (design, disposition and height clause) – Hong Kong Airport (Control of Obstructions) Ordinance, Cap 301 – aviation safety – Instrument Landing System – height restriction of 324 mPD – whether Government entitled to refuse MLP approval on height grounds in absence of statutory height restriction – whether DDH clause is procedural only or substantive – scope of contractual discretion – Equitable Life Assurance Society v. Hyman – whether discretion limited by parties' reasonable expectations – Government as landlord not fiduciary – Hang Wah Chong Investment Co Ltd v. Attorney General – derogation from grant – approved complex no less valuable than tallest-building proposal – no derogation established – implied terms – strictly necessary test – Investors Compensation Scheme v. West Bromwich Building Society – standard-form government grant with no negotiation – Government owed implied obligation to process MLPs with reasonable dispatch and inform of reasons for rejection – only implied term accepted: extension of building covenant period if culpable conduct or undue delay by Government – whether Government responsible for delay up to April 1996 – concurrent findings of fact upheld – Developers' own conduct in pursuing world's tallest building despite warnings – erroneous belief in oral extension agreement – liquidated damages clause authorities (Holme v. Guppy, Dodd v. Churton, Trollope & Colls, Peak Construction v. McKinney) inapplicable to re-entry clause – reimbursement of payments made under protest – Maskell v. Horner – Woolwich Equitable Building Society v. IRC – payment under threat of re-entry not a settlement – Basic Law Article 105 – property rights protection – appeal dismissed – paragraph 29 claim preserved for trial – costs order nisi.
Legal issues: Government's power to refuse MLP approval on height grounds under DDH clause · Government's obligations in processing MLPs · Government's responsibility for delay up to April 1996 · Legal effect of Government-caused delay on liquidated damages, re-entry, and waiver premia · Government's right to retain liquidated damages and waiver premia paid under threat of re-entry
Outcome: Appeal dismissed. The Developers' claim under paragraph 29 of the Re-Amended Statement of Claim (relating to events after mid-April 1996) is preserved for separate trial, with each side's position left intact.
Cited by 4 cases · Cites 8 cases
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FACV No. 17 of 2003 IN THE COURT OF FINAL APPEAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION FINAL APPEAL NO. 17 OF 2003 (CIVIL) (ON APPEAL FROM CACV No. 291 of 2002) _______________________ Between:
_______________________ Court: Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ, Sir Derek Cons NPJ and Sir Ivor Richardson NPJDates of Hearing: 5 – 8 July 2004 Date of Judgment: 23 September 2004 _______________________ J U D G M E N T _______________________ Mr Justice Bokhary PJ: 1.During the run-up to the 1997 handover the appellant developers conceived and pursued the idea of making a striking demonstration of confidence in Hong Kong’s future by erecting here what would be the tallest building in the world. But there was a problem which ultimately proved insuperable. Hong Kong’s airport was then at Kai Tak. Its replacement was under construction at Chek Lap Kok. The proposed building would be in Tsuen Wan and some 18 kilometres from the new airport. Even so its height would be so great as to jeopardize the proper operation of the instrument landing system to be installed there. A lot of time was used up by, among other things, unsuccessful efforts to overcome this problem. The developers missed the deadline for fulfilling the building covenant forming one of the lease conditions on which they held the site in question from the Government. Threatened by the Government with re-entry for breach of that lease condition, the developers avoided that by paying over $½ billion in waiver premia and liquidated damages. They paid under protest. And they then commenced proceedings for reimbursement and damages. Having failed in the courts below, they have come finally to this Court. 2.Mr Jonathan Sumption QC for the developers has presented arguments as able as any I have ever heard. But such are the circumstances of this case that I feel unable to accede to those arguments beyond keeping alive that part of the developers’ claim which has yet to be tried. To this limited extent Mr Sumption’s efforts are rewarded with success. 3.The story of the case is told in detail by Mr Justice Ribeiro PJ and Sir Ivor Richardson NPJ whose judgments I have had the advantage of reading in draft. Gratefully adopting their accounts, I turn at once to the questions formulated by Mr Sumption. These read:
4.I answer the first four questions against the developers. But I answer the fifth question in such a way as to accord the developers the limited success of which I spoke. I agree with and do not propose to add anything to the reasons given by Mr Justice Ribeiro PJ for answering the second, third and fourth questions against the developers. But I will state in my own words why I answer the first and fifth questions as I do, which I see as consistent with Mr Justice Ribeiro PJ’s reasoning on those questions. Use of a DDH clause to restrict building height in the interest of safe and efficient aviation 5.The premise of Mr Sumption’s first question is that the rejected master layout plans comply with all the special conditions of the grant. But the building shown in those plans exceeds the height restriction imposed by the Government under a special condition. This special condition makes the design, disposition and height of any building to be erected on the land subject to the Government’s prior approval in writing. Such clauses (commonly called “DDH clauses”) have often been used by the Government to achieve its town planning objectives. A building height restriction having been thus imposed, the premise of Mr Sumption’s first question has to be read subject to the issue between the parties as to whether the restriction was validly imposed. 6.In Crozet Ltd v. AG [1973-76] HKC 97 at p.101G Briggs CJ, sitting at first instance and dealing with a DDH clause, saw no reason why a lease condition cannot be used to enforce Government policy, provided that the policy was within the law. This should not have come as a surprise to anybody. As noted in Roger Bristow: Land-use and Planning in Hong Kong (1984) at pp 26, 154, 161 and 195, the beginnings of our system of town planning through lease conditions as well as statute can be traced back to the middle of the 19th century. Within limits the Government isentitled to use a DDH clause to achieve its lawful town planning objectives including the restriction of building height in the interest of safe and efficient aviation. One such limit is the purely private law one that there must be no derogation from grant. 7.Mr Sumption cited the decision of the House of Lords in Equitable Life Assurance Society v. Hyman [2002] 1 AC 408. Like a DDH clause, the provision concerned in thatcase involved a contractual discretion. The facts may be taken from the headnote where they are set out thus at p.408 C-F:
The House of Lords held that the Society was not entitled to adopt that course. 8.At p.459 G-H Lord Steyn said:
Lord Cooke of Thorndon agreed with Lord Steyn’s way of viewing the case but said (at p.460 F-G) that the same conclusion could be reached by starting from the principle that no legal discretion, however widely stated, can be exercised for purposes contrary to those of the instrument by which it is conferred. And at p.461A he said that in exercising their powers of allotment of bonuses the directors were not entitled to exercise the same “for a purpose subverting the basis of the policy, fairly interpreted”. The other members of the House of Lords agreed with both Lord Steyn and Lord Cooke. 9.Where a grant of land is concerned, I think that principles such as those identified by Lord Steyn and Lord Cooke in the Equitable Life Assurance case can and should be given effect by preventing, or awarding a remedy for, any derogation from grant. 10.The highrise complex for which the developers eventually obtained approval will utilize the full plot ratio and gross floor area available under the grant. And the evidence is that this complex is no less valuable than what they had planned as the tallest building in the world. I make no attempt to provide a general indication of what would or would not amount to a derogation from grant through the misuse of a DDH clause. Suffice it to say that in the present circumstances there is no derogation from grant. 11.Article 105 of the Basic Law provides that “[t]he Hong Kong Special Administrative Region shall, in accordance with law, protect the right of individuals and legal persons to the acquisition, use, disposal and inheritance of property and their right to compensation for lawful deprivation of their property”. This constitutional guaranteeis not confined to instances in which the deprivation suffered by the owner is accompanied by a corresponding acquisition by the state. In addition to being entrenched, art.105 is in that sense, too, more protective of property rights than the common law as spoken of by Wright J in France Fenwick & Co. v. The King [1927] 1 KB 458 at p.467 where he said that “[a] mere negative prohibition, though it involves interference with an owner’s enjoyment of property, does not … merely because it is obeyed, carry with it at common law any right to compensation”. Public law considerations would arise if the Government were ever to resort to a DDH clause in order to avoid paying compensation under the Hong Kong Airport (Control of Obstructions) Ordinance. But there is nothing to suggest that the Government’s conduct in this case was dictated, or even influenced, by a desire to avoid paying compensation. Moreover the approved complex is no less valuable than what the developers had planned as the tallest building in the world. So no compensation, apart possibly from nominal compensation, would have been payable even if the building height restriction in question had been imposed under the Ordinance rather than the clause. 12.It is for the foregoing reasons that I answer Mr Sumption’s first question against the developers. I now turn to Mr Sumption’s fifth question. Reimbursement if the delay was caused by the Government itself 13.The Government’s stance is that what happened in the present case amounted to a settlement so that the developers would not be entitled to reimbursement even if the delay in respect of which they had paid under protest in order to avoid re-entry was caused by the Government itself. If that be right it would preclude even that part of the developers’ claim which has yet to be tried. This is the part of their claim which is pleaded in paragraph 29 of the Re-Amended Statement of Claim. There the developers plead that the Government witheld overall approval of their master layout plans submitted after mid-April 1996 when it should have approved the same subject to conditions. Thus, the developers plead, the Government wrongfully delayed approval of those plans for a total of 16 months between July 1996 and November 1997 without a corresponding free extension of the building covenant period. 14.For his reimbursement argument Mr Sumption relies on two cases in particular. These are Woolwich Equitable Building Society v. IRC [1993] AC 70 decided by the House of Lords and Maskell v. Horner [1915] 3 KB 106 decided by the Court of Appeal in England. The Woolwich Equitable case involved reimbursement of tax paid under ultra vires regulations. And the effect of the decision is stated as follows in the headnote (at p.71 C-D):
But Mr Sumption submits that there is support in the majority speeches for a wider proposition. This is, he submits, that the law has already been, or should now be, developed to the stage where want of consideration for a payment provides of itself a basis for reimbursement whether or not the payee is the state. I can see the force in this submission. 15.Moreover I do not understand Mr Sumption to have abandoned reliance on the fact that the payee in the present case is the Government. If he has to do so in order to bring the developers within the Woolwich Equitable case, then Mr Sumption does not shrink from relying on that fact. He does not feel deterred from doing so by the decision of the Privy Council in Hang Wah Chong Investment Co. Ltd v. AG [1981] HKLR 336. The effect of that decision was summarised by this Court in Raider Ltd v. Secretary for Justice (2000) 3 HKCFAR 309 at pp 313J-314A and Director of Lands v. Yin Shuen Enterprises Ltd (2003) 6 HKCFAR 1 at p.14D-F. Shortly stated it is that qua landlord the Government is as free as a private landlord to refuse to modify a lease condition or to name its price for such modification. Perhaps ¾ and I put it no higher than that ¾ waiver premia and, in circumstances like the present, even liquidated damages can be equated with an impost. That could bring the same within the ambit of the Woolwich Equitable case without departing from the Hang Wah Chong case. 16.Be all of that as it may, the most obvious course is, I think, to approach the issue of reimbursement on the basis for which Mr Sumption relies principally on Maskell v. Horner. There Lord Reading CJ said this at p.118:
In my view the principle underlying that statement applies just as much to re-entry of land as it does to seizure or detention of goods. 17.The fact that payment had been made under protest was considered relevant by each member of the court in Maskell v. Horner. The Lord Chief Justice said (at p.120) that it “affords some evidence, when accompanied by other circumstances, that the payment was not voluntarily made to end the matter.” Buckley LJ said (at p.124) that it is “a further factor…which goes to show that the payment was not voluntary.” And Pickford LJ said (at p.126) that it is “some indication” of involuntariness. The mere fact that a payment was made under protest does not of itself leave the way open for the payer to bring an action for reimbursement. But such a protest can combine with other matters to prove the involuntariness that would leave the way open for him to do that. 18.On the evidence led at the trial, the position is that the developers disputed the Government’s right to re-enter, paid in order to avoid re-entry, did so under protest and signalled their intention to sue for reimbursement. This does not point to a settlement that precludes a claim for reimbursement. It points instead to an involuntary payment that leaves the way open for such a claim at least on the Maskell v. Horner basis and perhaps on some other basis or bases as well. If the disposal of the present appeal required an answer to Mr Sumption’s fifth question, I would answer it in favour of the developers. But the disposal of the present appeal does not require an answer to this question. And I decline to answer it now. Mr Anthony Neoh SC for the Government said that it would like an opportunity to explore the availability of evidence that the length of the extensions for which the developers paid exceeds the length of the delay of which they complain. I would not deprive it of that opportunity. Conclusion 19.I would dismiss the present appeal, and deal with costs in the manner favoured by Mr Justice Ribeiro PJ and Sir Ivor Richardson NPJ. As to that part of the developers’ claim which has yet to be tried, I would leave each side’s position intact. Mr Justice Chan PJ: 20.I agree with the judgment of Mr Justice Bokhary PJ and the judgment of Mr Justice Ribeiro PJ and would dismiss the appeal for the reasons given by them. I would only add a few words on the first four issues raised by Mr Sumption QC for the appellants (the Developers). The facts have been set out in detail in the judgment of Mr Justice Ribeiro and the judgment of Sir Ivor Richardson NPJ. I would gratefully adopt their accounts of the facts. Issue 1 21.The Director of Lands (the Director) has adiscretion to approve or reject the Master Layout Plans (MLP) for the development of the lot submitted by the Developers under Special Condition (5)(a)(i) of the Conditions of Grant. This is reinforced by Special Condition (63)(b). 22.As required by Special Condition (5)(a)(i), the MLP submitted by the Developers must, in addition to containing plans showing the transport terminus to be built and various construction items in and around the lot, also contain details of design, standards and height of the buildings to be erected. Thus, the height of buildings is among the matters which are expressly required to be approved by the Director and which the Director has to consider in the proper exercise of his discretion. 23.Further, under Special Condition (9)(a)(i), any building or buildings to be erected must comply not only with the provisions of the Buildings Ordinance, Cap 123 and the regulations made thereunder, but also with the design, disposition and height approved under Special Condition (9)(e). That Condition provides that the design, disposition and height of the buildings to be erected shall be subject to the prior written approval of the Director. Again, it is clear that the Director has a discretion to approve or reject any height of buildings proposed by the Developers in the MLP. Special Condition (9)(e), generally described as a DDH clause, has been in use in conditions of grant for quite some time and no doubt there are good reasons for having this condition. See Hang Wah Chong Investment Co. Ltd v. Attorney General of Hong Kong [1981] 1 WLR 1141 where it was held that the Government as a landlord could exercise its discretion under a similar provision in the conditions of grant in that case for the public benefit. 24.Hence, in my view, upon the true construction of the Conditions of Grant, both Special Conditions (5)(a)(i) and (9)(e) are intended to expressly reserve to the Director a power to control the height of the buildings to be erected. Existing height restrictions imposed by other legislation or the absence of such restrictions are relevant considerations for the Director in exercising his discretion. I am therefore unable to accept that Special Condition (9)(e) serves no useful or meaningful purpose except as a purely procedural provision. 25.Mr Sumption submits that the Director’s discretion must not be exercised in such a way as to defeat the reasonable or legitimate expectations of the Developers, that the Developers reasonably and legitimately expected that if there were to be a height restriction, that should have been set out expressly in the Conditions of Grant, and that since there was no such restriction provided in that document, the Director could not impose a height restriction and reject the MLP on this ground. 26.A contracting party not only can reasonably and legitimately expect, but is entitled, to enjoy the full benefits of his contractual rights, whether express or implied under the contract. However, he cannot expect and is not entitled to have any right which is over and above those contractual rights. The question in each case is: what, on the true construction of the contract, are the party’s contractual rights? 27.Although there is no specific height restriction in the Conditions of Grant, I do not think it can be realistically argued that the Developers are entitled under the Conditions of Grant to construct buildings on the lot to any height as they want. Nor can they, as experienced developers of properties in Hong Kong, reasonably or legitimately expect to do so. If they could build to whatever height they wanted, there would have been no purpose in having Special Conditions (5)(a)(i), (9)(a)(i) and (9)(e). 28.The Developers’ submission is tantamount to saying that height restrictions can only be imposed either by legislation or express provisions in the Conditions of Grant. I do not agree. This argument runs contrary to the existence and purpose of Special Conditions (5)(a)(i) and (9)(e). It is clear from the evidence in the present case that the Developers ought to have been aware of the possibility of a height restriction being imposed on buildings to be erected on the lot. 29.The scope of a contractual discretion depends on a construction of the contract. But such a discretion must not be exercised in bad faith or in such a way so as to deprive the parties of the rights to which they are entitled on the true construction of the contract. As Lord Cooke of Thorndon said in Equitable Life Assurance Society v. Hyman [2002] 1 AC 408, 460 “no legal discretion however widely worded … can be exercised for purposes contrary to those of the instrument by which it is conferred.” As accepted by Mr Neoh, the discretion in this case cannot be exercised in derogation of the grant. 30.In the present case, it cannot be said that when the Director (for public interest reasons including aviation safety) specified a height to which the Developers could erect their buildings on the lot, he was depriving the Developers of any right under the Conditions of Grant. There was simply no right to build to whatever height they wanted and in the circumstances of this case, there cannot be any reasonable or legitimate expectation that no height restrictions would be imposed. 31.I should mention the Developers’ complaint that there was a delay on the part of the Government to make an order under s.3 of the Hong Kong Airport (Control of Obstructions) Ordinance, Cap 301 as amended in 1994 specifying the height restrictions required for the new airport. I do not think this can be a valid criticism. It should be pointed out that with a massive construction project like the new airport, it would be unrealistic to expect that an order under that Ordinance specifying height restrictions within the flight path of the new airport could be made piecemeal or in respect of individual lots. It would be irresponsible for the Government to do so without regard to the whole strategic planning of the new airport and the works related thereto or without first conducting all relevant and necessary studies on the required safety standards. An order made in respect of individual lots would hardly be sensible or meaningful. It would not only be disruptive to the overall planning but might also compromise safety standards. Issues 2, 3 and 4 32.Mr Sumption submits that there was no need to show any culpable conduct or undue delay on the part of the Government, and that so long as it was responsible for part of the delay in having the necessary MLP approved, it was not entitled to rely on the liquidated damages clause or the power to re-enter. As I understand him, fault is not relevant and causation is the deciding factor. It is also submitted that on the evidence presented to the judge, the Government was responsible for part of the delay. 33.I agree with Mr Justice Ribeiro that the authorities relied on by Mr Sumption do not fully support his proposition. The cases of Holme v. Guppy (1838) 3 M & W 387, Dodd v. Churton [1897] 1 QB 562, and Trollope & Colls Ltd v. North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 were decided on the basis that an employer in a building contract was not entitled to liquidated damages as provided for in the contract if the contractor was prevented by the employer from completing the work according to the contract. Peak Construction (Liverpool) Ltd v. Mckinney Foundations Ltd (1970) 1 BLR 111 was a case in which it was held that upon construing the contract, in particular, the liquidated damages clause and the extension of time clause, an employer could not recover liquidated damages for delay for which he was partly to blame, but was left to pursue unliquidated damages. The rationale of a liquidated damages clause is twofold: first, it envisages that the contractor was at fault in causing the delay; and second, it enables the employer to recover a fixed sum for delay instead of suing for unliquidated damages. If the failure to complete the works within the stipulated time was due to the fault of both parties, the clause does not apply. (See Salmon LJ in Peak Construction (Liverpool) Ltd v. Mckinney Foundations Ltd at 121.) It would not be workable where both employer and contractor are at fault in the absence of a contrary intention, as may be evident where there is a provision in the contract for an extension of time after the employer’s delay. (See Phillimore LJ at 127.) Where it is necessary to apportion fault, it would otherwise be difficult to work out the date from which liquidated damages were to be calculated and payable. 34.For the reasons given by Mr Justice Ribeiro, I also think that these authorities are not applicable to the re-entry clause in the present case. 35.It is not seriously disputed that the Government has an implied duty to process the Developers’ MLP with reasonable dispatch and to inform them of the reasons for its rejection. The judge held, as submitted by the Government, that there is an implied term to the effect that the building covenant period would be extended if there is culpable conduct or undue delay on the part of the Government resulting in the Developers not being able to comply with the building covenants. 36.But the Developers are faced with the concurrent findings of fact made by the judge and the Court of Appeal to the effect that the delay in this case was not caused by the Government. In my view, these findings are quite justified on the evidence. I do not think I can do any better than simply adopting the analysis by Mr Justice Ribeiro of the facts and findings in the courts below. There is no basis for the Developers’ submissions on Issues 2, 3 and 4. Mr Justice Ribeiro PJ: 37.The Appellants are members of the Chinachem group of companies, controlled by Mrs Nina T H Wang. I shall refer to them as “the Developers”. In November 1991, they acquired by tender from the Hong Kong Government a lot with an area of about 19,500 sq m in the district of Tsuen Wan, known as Tsuen Wan Town Lot No 353 (“the Lot”). For this acquisition, they paid a premium in the sum of $1,245,000,000. 38.On 20 November 1992, the parties signed the Particulars and Conditions of Grant (“the Conditions”) containing the agreed terms upon which the Lot was acquired. On 8 December 1992, the Developers were deemed to have taken possession of the Lot. That date was important because the Conditions included a building covenant requiring the Developers to construct and to make fit for occupation a building or buildings complying with certain specifications on the Lot within 48 months of that date (“the main building covenant”). The Developers were also required by another building covenant to complete construction of a transport terminus at ground level a year earlier, with such terminus then to be assigned to the Government for a stated consideration. I shall refer to the two covenants together as the “building covenants”. Failure to complete the transport terminus in time was to attract liquidated damages at the rate of $10,000 per day. Moreover, failure to comply with any of the Conditions, including the building covenants, would entitle the Government to re-enter the Lot and to forfeit the premium. 39.The Conditions did not, however, permit the Developers to proceed immediately to construction of the structures in question. They were first required, within 6 months of the date of the agreement, to submit for approval by the Director of Lands (“the Director”) the Master Layout Plans (referred to at the hearing and in this judgment as “the MLP” in the singular) comprising comprehensive plans, specifications and detailed design drawings for the development showing, among other things, the transport terminus and the building or buildings to be erected on the Lot. Until the Director’s approval of the MLP was obtained, the Developers were confined to site formation works. Construction of any buildings could only begin after approval. Once the MLP was approved, the development could only proceed in accordance with its terms. Any desired amendments or variations would require further prior approval by the Director. 40.The project ran into difficulties which will have to be examined in some detail later. The problems emerged with the Developers’ proposal, reflected in the fourth version of the MLP submitted in May 1994, to erect the tallest building in the world on the site. Since the Lot lay beneath the intended flight path of aircraft which would use the airport then being constructed at Chek Lap Kok, several editions of the MLP were rejected by the Government on the grounds that the building proposed was too high and compromised aviation safety and the new airport’s operation. It is convenient to refer to each version of the MLP, from the 1st to the 14th, as “MLP 1” to “MLP 14” respectively. 41.Without an approved MLP, construction did not proceed and the completion dates stipulated by the building covenants were not met. This resulted in the Government issuing demands for liquidated damages and threats of re-entry. The Developers disputed the Government’s right to either remedy – a dispute which has led to the present proceedings. 42.Pending resolution of the dispute, the Developers made a series of payments to the Government representing the liquidated damages demanded (totalling $12.75 million) and additional premium for extensions to the building covenant period (totalling $543.242 million). All such payments were made under protest and expressly without prejudice to the Developers’ rights. 43.The Developers contend that the Government was itself responsible for a substantial part of the delay by purporting to reject without legal basis successive submissions of the MLP and also by causing unnecessary delays in the processing of such submissions. In consequence, they argue, the Government was wrong to treat them as having breached the covenants in question and was not entitled to threaten re-entry or to extract either liquidated damages or additional premium. By the present proceedings, commenced on 2 July 1998, the Developers seek to recover back the sums paid. Damages are also claimed in the Writ, but this aspect of the dispute does not arise for consideration on this appeal. A. The decisions below 44.The trial took place before His Honour Judge Muttrie sitting as a Deputy Judge of the Court of First Instance (4 March 2002, HCA 10834/1998). Two contentions advanced by the Developers which loomed large at that stage are no longer pursued. The first was that as a result of conversations between Mr Bowen Leung, then Secretary for Planning, Environment and Lands (“SPEL”), and Mr C Y Leung, a chartered surveyor engaged as consultant by the Developers, the parties had orally agreed that the building covenant period would be extended without payment of additional premium pending resolution of outstanding aviation safety issues. The second was that the Government was estopped by its conduct from demanding liquidated damages or additional premium. After a detailed and careful survey of the evidence, the Judge rejected both of those arguments as did, subsequently, the Court of Appeal. In the light of those concurrent findings, Mr Jonathan Sumption QC, leading for the Appellants, acknowledged that the Developers necessarily accepted that their view of the Government’s conduct and their belief that such an agreement had come into existence, had been erroneous. Additionally, the argument advanced at the trial that the additional premium paid constituted a penalty, was not pursued before this Court. 45.The Judge held that on their true construction, the Conditions entitled the Director to refuse approval of the relevant MLPs on the ground of the proposed building’s height, taking into account anticipated aviation safety requirements. His Lordship also rejected a number of implied terms contended for by the Developers and found that the only relevant implied term was that which the Government had conceded to exist, namely, “that the building covenant period would be extended if there was culpable conduct or undue delay on the part of the Government resulting in the plaintiffs’ not being able to complete building within that period.” That implied term, he found, had not been breached by the Government since it had not caused any relevant delay. Accordingly, he dismissed the Developers’ claim and held the Government entitled to retain the sums in question. 46.This did not, however, mean that the entire action was dismissed. On the parties’ joint application, a split trial had previously been ordered. All issues arising out of certain matters pleaded in paragraph 29 of the Re-Amended Statement of Claim had been stood over for a separate trial. Those issues have therefore not yet been addressed or resolved. 47.The Court of Appeal (31 July 2003, CACV 291/2002), dismissed the Developers’ appeal. Rogers VP, with whom Le Pichon JA and Sakhrani J agreed, held that the Government had power under the Conditions to disapprove an MLP on the basis of height and was not persuaded that the implied terms contended for by the Developers had been made out. As previously noted, the Court of Appeal also upheld the Judge’s findings that there had been no oral agreement for a free building covenant extension and that the Government’s conduct did not support the Developers’ case of estoppel by “lulling” them into a false sense of security in respect of their building completion deadlines. B. The facts Phase 1: Commencement until 18 May 1994 48.As Mr Sumption suggested, the material facts may conveniently be considered in four phases. The first phase runs from the transaction’s inception until just before submission of MLP 4. The Developers make no criticism of the Government’s conduct during this phase and no part of the claim is based upon it. It is however important to appreciate what happened during this period when considering the allegations of delay overall. 49.It was in 1991 that the Government invited tenders for the Lot and on 7 November of that year that the Developers’ bid was successful. This took place against the background of the Government’s announcement in 1989 that Hong Kong was to have a new international airport at Chek Lap Kok. In March 1992, some eight months before the Conditions of Grant were signed, the Government published a Master Plan which showed, among other things, the alignment of the two major runways and the fact that the flight paths for aircraft landing and taking off at the new airport would pass over Tsuen Wan. 50.However, when the Developers made their tender and when they signed the Conditions of Grant, there were as yet no statutory height restrictions applicable to the Lot. The then height limits, imposed by plans gazetted pursuant to the Hong Kong Airport (Control of Obstructions) Ordinance, Cap 301 (“the Ordinance”), applied only to areas affected by aircraft using the old Kai Tak airport. Tsuen Wan was not an affected area. And while the Conditions of Grant contained provisions referring to building height which will require detailed consideration below, they did not lay down any specific height limit for buildings to be erected on the Lot. They did stipulate that the building or buildings should have a gross floor area (“GFA”) of not less than 75,000 sq m and not more than 185,250 sq m. Maximum plot ratios of 5.0 and 9.5 were also laid down for domestic and non-domestic buildings respectively. 51.Having secured the Lot, the Developers lost no time in putting forward MLP 1 for approval, proposing a development comprising five residential tower blocks 172 metres high. Indeed, they did so on 5 November 1992, even before signing the Conditions of Grant and before gaining possession of the Lot. The Developers were told on 11 November 1992 that the MLP 1 plans were on the wrong scale but that they would be circulated within government departments whose comments would in due course be conveyed to them. 52.Thus began a process with which all Hong Kong property developers are familiar. It involves the submission for approval of development plans – not just MLPs but also building, landscaping and other plans – for comment by interested government departments and eventual approval or rejection by the relevant authority (in the present case, the Director). It is an iterative process whereby the developer takes into account the concerns expressed and amends the plans, often after discussion with the authority concerned, with the aim of securing their approval. This was the process adopted in relation to each MLP submitted by the Developers in the present case. 53.MLP 1 and MLP 2 which replaced it, were both rejected on grounds which are not material. The Conditions of Grant had of course been signed in the meantime and, as mentioned earlier, the Developers were deemed to have taken possession on 8 December 1992, when time starting running for the purpose of the building covenants. 54.MLP 3, which, like its two predecessors, was concerned with a five-tower residential development, was submitted on 10 December 1993. However, while this was being circulated, the Developers decided upon a radical change to the project. On 24 February 1994, they withdrew MLP 3, informing the Government that they would build a commercial building instead. A month later, on 24 March 1994, Mrs Wang publicly announced that it was intended to build the world’s tallest building on the site. 55.By this time, over 15 months of the building covenant period had gone by. The Government wrote to the Developers on 17 May 1994, pointing out that no construction work had yet started on the site and reminding them of the deadlines for completing the transport terminus and the building and of the consequences of not meeting them. Phase 2: 19 May 1994 to 9 June 1995 56.The events in Phases 2 and 3 form the basis of the Developers’ claim in these proceedings. Phase 2 commences when, over 17 months into the building covenant period, on 19 May 1994, the Developers submitted MLP 4. This phase runs until rejection of MLP 8 on 9 June 1995. 57.MLP 4 proposed an office building 468 metres high, topped by a bell-shaped structure and spire 50 metres high, giving a total height of 518 metres. It would be called “Nina Tower” and would have 108 storeys, a GFA of 220,000 sq m and a plot ratio of 11.4. As the covering letter indicated, the Developers did not submit this MLP for formal approval, but merely to elicit the Government’s preliminary comments. This is not surprising since the Conditions of Grant had fixed the maximum GFA at 185,250 sq m and the maximum non-domestic plot ratio at 9.5, which had obviously been exceeded in MLP 4. 58.Some three weeks later, on 10 June 1994, the Government rejected MLP 4, pointing out that it exhibited “fundamental breaches of the Lease Conditions” involving excessive GFA and also impermissible vehicular access arrangements. The Developers were therefore told that MLP 4 had not been subjected to detailed examination. They were again reminded of the 36 month deadline for completing the transport terminus and asked urgently to provide a development schedule. That warning was repeated on 29 June 1994 and acknowledged by the Developers on 15 July 1994. 59.The Developers obviously knew that MLP 4 went beyond what the Conditions permitted. Their object was to persuade the Government to permit them such additional plot ratio – without payment of additional premium but in exchange for their dedicating parts of the building to public use. To this end, lobbying activities were undertaken, directed both at SPEL, who was in charge of land policy, and at the Director, who was in charge of Lands Department operations. Thus, on 7 September 1994, Mrs Wang arranged a meeting with SPEL (then Mr A G Eason) to present the proposal to him. This was followed by a written proposal on 16 September 1994. On 7 October, the proposal was discussed at a meeting with Lands Department officers. 60.Having had MLP 4 rejected on 10 June 1994, it was not until 28 October 1994 that the Developers submitted MLP 5. This showed an office tower 388 metres tall with a plot ratio of 9.5. However, this was evidently intended as an interim submission as it remained the Developers’ intention to persuade the Government to accept a plot ratio of 11.4 and to build to the full proposed height. Thus, at an internal “progress meeting” on 14 December 1994, the Developers :
61.In the meantime, responding to Mrs Wang’s letter of 16 September 1994, the Secretary wrote on 31 October 1994 stating :
62.Thus, the possible relevance of aviation safety was raised for the first time. In their reply dated 10 November 1994, the Developers pointed to the absence of any statutory height restriction and suggested that height would therefore “not pose any problem as far as aviation safety is concerned.” 63.While the Developers were right in pointing to the absence of statutory regulation – an absence which worried some of the government officers concerned – they were wrong to think that aviation safety was not a problem. In December 1994, the Civil Aviation Department (“CAD”) advised that a height restriction of 324 metres above Principal Datum (“mPD”) was required at the Lot. This prompted a minute dated 7 January 1995 from the Assistant Secretary (Lands) stating :
64.At a meeting held on 12 January 1995, the CAD informed the Developers that a height restriction of “320 m” would be imposed on the development. At meetings held on that and the following day, the CAD explained that two height limits were relevant. The first was the “obstacle clearance limit”, meaning the height to which objects, including buildings, had to be restricted in order to allow aircraft a sufficient margin of clearance from being physically obstructed when using the airport. That limit was said to be about 470 mPD at the Lot. The second was a height limit dictated by the requirements of the electronic Instrument Landing System (“ILS”) which would be used to guide inbound aircraft landing at the airport. For the ILS to operate properly it was necessary to ensure that the signals it emitted towards incoming aircraft were not obstructed or distorted by obstacles, such as buildings, in the path of those signals. The maximum tolerable height of buildings and other obstacles was determined by projecting from a point on the runway a notional upward slope at a prescribed angle. The slope angle used by the CAD was 1:62.5 and resulted in a height limit of 324 mPD for ILS purposes at the Lot. Being the lower, this would be the effective height limit for the Lot. 65.Notwithstanding the warning that there would have to be such a height restriction, the Developers withdrew MLP 5 and replaced it with MLP 6 on 13 January 1995, itself quickly replaced by MLP 7 on 17 January 1995. Both MLP 6 and MLP 7 proposed an even taller office building of 468 metres surmounted by a 70 metre spire, giving a total height of 538 metres. 66.In her letter to SPEL dated 19 January 1995, Mrs Wang made it clear that she was still pursuing a plot ratio of 11.4. She explained that while the current MLPs were submitted on the basis of a plot ratio of 9.5, a design using a plot ratio of 11.4 was also being prepared. 67.SPEL’s reply of 27 January 1995 referred to the need for a height restriction :
68.He also made it clear that additional plot ratio without payment was not on and indicated that it might well be refused even with payment of additional premium :
69.The 324 mPD height limit was again explained to the Developers at the operational level, first by the Director of Civil Aviation (“DCA”) to Mr C Y Leung by telephone on 17 February 1995 and in a letter dated 17 February 1995 from the District Lands Officer/Tsuen Wan (“DLO/TW”) to the Developers’ architects. 70.The Developers were, however, not content to accept this position. In a minute dated 28 February 1995, the DCA recorded that the Developers were questioning whether the building height restriction was in fact necessary. This was followed by a meeting on 7 March 1995 between Mr C Y Leung and members of Lands Department where he indicated that while the Developers were prepared to drop their demands for additional plot ratio, they still wished to build a tower 500 metres high and had asked the DCA to review the position. 71.The CAD did indeed look into the possibility of relaxing the 324 mPD limit and, to advocate the Developers’ cause, on 13 March 1995, Mr C Y Leung sent them an expert report prepared by their consultants, Aeroports de Paris. Many internal memoranda passed among the relevant government officers discussing the question. This process culminated in the decision of the Lands Department’s Building Committee III (“BC III”), at its meeting on 18 May 1995, that on the available information no relaxation of the limit was possible. It noted that if an inadequate height limit was adopted, this might impair the ILS and deprive the airport of the ability to function in all-weather conditions, possibly reducing its operational capacity by as much as 40%. 72.In the meantime, on 13 April 1995, MLP 8 was submitted. This continued to show a tower at 468 mPD with a 70 metre spire on top. The Developers noted that the DCA had previously commented adversely on height grounds but retorted :
73.Now that the fundamental basis for objecting to the MLP was the building’s height, viewed in the light of anticipated aviation safety and the operational needs of the new airport, the question which officers faced was whether, in the absence of a statutory height restriction, it would be open to the Government to refuse approval on such grounds. In particular, the question was whether the Government could rely on provisions in the Conditions and especially on sc 9(e), known as the “design, distribution and height clause” or the “DDH clause” which provides as follows :
74.Certain officers expressed doubts as to the adequacy of relying on this clause but, given the perceived importance of protecting aviation safety and the operation of the new airport, it was considered that the Government had little choice but to rely on it. As the Government Land Agent/Kowloon (Mr N P Burley) put it in a minute dated 25 May 1995:
75.Accordingly, on 1 June 1995, MLP 6 and MLP 7 were rejected as “not acceptable under the lease conditions because the proposed building height of 542.62m would have an adverse effect on the operation of Chek Lap Kok Airport.” MLP 8 was rejected on the same ground on 9 June 1995. 76.The events in this Phase (with their effects carrying through to Phase 3) therefore pose one of the key questions in this appeal, namely, whether the Government could lawfully rely on the contractual powers given to it by the Conditions to refuse approval of the relevant MLPs on such grounds. This is the question raised in Issue 1 formulated below. Phase 3: 10 June 1995 to 9 April 1996 77.The most striking feature of the period covered by Phase 3 is that, having had MLP 8 rejected on 9 June 1995, no further MLP was submitted by the Developers for approval until MLP 9 on 2 July 1996, more than a year later. Logically, it might be thought best to cast Phase 3 as bracketing that period, that is, from rejection of MLP 8 to submission of MLP 9. However, Phase 3 ends in April 1996 because the split trial direction has meant that events occurring after mid-April 1996 are to be dealt with separately. Those events relate to paragraph 29 of the Re-Amended Statement of Claim which alleges breaches of certain implied terms, particularised as follows :
78.On 8 June 1995, just before the start of Phase 3, a meeting took place involving, among others, Mr Bowen Leung (then in the post of SPEL) and Mr C Y Leung. It was at that meeting that the Developers alleged that an oral agreement was reached to extend the building covenant without payment of additional premium until outstanding aviation safety issues were resolved. As noted above, this is now acknowledged to have been based on an erroneous belief. In his submissions, Mr Sumption suggested that this error may account for the long hiatus prior to submission of MLP 9. There may well be force in that suggestion. However, as discussed below, any such belief would have been dispelled by the Government’s attitude well before the end of Phase 3. 79.As we have seen, the Developers had been unwilling to accept the CAD’s advice in January 1995 that there had to be a 324 mPD height restriction on the Lot. They had lobbied SPEL and the Director to change the CAD’s mind. Even after the CAD’s decision had been confirmed by BC III’s decision on 18 May 1995 and by rejection of MLP 6/7 and MLP 8 in the following month, the Developers persisted during Phase 3 in pressing for the height limit to be raised to accommodate what they wanted to be the world’s tallest building. As the Secretary for Economic Services put it in a memo dated 16 June 1995, the Developers were still seeking to “appeal” against the height restriction imposed in respect of Nina Tower. 80.Part of this continued lobbying activity involved enlisting the assistance of Mr Ma Xiaowen of the Civil Aviation Administration of China to query the necessity for the height restriction. This led to the DCA offering on 22 July 1995 to send two experts from his department to Beijing to explain why it was needed. That offer was declined. 81.At an internal “consultant meeting” held on 23 August 1995, the Developers instructed their architects to write to SPEL “to reiterate [Chinachem Group’s] intention to build a tower of 538m in height.” 82.An earlier aspect of this lobbying effort had involved reliance on the Aeroports de Paris report. After studying it, experts at the CAD advised that it had recommended higher height limits based on assumptions which were inapplicable to Chek Lap Kok because they failed to take into account various local features, such as the terrain (and particularly Tai Mo Shan) affecting operation of the ILS and influencing the setting of height restrictions. This was conveyed to the Developers in a letter from SPEL dated 24 August 1995. 83.That letter also informed the Developers (as had various other government officers) that no relaxation of the 324 mPD height limit could be considered unless a higher limit could be shown to be workable after subjecting the ILS to extensive computer modelling and flight tests. The letter added that even if the limit could be relaxed, the building’s height could not in any case exceed 480 mPD (the obstacle clearance limit) and that “due to the complexity of the tests and the need for in-depth analysis and re-validation ......, the modelling work would unlikely be completed before January 1996.” It concluded that “the proposed 542 mPD for Nina Tower does not appear to be practicable on aviation safety [grounds].” 84.The Developers nevertheless persisted. The Government was asked to consider using a different type of aircraft guidance system and, on 25 August 1995, Mr C Y Leung offered to pay for further computer modelling to see if such other systems would permit construction of Nina Tower at its full proposed height. 85.These overtures were unsuccessful and, on 11 October 1995, repeated on 23 October 1995, DLO/TW wrote to the Developers reminding them of the deadline for completing the transport terminus and pointing to their liability for liquidated damages. The Developers must therefore have realised at this stage that their belief that an agreement had been reached to extend the terminus and building covenants for free was not shared by the Government. On 23 October 1995, Mr C Y Leung wrote contending that the building covenant period had been extended “in view of the fact that the CAD is still in the process of conducting computer simulation tests”. As he put it, the Developers’ view was that :
86.This exchange set the tone of the correspondence between the Government and the Developers for the rest of Phase 3. Whether the Government should resort to a claim for liquidated damages was discussed internally and Mr Bowen Leung expressed considerable sympathy for the Developers position, suggesting that indeed, the delay was not their fault. However, the Director and his officers who had had charge of the matter at the operational level, disagreed. Questions of this nature lay within the Director’s and not the Secretary’s responsibility, and the latter view prevailed. This was reflected in the decision taken at the Land Administration Meeting held on 28 February 1996. The Meeting noted :
87.The Meeting therefore decided that the Government should assert the right to re-enter for breach of the condition requiring completion of the transport terminus before 8 December 1995 and to seek recovery of unpaid liquidated damages. 88.The exchanges thereafter became contentious as litigation loomed. Two examples suffice to illustrate the positions taken respectively by the Developers and the Government.
Phase 4: April 1996 onwards 89.The conduct of the parties in this phase was not examined in consequence of the split trial direction. The only relevant matters to note during this period for present purposes are as follows. 90.On 2 July 1996, MLP 9 was submitted. This showed a tower within the 324 mPD limit and with a plot ratio of 6.998, but with provision made for the contingency that further plot ratio of 2.502 could be achieved either by building to the full proposed height or by additions to the podium. This was rejected for inadequacy of the plans. Further MLPs were submitted in which the Developers’ concept changed once more to encompass a proposal for two towers comprising office and hotel accommodation. A proposal along these lines as shown in MLP 12 was eventually approved on 2 January 1998. Two other MLPs were submitted with amendments and on 21 September 2001 a full occupation permit was issued at a point when the minimum GFA was achieved, with construction thereafter continuing to take the building to the full design height of 324 mPD, thus terminating any non-compliance with the building covenant. 91.In the meantime :
C. The issues 92.Mr Sumption helpfully identified five issues for consideration on this appeal. Mr Anthony Neoh SC, leading for the Government, was content to approach the case under these five headings although he disputed the precise manner in which some of these had been formulated. One readily sees that some aspects of Mr Sumption’s formulation implicitly reflect his substantive arguments which are controversial between the parties. Nevertheless, bearing that in mind, the five issues provide a useful framework for analysis. 93.The issues were stated as follows :
D. Issue 1: Refusal of approval under the Conditions 94.Although, as formulated above, this issue postulates that the MLP complies with all the special conditions of the grant, it must not be read in such a way as to beg the very question at hand. The issue, as argued, was as to whether, on their true construction, the Government was entitled to rely on any provisions of the Conditions (in particular sc 9(e), the DDH clause) to refuse approval of an MLP on the ground of the proposed building’s height, taking into account anticipated aviation safety and airport operation requirements and in the absence of any statutory height restriction applicable to the Lot. (a) The material provisions of the Conditions of Grant 95.The material provisions of the Conditions are as follows :
(b) The Developers’ arguments on Issue 1 96.Mr Sumption’s argument in favour of a negative answer to the question posed in Issue 1 proceeded as follows :
97.Despite the consummate skill with which Mr Sumption developed this argument, I am unable to agree with it and do not accept the conclusion it reaches. (c) The scope of the discretion under the DDH clause 98.I would accept that despite the absolute language employed in the DDH clause, read together with sc 63(b), the discretion is necessarily subject to some limitation. However, I do not accept the limitation contended for by Mr Sumption. I do not consider, the Equitable Life case helpful in this context firstly, because I do not accept that it is authority for any general proposition that contractual discretions must be limited by some notion of the parties’ “reasonable or legitimate expectations”; and secondly, because the nature of the discretion which the House of Lords was concerned with in that case was materially different from the discretion conferred by the Conditions on the Government. 99.It was pointed out that the approach which we were invited to adopt is not new, but can be found, for instance, in equitable rules preventing trustees from exercising powers in a manner constituting a fraud on such powers. In such cases, trustees are bound to exercise the power bona fide and for the end designed (see Snell’s Equity, 13th Ed, pp 624 to to 629). The approach was also likened to the well-known rule of administrative law that a public authority may only use statutory powers conferred upon it for the purposes of the statute in question. 100.That approach in the types of cases mentioned is of course well-established. Equitable Life is a case that involved analogous powers, namely, powers exercised by the directors of a mutual life assurance society for determining annuity rates and bonus levels for the benefit of policyholders who were members of that society. As Lord Woolf (at §§10, 17-21) and Morritt LJ (dissenting, at §103) both pointed out in the Court of Appeal, such a power is a fiduciary power. In the House of Lords, Lord Steyn too noted (at p 459) that the directors’ discretions in that case were conferred for the benefit of policy holders. And while Lord Cooke did not make express reference to this fact, he noted (at p 460) that the principle relied on “is common to administrative law ...... and sundry fields of private law”, citing in relation to the latter, Howard Smith Ltd v. Ampol Petroleum Limited [1974] AC 821, which was a case concerned with the limits of a fiduciary discretion exercisable by a company’s directors. 101.Like powers exercisable by trustees and public authorities, a discretion such as that arising in the Equitable Life case is not conferred for the benefit of the donee of the discretion, but for the benefit of the persons who are the objects of its exercise. One can well understand why, in such cases, equity and the law enable the exercise of such a power to be scrutinised against the express and underlying purposes of the instrument conferring the power. 102.However, the Government is not a fiduciary vis-à-vis the Developers in respect of the exercise of any discretion reserved to itself under the Conditions of Grant. In that context, as was authoritatively decided in Hang Wah Chong Investment Co Ltd v. Attorney General [1981] 1 WLR 1141, it acts in the capacity of landlord, entitled to exercise its powers for its own, that is, for the public’s benefit. 103.Secondly, it seems to me very doubtful whether the House of Lords was actually seeking to lay down any principle of the breadth suggested. Indeed, I find it difficult to envisage how a court is to ascertain, in the context of a commercial contract, the parties’ legitimate expectations as opposed to ascertaining what they must be taken to have intended by construing that contract on orthodox principles. The Equitable Life case appears perfectly explicable on the basis that the contractual discretion in question had to be construed so as not to undermine the express and implied contractual rights conferred on policyholders by the policy. 104.In the Court of Appeal (whose majority decision was upheld in the House of Lords), Lord Woolf MR, clearly considered the exercise of the discretion to be confined by a need to protect implied contractual rights given by the policy. His Lordship described the issue as follows :
105.Waller LJ, the other member of the majority, likewise saw the critical question as one of contractual construction, ie, whether the discretion could be said to be unlimited by the contractual terms properly construed (at §§114, 123 and 134). 106.In the House of Lords, Lord Steyn noted that the language of the relevant article did not preclude the director’s action but considered the critical question to be whether a relevant restriction could be implied into that article (at p 458). He continued:
107.Lord Steyn was therefore stressing that on its true construction, the directors’ power was a fiduciary one which could not be exercised in such a manner as to deprive the policyholders’ contractual right to the benefit of guaranteed annuity rates of any substantial value. While his Lordship spoke of “the reasonable expectations of the parties”, it is important to note that he equated such expectations with the parties’ presumed supposition “that the directors would not exercise their discretion in conflict with contractual rights”. 108.I do not read Lord Cooke’s speech as justifying any wider principle. Thus, (at p 461), his Lordship stressed the need to construe the power in the context of the other terms of the policy so that its exercise did not conflict with those other terms:
109.Lord Cooke also expressly agreed with Lord Woolf’s approach to the policy and concluded (at p 462) that the discretion conferred “is inadequate to justify such an adjustment of policy benefits.” It follows that the effect of the purported exercise of discretion was to override, not some extra-contractual expectations of the parties, but what, on its true construction were the benefits bestowed on them by the policy. The other members of the House of Lords agreed with both Lord Steyn and Lord Cooke. 110.Subject to the argument dealt with below as to the “procedural” character of the DDH clause, it is my view, that as a matter of construction, the discretion conferred on the Government by the DDH clause is limited only to the extent that its exercise must not undermine express or implied contractual rights conferred by the Conditions on the Developers. In other words, as Mr Neoh put it in the course of argument, the Government must not, by use of the DDH clause, derogate from its grant to the Developers. Whether any particular exercise of the discretion would undermine an accrued contractual right depends on the construction of the contract in each case, an orthodox exercise involving the objective ascertainment of the parties’ intention rather than reference to any extra-contractual “reasonable or legitimate expectations” of the parties. In the present context, if the Conditions properly construed conferred an unrestricted right on the Developers to build to any height they pleased, imposition of the 324 mPD height limit would have amounted to a derogation and a breach of the implied term, but not otherwise. (d) The parties’ reasonable or legitimate expectations 111.In the light of my foregoing decision, it is not necessary to decide whether the matters relied on in paragraph 96(c) above provided the Developers with any requisite legitimate expectations. I will, however, briefly indicate why I would have been inclined against such a conclusion. 112.It is true that a search of the legislative record in 1991 or 1992 would have revealed that no order had been made under the Ordinance imposing a height restriction on buildings in Tsuen Wan. However, a reading of the Ordinance and an inspection of the plans then gazetted would have made it clear that all existing regulations were at that stage tailored only for aircraft using Kai Tak airport. This could not possibly have justified any expectation that there would be no height restrictions at Tsuen Wan or anywhere else, in relation to the airport being built at Chek Lap Kok. It obviously only meant that steps to promulgate statutory height limits in relation to the new airport had not yet been taken. 113.Indeed, someone reading the Ordinance as it then stood could properly have been in doubt as to whether it would have been possible, without the amendments to the Ordinance which were effected in 1994, to make an order in relation to the anticipated use of Chek Lap Kok. Before amendment, section 3 gave power to prescribe a height restriction only where the Governor in Council was of the opinion that “the safety of aircraft so requires”. Section 2(2) defined “the safety of aircraft” to mean “the safety of aircraft using Hong Kong Airport.” It would have been at least highly questionable whether that power extended to imposing height limits in areas such as Tsuen Wan which were not at that stage on the flight path of any aircraft using any airport. 114.In any event, the fact that no statutory height restrictions had yet been imposed could not justify any expectation on the part of the Developers that height restrictions could not be imposed by virtue of one or more provisions in the Conditions. Whether or not such a power existed had to depend on construing those provisions, not merely on the absence of statutory regulation. And indeed, on its face, the DDH clause did provide that the height of any proposed building was subject to the Director’s approval. 115.This last comment is also relevant to the argument that any developer could legitimately expect that the Conditions of Grant would disclose all commercially material terms. Since the DDH clause did on its face disclose that height was subject to the Director’s approval, unless somehow displaced or materially limited by construction, it prima facie satisfied any relevant expectation that all material restrictions should be disclosed. 116.One might add that, on the evidence, a height restriction at a level of 324 mPD did not obviously involve any commercially adverse effects so as to justify any expectation of being permitted to exceed that limit. The evidence was that a 324 mPD limit did not make the Lot less valuable. It was not in doubt that the maximum permissible GFA and plot ratio could be achieved within that limit, although such a building or buildings might have been less prestigious than one claiming to be the tallest building in the world. (e) The DDH clause as “purely procedural” 117.Mr Sumption’s argument that the DDH clause should be construed as “purely procedural” proceeds independently of the arguments just considered. Even if the discretion is not to be limited by reference to extra-contractual legitimate expectations, it is the Developers’ contention that sc 9(e) must be construed as adding nothing substantive, but merely confirming the Government’s right to refuse approval by way of enforcing other limitations provided for in the Conditions bearing on design, disposition or height. In other words, the DDH clause gives no distinct and independent discretion to refuse approval. In the absence of any specific height restriction in the Conditions, it is argued that the Director could not reject any MLP on grounds of height and that the DDH clause was incapable of supplying a contractual basis for such a decision. 118.I cannot accept that argument. While, as indicated above, I would accept that the DDH clause is subject to an implied limitation preventing it from being used to derogate from the contractual grant, I do not agree that sc 9(e) should be construed in a manner which renders it otiose. 119.In the first place, there is no necessity for there to be any separate “procedural” clause relating to approvals or disapprovals of the Developers’ proposals. Special condition 5(a)(i) already provides that the MLP must be “in accordance with these Conditions”. Accordingly, if the Developers were to submit a non-compliant MLP, as they did, for example, in the case of MLP 5 (which, inter alia, exceeded the maximum permitted GFA), the Government could obviously reject it on the basis of the relevant feature of non-compliance. The parties did not need a separate clause to tell them that approval could be refused. 120.Secondly, sc 9(a)(i) imposes on the Developers a duty, when developing the Lot to ensure that all buildings erected and to be erected thereon comply in all respects, inter alia, with “the design disposition and height approved” under sc 9(e). This plainly suggests that the DDH clause may be used for stipulating substantive requirements which are given contractual force and runs counter to the Developers’ “procedural” construction. 121.Thirdly, the Developers’ argument proceeds on the premise that the express terms of the Conditions provide a comprehensive code for what is and what is not permitted or required in respect of the development. It was argued in particular that since sc 9(b) sets out exhaustively what the parties intended by way of regulation of the building’s height without prescribing any maximum, height is contractually unrestricted, making it a derogation from the Government’s grant to impose a 324 mPD height limit for aviation safety reasons which are quite foreign to the contract. 122.I do not accept the premise of that argument. Special condition 9(b) is concerned with defining various permutations involving the reciprocal relationship between height, site coverage and plot ratio, with a view to regulating permitted density at the Lot. It shows how certain variations in height and/or of site coverage result in different permissible plot ratios. It stipulates that the permissible plot ratio does not increase any further by virtue of extra height in respect of buildings which reach or exceed the height of 61 metres. Special condition 9(b) is not concerned with, and has nothing to say about, absolute height limits. It is therefore not correct to say that sc 9(b) leaves the DDH clause with no role to play since sc 9(b) permits building to unrestricted heights. On the contrary, the height limit issue is not addressed except by sc 9(e) which, on its face, provides that the building’s proposed height is subject to the Director’s approval. 123.Thus, the Government’s grant to the Developers did not carry a right to build to any height without restriction and imposing a height limit of 324 mPD involved no derogation from such grant. The Government was lawfully entitled to exercise its discretion under the DDH clause to impose such a limit and there can be no objection on the basis that it did so to meet anticipated aviation safety and airport operational needs. The Developers’ argument on Issue 1 therefore fails. 124.I would expressly leave open all questions concerning the nature and scope of the Director’s discretion in respect of the “design” and “disposition” aspects of sc 9(e) since such questions may or may not give rise to different considerations and do not call for discussion on this appeal. E. Issues 2, 3 and 4: Implied terms, breach and the resultant delays 125.The other major plank of the Developers’ claim concerns the allegation that the Government was guilty of delays in the processing of their MLP submissions. The Developers argue that even if, as I have held, the Government was entitled on the basis of the DDH clause to reject the MLPs on height grounds, it nevertheless had a duty to process the MLP submissions expeditiously and that, having failed to do so, it was not entitled to extract liquidated damages or additional premium. 126.Issue 2 involves identifying the implied obligations concerned. Issue 3 poses the question whether any relevant delay was in fact caused by the Government. And Issue 4 raises an argument as to the nature and effect of the delay which must be shown in order to entitle the Developers to relief. These issues are inter-related and it is convenient to deal with them together, although I propose to address Issue 4 before coming to Issue 3. (a) The applicable implied terms (Issue 2) 127.Not much separates the parties regarding the nature of the applicable implied terms. The Developers are required by the Conditions to submit a compliant MLP for approval by the Director and to complete specified stages of construction within the defined periods while being prevented from proceeding beyond site formation works until approval of the MLP has been obtained. In such circumstances, performance of the obligations imposed on the parties obviously requires each to cooperate in good faith with the other. 128.As is pointed out in Chitty on Contracts (29th Ed) at §13-011, the court is often willing to imply a term that the parties shall co-operate to ensure the performance of their bargain. Mackay v. Dick (1881) 6 App Cas 251 is often cited in this context for Lord Blackburn’s statement as follows :
129.To give the Conditions business efficacy, Mr Sumption submitted that it is necessary to imply a two-fold duty on the Government, namely :
130.I agree with this submission and did not understand Mr Neoh to be submitting anything to the contrary. (b) The nature and effect of the delay which must be shown (Issue 4) 131.In relation to Issue 4, the Government submitted that the correct approach is that which was adopted by this Court in Kensland Realty Ltd v. Whale View Investment Ltd (2001) 4 HKCFAR 381, which involved applying the “prevention principle”. The Government argued that for the Developers to be entitled to relief, they had to show (i) that the Government had, by some culpable conduct or undue delay, placed itself in breach of a relevant implied term; and (ii) that such breach had, as a matter of causation, prevented the Developers from completing the requisite stages of construction during the building covenant periods. If these matters could be established, the Government would not be permitted to profit from its own wrong by triggering the liquidated damages clause or seeking additional premium. 132.As recorded in Deputy Judge Muttrie’s judgment (at §108), this was essentially how the matter was argued (by Mr Robert Tang SC) for the Government at the trial and it was the argument which the Judge accepted (at §116). I might add that the position adopted by Mr Denis Chang SC, leading for the Developers at the trial, does not appear to have been materially different. The Judge notes (at §107) that in his final submissions Mr Chang argued in favour of a term :
133.The Government argued that the evidence established and the Judge found that it had processed the MLP submissions without undue delay and that the Developers had duly been informed of each MLP’s deficiencies, especially in relation to the 324 mPD height limit. 134.Mr Sumption acknowledged that the prevention principle discussed in the Kensland Realty case may be relevant. However, based upon a line of authorities commencing with Holme v. Guppy (1838) 3 M & W 387, he argued for the application of a different principle which, based on the Developers’ Supplemental Case, may be formulated as follows : If the Government was responsible (whether “culpably” or not) for a substantial part of the delay within the time allowed for the development, it can no longer insist upon strict adherence to the time stated and cannot claim either liquidated damages or exercise a right to re-enter for non-completion in time. I shall call this the “partial responsibility argument”. 135.The Supplemental Case further explains the argument in the following terms :
136.The partial responsibility argument therefore has two important features. Firstly, unlike the prevention principle, it does not require that the Government’s conduct should be a breach of contract or otherwise wrongful. Secondly, the argument is that any delay in processing the MLPs attributable to the Government – perhaps even a delay of a day or two, provided such delay is not de minimis – automatically deprives the Government of any right to seek liquidated damages or to exercise its right to re-enter. Referring to several pieces of evidence mentioned below, Mr Sumption submitted that it was clear that the Government had been responsible for at least some relevant delay which was not de minimis and accordingly, since no quantification or distribution of delay was necessary, that it had lost its entitlement to the remedies it had extracted under protest from the Developers. 137.To assess this argument, it is first necessary to identify the principles which the cases relied on are capable of supporting. The authorities relied on by the Developers commence with Holme v. Guppy (1838) 3 M & W 387. There, the plaintiffs had agreed to complete carpentry work for the defendants within 4 ½ months from the date of the agreement, with liquidated damages payable beyond that period. The period was exceeded but it was found that some 8 weeks of the 9 weeks’ delay was due to the defendants’ own delay in giving the plaintiffs possession of the site or to its other contractors holding up the works. Parke, B held that the defendants were not entitled to liquidated damages, stating :
138.It might well be thought that this was no more than another case advocating the prevention principle since the decision appears to have turned on the finding that the employer’s delays prevented completion within the time agreed. However, some later cases have tended to highlight Parke, B’s emphasis on the importance to the contractor of having the benefit of the entire period permitted for the works. 139.Mr Sumption relied next on Dodd v. Churton [1897] 1 QB 562, where a building contract contained both a liquidated damages clause and a clause entitling the employer to order additional work. When, as a consequence of extra work being ordered, the work had to extend beyond the originally stipulated period, the employer was held not entitled to liquidated damages. This case therefore indicates that such a result may be reached even where there has been no breach of contract – ordering additional work being perfectly lawful. However, the judgments were again all heavily inclined towards the prevention principle. Lord Esher MR stated that the principle was that:
Lopes LJ thought it a well-ascertained rule of law that:
And Chitty LJ stated :
140.Trollope & Colls Ltd v. North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 was cited to show Lord Pearson’s approval (at p 607) of part of Lord Denning MR’s rendering in the Court of Appeal of the rule derived from Dodd v. Churton as follows :
141.This does not take the doctrine any further except perhaps to lend support to the proposition that the rule is not confined to building contracts. Pausing here, it is fair to say that none of the three authorities mentioned, standing alone, could be thought to support the partial responsibility argument. 142.However, two other cases, each decided on similar lines, do take the matter further. The first is the decision of the English Court of Appeal in Peak Construction (Liverpool) Ltd v. McKinney Foundations Ltd (1970) 1 BLR 111.
143.This decision was applied by Staughton J in The “Cape Hatteras” [1982] 1 Lloyd’s LR 518. Summarising the authorities in question, his Lordship stated :
He then proceeded to make findings that the shipowners, who were seeking liquidated damages from ship repairers, had given instructions which had interrupted the engine repair works and so were themselves responsible for part of the delay, disentitling them from liquidated damages. 144.In my view, the propositions supported by this line of cases are significantly narrower than those advanced in the Developers’ partial responsibility argument. These are all cases which involve construction of a contract with a liquidated damages clause where there has been a finding that part of the delay which founds the employer’s claim for such damages has been caused by the employer himself. They establish that where the contract does not have a mechanism for certified extensions of time, the contract, construed contra proferentem against the employer, cannot, in the absence of clear words, be taken to mean that the employer is entitled to charge the contractor with liquidated damages accruing on a daily or periodic basis when it is the employer’s own conduct which has resulted in part of the relevant delay. The cases also establish that the consequence of disentitling the employer to liquidated damages is not that he is left without remedy for the delay which the contractor did cause, but that he can sue for unliquidated damages although, of course, that carries the burden of proving loss suffered in consequence of those delays. 145.These principles may be applicable to the debate on the Government’s entitlement to liquidated damages. However, no case outside the field of liquidated damages was cited and it is not at all clear that the principles can be transposed to apply to the Government’s asserted right of re-entry. 146.Mr Sumption submitted that there is no logical difference between the two remedies and that such transposition ought to be made. I am not persuaded of the correctness of that submission. The cases considered proceed on the factual premise that a building covenant period has been exceeded and that the employer and contractor have each been found responsible for some part of the resultant period of delay. It would obviously be untenable to construe the contract as permitting the employer to charge the contractor for liquidated damages in respect of that part of the delay which it, and not the contractor, had caused since the quantum of the contractor’s liability depends on the exact number of days (or weeks, etc) of delay attributable to him. In such circumstances, liquidated damages clauses are unworkable unless the employer’s delays can be segregated by certified time extensions. 147.The Government’s right to re-enter rests on a different basis. It arises under gc 11(a) on “any failure or neglect by the Grantee to perform, observe or comply with any of these Conditions”. This is not a remedy which involves liability in a quantum which varies according to the length of delay attributable to the Developers, as opposed to the Government. Liability to a re-entry is triggered, in the present case, by breach of the building covenant if it can be shown that the Developers failed to complete within the time stipulated by that covenant. The fact that the Government may (hypothetically) be found to have contributed to part of the period of delay which has run beyond the stipulated completion date does not affect the incidence, nature or extent of that liability. If the Government was partly responsible, that fact might of course be highly relevant on a petition to the Chief Executive or on an application to the court for relief against forfeiture brought under the Government Rights (Re-Entry and Vesting Remedies) Ordinance (Cap 126). However, this merely serves to underline the important differences between the remedies of liquidated damages and forfeiture of a lease. It is therefore my view that the principles which animate the line of cases on liquidated damages do not extend to the Government’s assertion of an entitlement to re-enter. The matter would stand on a different footing if it could be shown, applying the prevention principle, that the Government had culpably prevented timely completion by the Developers. However, they did not attempt to bring their case within that principle. (c) The facts relevant to the partial responsibility argument 148.Is the Government disentitled from claiming liquidated damages and left with only a claim for unliquidated damages? In the absence of a mechanism in the Conditions for certifying extensions of time, the authorities relied on appear to be applicable as a matter of principle. However, in my view, the Developers face insuperable difficulties given the findings of the Judge and the absence of findings which it needs to support application of that line of cases. 149.As indicated above, the implied term which the Judge found to exist involved inquiring into whether “there was culpable conduct or undue delay on the part of the Government resulting in the plaintiffs’ not being able to complete building within that period.” In that context, the Judge’s principal finding at trial was that there had been no culpable conduct or undue delay on the part of the Government preventing timely completion (at §§123 to 127). 150.That main finding, while of course adverse to the Developers and providing no support for the partial responsibility argument, is not specifically in point in respect of that argument. The partial responsibility argument does not require inquiry into whether Government had acted “culpably” (as Dodd v. Churton [1897] 1 QB 562, shows); nor does it require inquiry into whether Government’s delays prevented completion within the building covenant periods. 151.However, the Judge did not confine himself to his principal finding. He also made findings relating to particular aspects of the Government’s processing of the MLP submissions which are more directly adverse to the partial responsibility argument. Thus, he considered an argument based on certain building contract cases which he distinguished (at §120) on the ground that this was not such a case but nevertheless found that if he was wrong and such authorities were applicable, the Government was not at fault. He stated :
152.At §125, he made a finding that :
153.And at §126, in relation to the processing of MLP 4, he held :
154.In relation to alleged delays in relation to the ILS computer modelling studies his Lordship stated :
155.There has been no attempt to overturn any of these findings. However, in submissions, Mr Sumption sought to persuade the Court that there was ample evidence to justify a finding that there was at least enough delay, which was not de minimis, to justify application of the principles contended for. He pointed, for instance, to internal memoranda from Mr Bowen Leung expressing his view that periods of delay were not the fault of the Developers. He referred to the Director having said at a meeting on 26 March 1996 that he was willing to consider a grace period of 18 months (although he said that this was subject to consulting lawyers). He also referred to evidence as to how long particular steps might in general take and to Practice Notes indicating usual processing times. 156.It is not necessary to discuss each of the items of evidence referred to. Deployment of the partial responsibility argument requires relevant findings to have been made at the trial. Such findings as there are undermine rather than support that argument. The expedient of selecting particular items of evidence said to support the argument is impermissible. Major dangers obviously arise, particularly at an appellate hearing, in trying to address individual pieces of evidence – an internal memo here, an answer given in cross-examination there – taken in isolation. Thus, a policy Secretary may have expressed a view which might or might not be fully informed. It may have been advanced as part of an internal dialogue in the process of forming government policy. He might subsequently have modified his view in the light of other views received. Such statements can hardly be treated as “an admission” as was suggested. General departmental guidelines are exactly that, ie, guidelines of a general nature. They do not establish that the time taken on the facts of a particular case involves undue or any delay. It is also unclear what standards are to be used to judge whether there was “avoidable delay” in relation to any particular step in the processing of an MLP. As we have seen there is an iterative process of seeking the views of interested government agencies by circulation and ensuing dialogue with the developer. Objections elicited may be fundamental or trivial and may take more or less time to raise and resolve. Does “avoidable delay” depend on the reasonableness or otherwise of each comment made or requisition raised? How is that to be judged? 157.It is plain that if the partial responsibility argument had been fully investigated at the trial, the Government may well have wished to call further witnesses or to adduce further documentary evidence with a view to refuting the suggestion that there had been “avoidable delay” in relation to particular aspects of the MLP submission process. 158.In Flywin Co Ltd v. Strong & Associates Ltd (2002) 5 HKCFAR 356, this Court made it clear that it will decline any invitation to deal with the facts of a case on a basis which may cause unfairness to the other party. Mr Justice Bokhary PJ stated at p 369 B-C:
159.I would in any event add that the evidence and the Judge’s findings strongly support the conclusion that the Developers’ inability to complete the transport terminus and the building in time was overwhelmingly the result of choices which they deliberately made and of their erroneous belief that they would be given a free building covenant extension. It was their choice, after 15 months of the building covenant period had gone by, to change their project radically by espousing the intention to build the world’s tallest building on the Lot. This required them to go back to square one in terms of getting approval for their MLP. They submitted MLP 4 merely to test the waters without expecting it to be approved. Nor was MLP 5, which was an interim submission, intended as the true basis for their project. It was replaced by MLP 6 which was in turn immediately replaced by MLP 7 on 17 January 1995. By this time, more than 2 years of the building covenant period had passed. They still chose at that stage to continue pressing for a plot ratio of 11.4. They were made aware in January 1995 that because of the known future needs of the new airport, there would have to be a height restriction of 324 mPD at the Lot. 160.The Developers’ argument in correspondence and in court has been that notwithstanding their having being told repeatedly, including by SPEL in his letter of 27 January 1995, that, on CAD’s advice, this height restriction had to be imposed, there had been no formal determination to that effect. That is an unrealistic and untenable view. The Developers fully appreciated that MLP submissions are dealt with through the iterative process mentioned earlier, with the Director circulating their proposals among government departments and incorporating their comments, including those of the CAD, in his response to the proposals. The reality is that the Developers well knew that their MLPs, from MLP 5 to MLP 8 inclusive, would not be approved while they proposed a building exceeding 324 mPD because of aviation safety and airport operation requirements unless their lobbying efforts succeeded in persuading the Government to change its mind about the height limit. They were repeatedly reminded about their obligations under the building covenants and the legal consequences of their breach. Yet, they did not submit any MLP for approval after rejection of MLP 8 in June 1995 for more than a year. If any part of this hiatus was due to an unjustified erroneous belief that they would be given a free building covenant extension, they can hardly blame the Government for the resultant delays. Moreover, it must have been clear by mid-October 1995, some nine months before MLP 9 was to surface, that the Government was continuing to assert its right to liquidated damages. 161.It is therefore my view that the partial responsibility argument fails partially on the law and wholly on the facts. It is inapplicable to the Government’s claim to be entitled to re-enter the Lot. And in relation to the claim for liquidated damages, it is not only unsupported by necessary findings but is undermined by findings adverse to the argument. It is not open to the Developers to seek to sustain the argument by reference to individual items of evidence since such a process falls foul of the Flywin principle. It follows, in my view, that the appeal must be dismissed. F. Issue 5: The building covenant extensions 162.Issue 5 involves a point taken by the Government in relation to the sums of additional premium received from the Developers. It concerns the argument that even if it were to be held to have had no right of re-entry, the Government was nevertheless entitled to retain the sums paid because they were voluntary payments made pursuant to agreements freely entered into for good consideration. In the light of my decision that the Government was entitled to re-enter, the premise of Issue 5 is inapplicable. However, it was suggested that this might still be a live issue in relation to the questions left for separate trial and the Court was invited to deal with it in this judgment. 163.On 10 January 1997, the Director wrote to the Developers threatening to forfeit the lease on the grounds that the building covenant periods had expired while the Developers had not even obtained approval to their MLP. 164.In his letter to the Developers dated 21 February 1997, after noting relevant failures to complete various aspects of the development within stipulated periods, the Director made an offer to extend the building covenant period for one year, up to 7 December 1997, in the following terms :
165.When this offer was accepted, Mr C Y Leung’s covering letter dated 18 March 1997 sent on the Developers’ behalf stated the basis of this acceptance as follows :
166.This pattern was repeated with each of the payments made for further building covenant extensions. 167.Mr Sumption submits that two principles from the law of restitution are relevant and applicable, namely :
168.The only relevant limit to these principles, he submits, is that such payments are not recoverable if they were voluntarily made, intending to settle some issue between the parties: see Goff & Jones, (op cit), §1-069 to §1-071. 169.Mr Sumption argued that the consideration for the payments of additional premium passing from the Government was its forbearance to exercise its purported right of re-entry and forfeiture; and that since, on the premise of this argument, no such right of re-entry existed, there was in fact and in law no consideration, which, it was submitted, constituted a sufficient ground for a restitutionary claim. Alternatively, the threat to forfeit the lease, having been made without basis, founded a restitutionary claim based on duress. It was submitted that the express terms upon which the payments were made and the prompt institution of proceedings to challenge the basis of the Government’s claimed entitlements made it clear that this was not a case of voluntary payments. 170.This is, on its face, a cogent argument. However, since the issue does not arise on the present appeal and is only potentially relevant to how questions at the separate trial may fall to be resolved, for the reasons which follow, it is my view that it is inappropriate to attempt to decide Issue 5 at the present stage. 171.The premise of Issue 5, as potentially applicable at the split trial, will of course remain that the Government was not entitled to re-enter. Whether that premise can be established will not be known until relevant issues of fact and law are explored and relevant findings made at that trial. Mr Neoh contends that the precise basis upon which any finding of a lack of entitlement to re-enter will be of importance. 172.As I understand his argument, it is contended that even if the court were to hold at the split trial that, due to some culpability on its part, the Government was not entitled to re-enter the Lot, the premium payments might nevertheless remain irrecoverable if the Government could show that they had been made by the Developers to buy the peace and certainty of an extension to the building covenant which provided them with good consideration for those payments extending beyond the consequences of any wrongs underlying Government’s original claim to re-enter (the sufficiency of such consideration not being a matter for the court). This, it was argued, would be sufficient to render the payments voluntary and irrecoverable. 173.If this is a feasible argument − as to which I express no view − it depends on the resolution of factual and legal questions which have not yet been defined and which are obviously highly controversial. It is accordingly, in my view, inappropriate to try to deal with Issue 5 at the present stage. Conclusion 174.For the foregoing reasons, I would dismiss this appeal and make an order nisi for the Appellants to pay the Respondent’s costs, certified fit for three counsel. I would direct that any representations which the parties may wish to make on the costs order nisi should be made in writing, filed and served on the other side within 21 days from the date of the handing down of this judgment, with any written representations in reply filed and served within 21 days thereafter; and that, in the event that no representations are filed within 21 days from the date that this judgment is handed down, the order for costs should become absolute without further order. Sir Derek Cons NPJ: 175.I have read in draft the judgments of Mr Justice Bokhary PJ, Mr Justice Ribeiro PJ and Sir Ivor Richardson NPJ. Having regard to the diversity of approaches therein it is appropriate that I too set down the approach that has led me for my part to the same conclusions on the questions that Mr Sumption QC posed for our consideration. It is sufficient, in view of the detail already and to be given, to set out only the basic essentials. Question 1 176.On this question I understand the argument to be put in two ways. First it is contended that having regard to the Grant as a whole and to the matrix in which it was conceived Special Condition (“SC”) (9)(e) must be construed as no more than a “policing” power, to be used to monitor the other conditions of the Grant, in particular these mentioned in SC 5(a)(i). 177.I am unable to accept this contention. Not only do I find nothing in the words of the condition itself, in the other Special Conditions or in the Grant as a whole to support such a restrictive interpretation, but to accept the contention would deprive SC (9)(e) of any independent or realistic effect. And that it is independent is confirmed by the reference to it in SC (9)(a)(i); and that it is in general unfettered is confirmed by SC (63)(b). I add the caveat because it is common ground that the condition may not be applied to derogate from any substantive right conferred by the Grant. 178.That leads to the second argument and the case of Equitable Life Assurance Society v. Hyman from which the appellants seek to draw assistance. However it seems to me that to be able to do so the appellants must first establish that the Grant gave them an unqualified right, subject to the other conditions of the Grant, to build to an unlimited height, in like manner that Mr Hyman had an unqualified right to his guaranteed annuity rate. For the reasons I have just discussed I am not persuaded that the appellants had that right. Nor am I persuaded that by the use of the phrase “the reasonable expectations of the parties” in the context in which he did, Lord Steyn intended to widen the basis of his decision beyond conflict with actual contractual rights. There was much discussion before us as to effect of SC (9)(b). I take that however to be no more than a method of calculating density. It refers to height, but gives no right to it. By its own language it is restrictive, not enabling. Questions 2, 3 and 4 179.I have found it convenient to group these three conditions together and then deal with the points they raise under the three heads of implied terms, liquidated damages and the right of re-entry. Implied Terms 180.Two such terms are suggested by the appellants :-
181.As to the first, Government contends that “any part of the time” must be qualified by the words “and causes the grantee to overrun the covenanted time”; and that the only sanction for any breach of the implied term should be an automatic extension of the covenanted time. 182.The judge at first instance accepted the Government’s formulation, but for my part I prefer that of the appellants. I do not see the suggested qualification as to time “strictly necessary” for the business efficacy of the contract, although it may well be a matter relevant to the assessment of damages if a breach be proved. Nor do I see any “strict necessity” to replace the normal remedy of damages. To do so would involve the court in rewriting the contract. 183.No objection appears to be taken by Government to the second suggested implied term, but it is strongly disputed that Government was in breach. The judge at first instance found that the Government was not, and I respectfully agree with him. By the letter of 27 January 1995 the Government made quite clear to the appellants that the maximum height that would be allowed was 324 mPD. The appellants were reluctant to accept that figure and did their best to make Government change its mind. But it cannot be accepted that thereafter the appellants did not know the current limit. Liquidated Damages 184.The rule on which the appellants rely here is succinctly expressed by Salmon LJ in Peak Construction (Liverpool) Ltd v. McKinney Foundations Ltd, conveniently set out by Mr Justice Ribeiro PJ at para.142(d) of his judgment. The earlier cases indicate that the act of the complainant need not necessarily be in breach of the contract, but it seems to me implicit in the principle itself and from the words used in the authorities that the act in question must have actually caused or at least contributed to the overrun. 185.But on the facts the rule does not assist the appellants. The long delay in Phase III was not caused by the Government. It stemmed from the act, or lack of action, of the appellants who chose, as the judge also found, and perhaps understandably from their point of view at the time, to wait in hope. 186.Another difficulty that faces the appellants in this respect is that the point was taken for the first time in this court. There was therefore no enquiry at first instance as to whether the suggested delays on the part of Government did in fact cause or contribute to the eventual failure to complete in time or consideration of whether those delays, if any, were set at naught by the offer and acceptance of a four-month extension. Right of Re-entry 187.As at present advised I am inclined to take the view that as a matter of principle the rule applied to liquidated damages should also apply to a claim to re-enter. But as it may become relevant in the split trial and would in any event fail in the case so far for the reasons just given, I prefer to express no decided opinion. Question 5 188.In the circumstances it is not necessary to answer this question. 189.For the above reasons I too would dismiss the appeal and make the consequential orders suggested in para. 174 of the judgment of Mr Justice Ribeiro PJ. Sir Ivor Richardson NPJ: Introduction 190.This is an appeal from the judgment of the Court of Appeal (Rogers VP, Le Pichon JA and Sakhrani J) of 31 July 2003 which dismissed an appeal from a judgment of Deputy High Court Judge Muttrie in the Court of First Instance given on 4 March 2002. By that judgment the judge dismissed the plaintiffs’ claims in their action save for those arising out of para. 29 of the Re-Amended Statement of Claim which were adjourned for subsequent resolution and are not in issue in this appeal. It is convenient to refer to the Court of First Instance as “the High Court”, and to Deputy High Court Judge Muttrie as “Judge Muttrie” and to the plaintiffs as, depending on the context, “the plaintiffs”, “Chinachem” or “the appellants”. 191.The plaintiffs are companies in the Chinachem Group which is a property developer in Hong Kong. The defendant, The Secretary for Justice, is sued as representative of the Hong Kong Government and, it is convenient to give the abbreviated references to particular officers and officials of the Government, namely, Secretary of Planning, Environment and Lands (“SPEL”), the Director of Lands (“DL”) and the Civil Aviation Department (“CAD”). 192.Much of the complexity and difficulty of the case arises from the fact that Kai Tak Airport was the only operational airport in Hong Kong but the Government had in October 1989 publicly announced the proposal to construct a new airport in its place, which clearly was going to be an immense undertaking. During that transitional period Chinachem as developer wanted to proceed with a development to meet its obligations to submit Master Layout Plans (“MLPs”) and then to obtain building approvals and the Government was faced with a degree of uncertainty, which would necessarily take time to resolve, to assess the implications for the potential impact on the operations of the new airport as and when all those implications were worked through. The airport was planned and built and then opened on 6 July 1998. The process was complicated further when Chinachem changed its mind and decided to develop the tallest building in the world and over a considerable part of the time in question sought to persuade the Government through discussions and advancing propositions concerning what the Government should commit to in relation to the Chek Lap Kok Airport to allow it to go ahead and subsequently challenged the Government for its ultimate failure to give the go ahead. Not surprisingly, the contract documents were not entirely suited to the transitional times, and an immediate question for consideration concerns the applicability of the Hong Kong Airport (Control of Obstructions) Ordinance, Cap. 301 (1986 ed.) (“the Ordinance”). 193.The long title to the Ordinance provides:
194.By s.2(1) unless the context otherwise requires:
195.And s.2(2) continues:
196.Section 3, Orders by the Governor in Council relating to heights of buildings and s.4 provide:
197.And ss 23 and 24 relating to compensation provide:
198.The Ordinance was amended by L.N. 88 of 1994, which came into force on 12 December 1994, to add to s.2:
199.And s.3, Orders relating to heights of buildings, added a new subsection (1AA):
200.In a pre-trial ruling upheld on appeal to the Court of Appeal Yam J ruled as the proper issues for trial on the pleadings in this regard
201.The immediate question is when could an order have first been made in relation to the proposed airport at Chek Lap Kok. It seems obvious from the respective flight path requirements, as well as other capacity considerations, that the framers of the Ordinance incorporating the 1994 amendments could never have intended, given airport safety needs and those other considerations, that the old international airport at Kai Tak and the new airport proposed for Chek Lap Kok could co-exist. The amendments came into force on 12 December 1994 and the framers of the Ordinance must have intended that those responsible for making orders under its provisions should make their own judgment as to when and where aircraft safety needs would warrant prescribing “areas within which no building shall exceed the height specified in the order” (s.3(1AA)). And the pointers to both existing and future uses of the airport in both the pre-December 1994 Ordinance and the Ordinance incorporating those amendments make that clear. In short, it was not until that power was conferred that such an order could have been made. 202.The contract provided for the lease for a term of years and the utilisation of the land in the context of an expanding society and economy where the land stock was limited. The extent, manner and timing of the development could only be determined by a close scrutiny of the contract and what it provided each party. What comes through the documentation is that the Government determined from the outset that the express terms of the contract could never be the subject of negotiation and that what little obligations it had should never be the subject of bargaining. It is only to the extent that limitations are implicit in the terms of the grant that it is arguable that the legal principles governing the implication of terms as to co-operation between the parties and prevention of performance are applicable. 203.The plaintiffs’ tender of 3 October 1991 for the grant of Tsuen Wan Town Lot No. 353 was accepted on 7 November 1991 and they took possession on about 8 December 1992. In consideration of the grant they paid a premium of $122,625,997.57 and surrendered other land exchange entitlements. In effect they gave value to a total of about $1,245,000,000.00 for the Lot including the value of the development provisions in the contract documents. By the terms of their grant they were required to complete their building on the Lot, to the stage of obtaining an occupation permit, within four years, i.e. by 8 December 1996. They were also required to complete a transport terminus on the Lot within three years, i.e. by 8 December 1995. If they did not comply with these building covenant periods, the Government could forfeit the Lot without repayment of the premiums paid for it or other compensation. 204.The case raises important questions as to the interpretation of contract documents of this kind and specificity and, in particular, as to what, if any, room there is for implying any further terms into the contract between the parties. As well, it raises various questions of the applicability of estoppel, waiver and economic duress arising from the conduct of the parties in the performance of the contract. Mr Sumption QC, who had not appeared in the courts below, signed a supplemental case for the appellants which substantially recast their case. In view of the way the case has developed, I will need to traverse the course of events and the way the case was put in the High Court and this Court at some length before turning to the Five Questions which Mr Sumption QC posed and then developed in oral argument and to Mr Neoh SC’s response. The Contract Documents 205.I turn now to a more extensive consideration of the contract documents. 206.By notice of 6 September 1991 the Buildings and Lands Department invited application from the owners of land exchange entitlements to surrender entitlements for the grant of the particularised lots of Government land it was making available one of which was Tsuen Wan No. 353 and not simply separately receive cash compensation and retain other lands. The location was Area 35, Tsuen Wan, New Territories, the area in square metres (about) 19,500 for a lease term of years commencing from the date of agreement and expiring on 30 June 2047 at an annual rental of $2,400.00 up to 30 June 1997 and thereafter an amount equal to 3% of the rateable value for the time being of the Lot. The specified user was non-industrial (excluding godown) purposes with building covenant, “Gross floor area not less than 75,000 square metres to be completed within 48 months from the date of possession of the Lot.” Applications were required to be made on the Application Form and placed in the Public Works Tender Box at the Queensway Government Offices before noon on 4 October 1991. Application Forms, Application Notices and Conditions of Grant were obtainable from and Sales Plans could be inspected at offices of the Buildings and Lands Department. 207.The Application Form signed by the plaintiffs dated 3 October 1991 and lodged as specified recorded that if their application was accepted then, until the Memorandum of Agreement referred to in para. 11 of the annexed Application Notice was signed, the application together with the written acceptance “shall constitute a binding agreement” between the applicants and the Government. The Application Notice likewise excluded any possibility of negotiation over the terms of a grant and para. 11 required timely execution by the successful applicant of the Memorandum of Agreement on the form attached to the Conditions of Grant. New Grant No. 6890 issued in respect of Lot 353 and the annexed Memorandum of Agreement in standard terms was executed on 20 November 1992. The Memorandum recorded that the applicants named:
208.The General Conditions of Grant are very specific and detailed but it is the relevant parts of Special Conditions (5), (6), (8), (9) and (10) which are of particular importance in the appeal. They provide:
209.Special Condition (15)(a) relating to the Transport Terminus provides:
210.Special Condition (19) relating to liquidated damages and Special Condition (63)(b) relating to approval or consent of the Government provide:
And by para. (63)(b), whenever in the Conditions it is provided
211.For completeness I should add that Special Conditions (20) to (32) and the Technical Schedules, referred to by Mr Sumption QC in argument, relate to such matters as pedestrian access, construction of footbridges and walkways, podium roof, landscaping, air conditioning, refuse collection and the like. Interpretation Principles 212.Against that background I return to consider the question posed in para. 204 above as to the interpretation of contract documents of this kind and specificity and, in particular, as to what, if any, room there is for implying any further terms into the contract between the parties. 213.The applicable principles of interpretation of contractual documents of this kind and specificity are essentially common ground. The now classic statement is that of Lord Hoffmann in Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1 WLR 896, which was the linchpin of Judge Muttrie’s approach. At pp 912-913 in the passage cited by the judge, Lord Hoffmann said:
214.In Bank of Credit and Commerce International SA v. Ali and others [2002] 1 AC 251 at p.269 para. 39 Lord Hoffmann added:
See also Lord Bingham of Cornhill at p.259 para. 8 and Lord Clyde at pp 281-282 para. 78. 215.However, given the way the argument developed in this Court, we do not need to go into the question of inadmissibility of previous negotiations of the parties and their declarations of subjective intent or of evidence of the subsequent conduct of the parties in that regard. Indeed, it is clear from examination of the contract documents in this case that they were not even in part the product of any negotiation before or after the contract was created. The Government set the terms of any grant that would issue and distanced itself from any tenderer. Similar analysis would preclude allowing evidence of such subsequent conduct of the parties except when relating to the establishment of a collateral agreement. Further, to allow evidence of the subsequent statements of the parties as to their intentions would seem inconsistent with Lord Hoffmann’s first principle in two respects: (1) The concern is as to the meaning that the contract document would convey to a reasonable person having all the background which would reasonably have been available to the parties – the subject of the inquiry is the objective third person, not the actual parties; (2) the inquiry is directed to the background knowledge reasonably available to the parties “in the situation in which they were at the time of the contract”. 216.It is apparent from the context in which Judge Muttrie referred to Lord Hoffmann’s statement of principles and the immediately following paragraphs in Judge Muttrie’s judgment that he considered the objective third person was required to determine what background knowledge would have been reasonably available to the parties at the time the plaintiffs entered into the commitments which became binding on them, which was 7 November 1991 (or at the latest 20 November 1992). But it is unnecessary to go further into that point because it was common ground between counsel in this Court that the matter had to be judged at the time the contract was created. Pleadings and Issues 217.Judge Muttrie noted that the plaintiffs’ case had changed somewhat since its inception. The then current Re-Amended Statement of Claim pleads the implied terms contended for in this way:
218.The Re-Amended Statement of Claim goes on to record (para. 10) that:
that on 19 May 1994 the plaintiffs submitted a MLP for a single office tower of 468 metres with a 50 metres mast and thereafter submitted a number of other MLPs for the development each of the same height of 468 metres plus mast (para. 12); that by letter of 10 June 1994 the District Land Office replied that the 19 May MLP exceeded the plot ratio specification and suggested that the MLP should be substantially changed so as to comply with the terms of the Agreement (Particular (1)); that on 13 and 17 January 1995 a revised MLP was submitted [in fact, there were two, - the 6th MLP of 13 January was superseded by the 7th of 17 January] for a building height of 468 metres and mast increased to 70 metres, a total height of the Tower of 538 metres (542 mPD) (Particular (3)); that on 21 February 1995 the District Land Office commented on the 7th MLP including the comment that the Director of Civil Aviation had advised that the imposition of a building height of 324 mPD might be required in order to protect the Instrument Landing System (“ILS”) and “safeguard the operations of the new airport” (Particular (4)) – the proposal to build a new airport had been publicly announced in October 1989 and it was planned and built and then opened on 6 July 1998; that by letter of 1 June 1995 the District Land Office advised in relation to the 6th and 7th MLPs that they were not considered acceptable under the lease conditions because the height of the building would have “adverse effects on the operation of the Chek Lap Kok Airport” (Particular (6) of para. 12); that (para. 13):
that the imposition of that height restriction was advised by letter of 27 January 1995 as connected with Aviation Safety “in order to protect the Instrument Landing System and safeguard the operations of Chek Lap Kok Airport” (Particular (2)); and that (para. 14):
219.The remaining paragraphs which are self-explanatory read:
220.I should note, first, that Judge Muttrie, for the reasons he gave, rejected the pleaded 8 June agreement (paras 16 and 17), the August-September Beijing Agreement (paras 18 and 19) and the lulling plea (para. 20); and, second, as also explicit in para. 15, that the plaintiffs pleaded numerous particulars of meetings and discussions supporting various paragraph pleadings. It will be necessary to go into those points when considering the course of events before the High Court and before this Court. Judge Muttrie carefully summarised the respective cases of the plaintiffs and the defendant and then set out in full the issues as formulated by the plaintiffs:
Judge Muttrie’s Findings and Conclusions 221.The trial extended over 24 days and the judge necessarily reviewed the facts including the evidence relating to the alleged agreement of June 1995 and the alleged Beijing agreement of August-September 1996 at some length. For the reasons he gave he was not satisfied that any agreement was made at the meeting in June 1995 or in Beijing in 1996. Accordingly he concluded that there was no agreement, representation, or understanding as contended for in respect of Issues 10, 11 and 14 and therefore no question of time being at large as a result. He went on to reject the claimed estoppel or waiver raised in Issue 13, on the ground that a clear and unequivocal representation had not been established. 222.Judge Muttrie then turned to the question of the interpretation of the agreement and whether it included all or any of the implied terms pleaded. He adopted the statement of principles of interpretation set out by Lord Hoffmann in Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1 WLR 896. In the course of the ensuing discussion Judge Muttrie said:
In the previous para. 102 the judge had concluded:
223.In short, the judge concluded that the Government had the power under Special Condition (5)(a) generally to disapprove MLPs and under Special Condition (9)(e) (the DDH Clause) it had the power to disapprove them on the grounds of design, disposition and height; that the DDH Clause could be invoked for purposes relevant both to the Government’s interests as Government and as head landlord; that the Director was not required unequivocally to invoke the DDH Clause and as well identify precisely the new limitation sought to be introduced, there being nothing in the agreement to that effect; and then added that the Government was entitled to use the DDH Clause to determine a maximum height before the completion of computer modelling tests. 224.Mr Chang SC for the plaintiffs had at trial compressed the implied terms pleaded into two terms namely:
Mr Tang SC for the defendant had submitted
The judge observed that the two positions were not far apart and that either way it seemed that fault on the part of the grantor would be required. Following his discussion of various authorities on the implication of terms he concluded that the business of the court is not to re-write the contract and implication is a matter of strict necessity in the context of the facts which here involved an MLP to build an extraordinary building after the building covenant period had run a good fraction of its course. Answering the hypothetical question, should there not be some term to regulate how long the grantor takes to consider the MLP so that building work can start, he concluded that the Government recognized the principle that, if delay was caused by the grantor’s fault, the period must be extended and had here allowed four months extension. 225.The judge’s ultimate:
There was, the judge found, no breach by the Government of the only term which could be implied into the agreement. Those findings disposed of Issues 7, 8, 9, 12, 15, 17 and 18, the judge observing in relation to Issue 18 that, if there was no breach on the part of Government, there was no entitlement as to damages. 226.The penalties claim was that the sums were paid under protest and the plaintiffs were entitled to repayment of them as money had and received or by way of the equitable remedy of restitution even if the Government was not in breach of any implied terms and the delay came about solely through the fault of the plaintiffs themselves. On the authority of Hang Wah Chong Investment Co Ltd v. AG [1981] 1 HKLR 336 and Lok On Co Ltd v. Attorney General [1986] HKLR 857, the judge concluded :
227.Finally, the judge concluded that in the light of those findings the question of economic duress (economic coercion in the form of illegitimate pressure calculated to force the plaintiffs either to pay the large premium unlawfully demanded or to lose to the Government their investment in Lot 353) did not arise and nor did unjust enrichment. The Court of Appeal Judgment 228.Having heard counsel for the appellants the Court did not find it necessary to hear argument from the respondent Government save for clarification as to the terms of the concession which had been made in the Court below. Nevertheless the court appropriately delivered a careful reasoned decision canvassing each of the issue raised and in the result upholding the findings of fact and conclusion of law of the trial judge and for those reasons dismissed the appeal. There being no new arguments raised in the Court of Appeal and no relevant differences of substance between the reasoning in the two judgments, it is not necessary to traverse the Court of Appeal judgment any further. The Argument in this Court 229.The case of the appellants as first filed submitted that there were at least six sets of questions to be decided in the appeal:
The reference in the last line of that citation is to an earlier para. 1.2 which read:
230.The supplemental case for the appellants dealt with three questions:
A second bundle of “Will Refer” materials with some 19 cases and other authorities was also provided. 231.The “Five Questions” posed by Mr Sumption QC and developed in argument at the hearing read:
232.In turn, Mr Neoh SC, who also had not appeared in the courts below, filed a supplemental case and in argument presented and developed his “Propositions of Law of the Respondent” which read:
233.Mr Neoh SC on behalf of the Government raised no objection to the scope of the issues being developed in this way. Both sides very sensibly take the view that all issues should be finally resolved. Where they differ is in determining what, if any, questions should be seen as involving concurrent findings of fact. On certain matters Mr Neoh SC relies on the general principle expressed in Flywin Co. Ltd v. Strong & Associates Ltd (2002) 5 HKCFAR 356 at para. 38:
234.For his part Mr Sumption QC submits that those matters should be characterised as involving primary facts found by Judge Muttrie, which were not disputed, and also inferences from primary facts drawn by the judge, which could be and were challenged. He relies on the principles in the Edwards (Inspector of Taxes) v. Bairstow [1956] AC 14 line of cases, which are not confined to tax cases but are of general application in appellate courts. Lord Radcliffe said (at p.36):
Expressing a similar preference Viscount Simonds (p.29) spoke of supporting the determination “if it can reasonably be supported”; Lord Somervell of Harrow (p.39) concurred in Lord Radcliffe’s opinion; and Lord Tucker (p.39) agreed that the appeal be allowed, for the reasons stated by Viscount Simonds and Lord Radcliffe. The Development by Counsel of their Arguments 235.The first of the five questions posed by Mr Sumption QC is whether or not the Government was entitled to withhold approval for an MLP complying with all the Special Conditions of the Grant, on the ground that the height of the proposed building exceeded the minimum height which the Government expected to fix under the Ordinance. The underlying assumption developed in argument is that, although an MLP proposal otherwise complies with all Special Conditions of the Grant, the Government is not entitled to withhold approval if the height of the proposed building exceeds the minimum height which the Government expected to fix under the Ordinance. That same assumption is at the heart of the three questions in the supplemental case: (1) Whether or not the Government was entitled to use its powers under the Special Conditions for the purpose of introducing a height limit related to the safety conditions of the new airport; (2) If the Government was responsible for delay on the operation of the time limits for development in the Special Conditions, and whether or not culpably so, what is the legal effect if any such delay on the part of the Government?; (3) If the Government was responsible in terms of (2) for the time limits being missed, can the Government rely on Chinachem’s conduct in paying liquidated damages under protest and in agreeing under protest to take an extension. As well, the second and third of the five questions reflect Mr Sumption QC’s development of his argument supporting the assumption underlying the first of the five questions and the fourth and fifth of those questions link back to the second and third questions in the supplemental case. 236.As I see the issue, it is a matter of applying orthodox principles of construction to determine the ambit of the Government’s powers under Special Conditions (5) and (9) in approving MLP’s for the development of the Lot and, subsequently, in approving the design, development and height of any building to be erected on the Lot. The question, then, is whether the Government is contending for a wider power on the true construction which those Special Conditions bear; and, if so, what is the extent of their ambit and the effect of the inherent constraints, which will then govern the answer to be given to the question whether the Government by its conduct derogated from its grant under the Special Conditions. On that approach, the focus is on the conventional interpretation and application in context of well-established principles relating to the implication of terms as to co-operation between the parties and prevention of performance in the operation of a contract of this kind and specificity. Mr Sumption QC developed an ingenious and elaborate argument and I trust I will not fail to do it justice in summarising his submissions as follows. 237.The Government’s right to refuse approval under the DDH Clause (Special Condition (9)(e)) is only exercisable for ensuring that proposals comply with the contract. It cannot have been intended to give a wholly unfettered discretion, (notwithstanding Special Condition (63)(b) which is implicitly subject to the limits on the discretion), because
238.Turning then to the timetable of events, Mr Sumption QC divided his chronology into four phases with different consequences attaching to each phase: Phase 1 running from December 1992 to May 1994; Phase 2 from 19 May 1994 to June 1995; Phase 3 from June 1995 to April 1996; and Phase 4 from April 1996 onwards: and
239.As Mr Neoh SC’s propositions of law (para. 232 above) foreshadow, he submitted that the Flywin principle applying in relation to two sets of issues barred on evidential grounds raising the issues on this appeal. The first related to the construction of (b) and (e) under which the Government does not claim that its approval powers are unconstrained. Its implicit obligation is not to derogate from its grant to Chinachem and these conditions were at least in part substantive, not procedural. The second was that the absence of any finding of fact relevant to the determination of Phase 4 issues at the further para. 29 inquiry was due to Chinachem’s failure to raise any such cross-over factual matters at the hearing before Judge Muttrie. Discussion: Mr Sumption QC’s Primary Arguments 240.For reasons which I can state relatively shortly, I have concluded that Mr Sumption QC’s primary arguments must fail. First, the arguments must be considered in light of the context against which the implication of terms relating to co-operation and prevention of performance is to be assessed (para. 236 above) and in light of other aspects of the case in respect of which there was common ground between counsel. The classic statement of principles by Lord Hoffmann in Investors Compensation Scheme Ltd v. West Bromwich Building Society, which was the linchpin of Judge Muttrie’s approach, requires that the context be judged at the time the contract was created and it is the meaning which the contract document would convey at that time to the objectively reasonable person having all the background knowledge which would reasonably be available to the parties, and so excluding evidence of the subjective statements of the parties as to their intentions, which is assessed (see paras 213 to 215 above). The only exceptional situation where evidence of subjective statements of the respective parties as to their intentions or views may become part of that context is where one is seeking to establish a collateral agreement. However, Judge Muttrie found, and his findings were upheld by the Court of Appeal, that the plaintiffs had failed to establish the pleaded 8 June Agreement, the pleaded August-September Beijing Agreement and the “lulling” plea (see para. 220 above), and Mr Sumption QC accepted the concurrent findings in respect of those pleaded agreements and did not pursue any argument based on the lulling plea. Further, as noted in para. 215 above following an extended review of the basic contract documents, it is clear from examination of those documents that they were not even in part the product of any negotiation between the Government and Chinachem before or after the contract was created. The Government set the terms of any grant it issued and distanced itself from any grantee. In my view the crucial question to be answered when considering Mr Sumption QC’s submissions is what room, if any, is there for implying the proposed further term into a grant of this kind and specificity. 241.Second, I do not read Equitable Life Assurance Society v. Hyman [2002] 1 AC 408, on which Mr Sumption QC placed considerable reliance as a modern statement of the principled approach required in this case, as supporting his submissions. After citing Lord Hofmann’s statement in Banque Bruxelles Lambert SA v. Eagle Star Insurance Co. Ltd [1997] AC 191, 212 that the process “is one of construction of the agreement as a whole in its commercial setting”, Lord Steyn continued:
On that inquiry he reasoned that final bonuses were a significant part of the consideration for bonuses paid and the self-evident commercial object of guaranteed rates in GAR policies was to protect the policy holder against a fall in market annuity rates by ensuring that if the fall occurs he will be better off than he would have been with market rates and the supposition of the parties must be presumed to have been that the directors would not exercise their discretion in conflict with contractual rights. An implication precluding the use of the directors’ discretion to deprive the relevant guarantees of any substantial value was strictly necessary and essential to give effect to the reasonable expectations of the parties, which I read as referring to those presumed expectations at the times all policy holders opted for GAR policies, not at all on subjective statements by particular policy holders as to their intentions. And I read Lord Cooke’s focus on not exercising discretion for purposes contrary to those of the instrument by which it is conferred as directed to the obverse question, has there been a derogation from the grant to all the GAR policy holders to be determined by reasonable readers in the shoes of the policy holders? 242.If the inquiry is approached in the way I favour, then the twin limitations governing any terms to be implied in this case are that the principle is sparingly and cautiously used and never to be employed in conflict with the express terms of the text of the contract and that the legal test for the implication of such a term is a standard of strict necessity; and applying those yardsticks much of the superstructure of Mr Sumption QC’s submissions falls away. 243.I return to the summary of Mr Sumption QC’s submissions in paras 237 and 238. Mr Sumption QC submitted (para. 237) that the DDH Clause cannot have been intended to give a wholly unfettered discretion, for the reasons given in his sub-paras (i) to (iii), and it must be limited (sub-para. (iv)) either (a) by construing it as a procedural provision to enable Government to monitor and enforce the other provisions; or (b) on objectively reasonable grounds; and he preferred (a) for two reasons (para. 237(v) and (vi)): because there are no criteria for determining what are objectively reasonable grounds and because that preference was dictated by the language and structure of the MLP, again for the reasons given in his sub-para (vi); and then in para. 237(vii) and (viii) he submitted that the real purpose of the DDH Clause is to reiterate the need for compliance with the terms of the Conditions of Grant in the context of the overriding status accorded to Special Condition (9)(b) and that the Special Conditions confer rights on the developer and should not be viewed narrowly as simply imposing duties on each party. 244.But to move straight from the proposition that the DDH Clause cannot have been intended to give the Government a wholly unfettered discretion to the proposition that that clause (and Special Condition (9)(b)) must be construed in that way as procedural provisions covering the field does not reflect adequately the requirements emphasised by Lord Steyn that the starting point is that a term which is in conflict with the express terms of the text may never be implied and, if that requirement is met, the term to be implied is confined to what is strictly necessary, not what might seem reasonable. The focus is on the minimum intrusion on what the contract states, which is required to give effect to the presumed intent of the parties, and does not allow rewriting of the contract. 245.Turning then to the factors Mr Sumption QC relied on in para. 237:
246.Mr Sumption QC’s timetable of events along with the summary in paras 218 and 219 above of pleadings in the Re-Amended Statement of Claim bring home the extent of reliance by Chinachem on pleaded meetings and discussions between representatives of Chinachem and officers and staff members within Government to support the arguments advanced in this case and the basis on which Mr Sumption QC developed his Four Phase Chronology argument. As to that latter point Mr Sumption QC takes no issue over inter-action between the parties in the first phase ending 19 May 1994 when Chinachem first submitted an MLP for a very tall building. That was because Chinachem had not suggested that the Government was responsible for any part of the elapse of time between 7 November 1991 when Chinachem become bound to execute the Memorandum of Agreement in its standard terms (leading to the issue of the Grant and its particularised conditions) and 19 May 1994. Mr Sumption QC’s second phase consideration runs from 19 May 1994 to June 1995 when an MLP was rejected by Government because the proposed building was too high on aviation safety grounds. He then developed an argument that the rejection for the stated reason that the gross floor area proposed was excessive failed to inform Chinachem that the MLP would have been unacceptable in any event because of the new airport, went on to comment, on the basis of some answers by officials in cross-examination about times taken within Government to decide whether an MLP is compliant, that if it was going to take longer than two to three weeks on height grounds then any of the possible reasons for any delay beyond those which he postulated was an internal Government responsibility; and further that for the next nine months from October 1994 to June 1995 there was a plan on the table with a compliant plot ratio, the sole major issue was airport height and he characterised what he submitted as the Government’s failure to appreciate the problem about airport safety, on the four possibility hypothesis which he advanced, as delay wholly attributable to the Government’s internal muddle and accordingly the decision to reject an MLP on airport safety grounds was not a permissible ground of refusal under the terms of the grant. Phase 3 ended in April 1996, when Chinachem was told after computer modelling had been completed that 324 mPD was the maximum height allowed and he attributed that to avoidable delay on the Government’s part stemming from its uncertainty about what the height restriction should be and in consequence ten months was lost because of that uncertainty and Government’s internally divided views. With respect to Mr Sumption QC’s submissions in relation to the second and third phases his approach has two underlying difficulties. The first is that it was not until power to make an order prescribing areas within which no building was to exceed the height specified in the order on aviation safety grounds was made and in force on 12 December 1994 that such an order could have been made under the Ordinance. It was then for those responsible for making any orders under its provisions to exercise their own judgment as to when and where aircraft safety needs would warrant doing so. The second is that it tends to assume that the superstructure facts apply in identifying the content of any term to be implied under the strictly necessary test. Mr Sumption QC’s fourth phase considerations for the period from April 1996 proceed on the premise that, because of hived off issues on delays in completion of construction during the period reserved for a trial on para. 29 issues still to take place, it was not open to the Government to contend that completion of construction would have required an extension of time, and the Court of Final Appeal should direct an inquiry by the High Court on the issue along with other para. 29 issues. Supporting that submission Mr Sumption QC also pointed to some evidence adduced by the plaintiffs that the time needed to build the minimum gross area required by the Special Conditions was five weeks short of two years and added that determining the construction time necessary for completion was much more complicated than under the process suggested by Government. But those propositions suffer from two substantial difficulties. The first is they reflect a view of the application of the legal principles governing the implication of terms as to co-operation between the parties and prevention of performance which I have already rejected (paras 236 and 244). The second is that it was at the request of both parties that Judge Muttrie tried the issues of liability save for those arising out of para. 29 and they recognised that the correct formulation of implied terms before Judge Muttrie would be relevant to that separate trial (paras 242 and 243). It would be inconsistent with the plaintiffs’ own stance before the High Court to allow them to reverse any onus otherwise arguably arising from the absence of any positive findings relating to meeting construction deadlines in the period covered by the fourth phase. Otherwise, and with all respect to his argument, it allows Mr Sumption QC, by setting up a straw man and knocking it down as the warrant for starting from a wider premise than would otherwise be legally justified by the course of the trial, to invoke, as he did, the support of Peak Construction (Liverpool) Ltd v. McKinney Foundations Ltd (1970) 1 BLR 111 (also reported at (1970) 69 LGR 1), Astilleros Canarios SA v. Cape Hatteras Shipping Co Ltd [1982] 1 Lloyd’s Rep 518, and Maskell v. Horner [1915] 3 KB 106 for reasserting the liquidated damages claims at the para. 29 hearing. Accordingly, I would uphold Mr Neoh SC’s submission that the absence of any finding of fact relevant to the determination of that issue at the future para. 29 trial was due to Chinachem’s failure to raise any such cross-over factual matters at the High Court hearing (para. 239). Discussion: Limiting the Government’s Approval Powers under the Special Conditions 247.This brings me to the remaining issue as to the content of the term to be implied into the contract to constrain the generality of the Government’s approval powers under Special Conditions (9)(b) and (e). I can be brief. Mr Neoh SC submits the Government’s approval powers were not unconstrained and those conditions were at least in part substantive, not procedural. I agree with both those propositions in his argument, but not with the further step where he formulated the particular constraint for which he contended. As a matter of law and applying the strictly necessary test I would confine it to the minimum intrusion on the breadth of the expressed powers of approval in those two conditions. On that basis I consider Judge Muttrie was entitled to reach the conclusions he did (para. 224). 248.First, particular considerations of background context are these. As noted in para. 202, the contract provided for the lease for a term of years and the utilisation of the Lot in the context of an expanding society and economy where the land stock was limited. From the outset the Government distanced itself from applicants seeking grants of Lot 353 and other lots it was making available. What limited obligations it undertook could never be the subject of bargaining. The extent, manner and timing of the development could only be determined by close scrutiny of the contract and what it provided each party. Next, and again as previously noted (paras 206, 216 and 223 to 226), the Government required applicants for Lot 353 and those other lots it was making available to surrender land exchange entitlements for the grant and not simply separately receive cash compensation and retain other lands. The lease was for a term of years which, when Chinachem became bound to the commitments under the Memorandum of Agreement on standard set terms on 7 November 1991, would not expire for over 55 years (on 30 June 2047), though in the event the three years for the completion of the transport terminus and four years for the whole building did not expire following the issue of the grant and entry into possession until 8 December 1995 and 8 December 1996 respectively. That gave Chinachem windfall extra planning time to meet its obligations. The annual rental payable by Chinachem was $2,400 up to June 1997 and thereafter an amount equal to 3% of the rateable value for the time being of the Lot. The early low rental was obviously to allow ample time for the developer to complete building and be in a position to derive income from it or to use it as the developer chose. And there is nothing in the contract and given the length of the lease to warrant an inference that the Government saw any obvious residual value in the buildings as accruing to it on expiry of the lease. 249.Second, inherent considerations implicit in the text of the Special Conditions do not warrant characterising (9)(e), the DDH Clause, and (9)(b) as procedural only or as being subject to any greater constraints on their exercise than they would otherwise bear applying the strictly necessary test. As I read Special Conditions (5) and (9) the subject matter of each is different and calls for a different inquiry which is emphasised by the different times at which the particular inquiry is to be undertaken, (5) when an MLP is submitted and (9) when a building is to be erected on the Lot, which can only be commenced after the Master Layout Plans have been approved in writing by the Director. The provisions applying to MLPs are much more general and preliminary, serving as steps along the way to the ultimate approval of the building. I do not read Special Condition (9)(b) as depriving a developer, by a side-wind based on simply treating height as the reciprocal of site coverage and plot ratio, either Special Condition (9)(a) with its focus in Special Condition (9)(a)(ii) on the total gross area of the building to be erected or in Special Condition 9(a)(i) on the DDH Clause approval requirement, or the DDH Clause, (9)(e), itself, of a substantial part of the time allowed under the building covenant. Constraints on design and disposition powers of approval might well implicitly exclude matters of taste and the like but I am not persuaded that any height constraints are to be necessarily trammelled by a flat prohibition against even considering the proposed height of the building however tall when reviewing the building plans unless the time taken by the DL in exercising the powers under Special Condition (9)(e) considered objectively is unnecessarily long, in which case the minimum intrusion on the DL’s exercise of those powers is for the DL to grant an extension of time for completing the building (and/or the transport terminus as the case may be). In short, as Judge Muttrie concluded (para. 224) fault on the part of the grantor would be required before the constraint might bite. 250.In the result the only arguable derogation from the grant might be in respect of the time taken in exercising the powers under Special Condition (9)(e) and that responsibility was amply discharged by the offer and grant of an extension of an extra four months’ time for completion of the grantee’s building obligation (para. 237). Another and perhaps more appropriate way to reflect Judge Muttrie’s conclusion is to view the position in the context of a contract with these features: (i) it specifies and links the commencement date (and the requirement to submit an MLP within 6 months) and the two ending dates; and (ii) it provides a long term lease under which the rental payable is stepped up from a low base for the initial period the length of which is obviously tailored to cover a generously calculated construction period to allow extension of the required end dates for the ultimate conclusion of the works. Looked at in that context it is simply the adjustment of the set dates by the Government, whether on its own initiative or at the request of the grantee, which is implicitly allowed by the contract unless and to the extent that it compresses timely completion; and, at least until then, any notions of delay on the Government’s part do not come into play. It follows on that view that there is no basis for rejecting the concurrent findings of fact in the lower courts on the implication of terms; and I cannot discern any basis for disturbing the concurrent conclusions of those courts on any of the remaining matters in Judge Muttrie’s summary of his findings in paras 221 and 225 to 227 above. Result 251.In the result while I take a somewhat different approach on some aspects of the appeal from that of Mr Justice Ribeiro PJ, I, too, would dismiss the appeal with the consequential orders as to costs referred to in his para. 174. In these circumstances I find it unnecessary to discuss any of the cases referred to by counsel which he has reviewed at some length. Mr Justice Bokhary PJ: 252.As to the result, the Court is unanimous. This appeal is dismissed with the order nisi as to costs set out in the final paragraph of Mr Justice Ribeiro PJ’s judgment, namely para. 174. As to the reasons for this result, it may be of assistance to underline that what Mr Justice Chan PJ and I have added in our own words is, as he and I have expressly indicated, consistent with Mr Justice Ribeiro PJ’s reasoning.
Mr Jonathan Sumption QC, Mr Denis Chang SC and Mr Samuel Chan (instructed by Messrs Johnson Stokes & Master) for the appellants, the developers Mr Anthony Neoh SC, Mr Johnny Mok and Miss Yvonne Cheng (instructed by the Department of Justice) for the respondent, the Government | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
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