Rank Profit Industries Ltd v. Secretary for Justice

HCA 1076/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1076 OF 2004

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BETWEEN

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Before: Deputy High Court Judge Muttrie in Chambers

Dates of Hearing: 14-16 February 2007

Date of Ruling: 27 March 2007

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R U L I N G

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1.By a summons dated 30 December 2005 the defendant applies under Order 18 Rule 19 (1) (a), (b) and (d) of the Rules of the High Court to strike out the plaintiff’s Writ and Statement of Claim and to dismiss the action.  By a summons dated 8 May 2006, which supersedes an earlier summons dated 24 June 2005, the plaintiff applies for leave to amend the Statement of Claim.  The plaintiff argues that the proposed amendments do not cure the deficiencies in the Statement of Claim and it is agreed that I should consider the two applications together.

Overview

2.In 1998 the plaintiff and the Government entered into an agreement (“the Agreement”) for the lease of a land lot (“the Lot”) in Kowloon Bay.  One of the conditions of grant was that the plaintiff should build a public car park on the Lot as part of its development there, and maintain the car park for the term of the lease.

3.The Lot is situated within an area which the plaintiff calls the Kowloon Bay Industrial Area (“KBIA”).  In 1998, most of the lots in the KBIA were zoned by the Town Planning Board as “industrial”; which meant, inter alia, that buildings on them were only required to provide minimal internal car parking.  However in 2001 the Town Planning Board re-zoned most of the lots in the KBIA for commercial use, which meant, inter alia, that buildings developed on those lots would be required to make extensive provision for internal car parking.  In consequence the demand for a public car park would be reduced.

4.The plaintiff claims that having entered into the Agreement, the Government could not legally change the land use in the KBIA and is therefore in breach of the Agreement.  The plaintiff, by way of mitigation of loss delayed its development of the Lot, and sought and ultimately obtained a lease modification to remove the requirement to build and operate a public car park; and it now claims against the Government for loss of income and the costs of the action it took by way of mitigation, including the premiums paid for building covenant extension and for the lease modification.

The Agreement

5.The Lot is the New Kowloon Inland Lot No.6268 in Kowloon Bay.  The Lands Department put it up for tender.  The plaintiff’s tender of a premium of $361 million was accepted, and the parties signed the Memorandum of Agreement on 6 May 1998.

6.The Agreement was for a term of years up to 5 May 2048.  It is governed by General and Special Conditions.  By Special Conditions, the user of the Lot was to be restricted to non-industrial (excluding godown, hotel, residential and petrol filling station) purposes and the plaintiff was to erect, construct or maintain on the Lot a multi-storey car park providing not less than 320 spaces for the parking of licensed motor vehicles.  200 spaces were to be provided for private cars, light buses and taxis, 75 for light goods vehicles, 25 for heavy goods vehicles and 20 for motor cycles.  The building covenant required that the buildings be completed and made fit for occupation by 30 June 2002.  The purchaser was obliged to maintain the buildings for the term of the tenancy.

The plaintiff’s pleaded case

7.The plaintiff’s case, as pleaded in the latest Amended Statement of Claim is based on breach of implied terms in the Agreement, the Government’s duty as grantor not to derogate from its grant, and estoppel.

8.The plaintiff pleads in the first place that the Government had, at the time of the invitation to tender for the lots, a clear intention that the Lot was one of only six permitted for commercial rather than industrial development and two permitted for public car parking in the KBIA, and was designed to serve the KBIA by providing public car parking.  This clear intention, which was to be inferred from the invitation to tender, the conditions of sale, past practice of Government and lease conditions of neighbouring land lots, constituted representations on the part of Government in reliance on which the plaintiff decided to tender for the Lot.

9.What the plaintiff says about the Government’s intention may be more particularly inferred from the following circumstances namely:

(a)     Within the KBIA the were some 40 lots restricted to industrial or godown purposes and offices relating thereto, but only six lots, including the Lot, which could be used for non-industrial or commercial purposes and four of these had been developed;

(b)    The Lot and the four developed lots were intended to serve as commercial space and to provide public car parking facilities to meet the demand within the KBIA, such demand being predicated on studies carried out by the Transport Department;

(c)     The KBIA was a relatively new industrial area in which there was a demand for commercial space, which the Lot and the other five lots were intended to meet;

(d)    The Government had caused studies to be published which indicated that the Government would not implement fundamental land-use changes in the relatively new industrial areas;

(e)     The Government had prior to the time of the invitation to tender objected to any application for planning permission for redevelopment of commercial or office buildings on land zoned as industrial within the KBIA, and the Town Planning Board had refused all such applications; and

(f)     At all material times the Chairman of the Town Planning Board was the Secretary for Planning, Environment and Lands, the Vice-Chairman was the Director of Planning, and the Director Of Lands was an ex officio member.

10.The Government’s representations, it is said, led the plaintiff to believe that there existed in the KBIA a scheme of development or a pattern of land use whereby the Lot and others similar to it were the only commercial lots designed to serve the KBIA and the demand for public car parking there.  There was therefore a common understanding between the parties that there was a demand for car parking implied in the scheme of development or pattern of land use, without which the obligation to erect, construct and maintain the car park would have been redundant under the Agreement.  Accordingly, it was within the contemplation of the parties that the scheme of development and/or pattern of land use would be maintained, or would not materially change for the duration of the term of the grant, in order that the plaintiff may have quiet enjoyment of the Lot and fulfil its obligation to erect, operate and maintain the car park.

Implied terms

11.The implied terms are pleaded at paragraphs 8 and 8A of the Amended Statement of Claim.  In the first place it is pleaded that by reason of the matters referred to above, and in order to give business efficacy to the Agreement, it was an implied term of the Agreement for the grant of lease that the scheme of development and/or pattern of land use would be maintained, or alternatively would not change, for the duration of the Government lease.  That, of course, is fifty years.

12.In the second place it is pleaded that there is a term implied by law, namely that the Government will not act in derogation of the rights granted to the plaintiff, or will not act so as to disturb or substantially interfere with the plaintiff’s quiet enjoyment of those rights.

13.It is further pleaded that there are implied terms required to give business efficacy to the Agreement namely that:

–	neither party will do anything to destroy the efficacy of the bargain;
–	the Government will not do anything to hinder, prevent or frustrate the plaintiff’s performance of its obligations, including the operation to construct, operate and maintain the car park for the duration of the grant;
–	the Government may not act so as to frustrate the purposes for which, in the contemplation of both parties, the Agreement was made; and
–	the Government would not change the scheme of development or pattern of land use in the KBIA, in order that the plaintiff may be able to operate, manage and maintain the car park viably throughout the term of the grant.  Again, I note that the term is fifty years.

Derogation from grant

14.At paragraph 9 of the Amended Statement of Claim the plaintiff pleads that the effect of the express and implied terms of the Agreement is that the Government as landlord in equity is bound in law (in that equity will follow the law) not to derogate from grant, so that the Government is bound to afford the plaintiff the same or substantially the same underlying conditions for quiet enjoyment of the Lot throughout the length of the term of the grant.  In the original Statement of Claim, this was the only plea as to derogation from grant but, as has been noted, derogation from grant has now been brought in under the heading of a term implied by law.

Breaches of the Agreement

15.The plaintiff pleads that, having carried out a study and area assessments of land use, the Government, in breach of the implied terms, proposed to the Town Planning Board in October 2000 that the land lots in the KBIA previously zoned “Industrial” should be rezoned as “Other Specified Uses” annotated “Business”.  In January 2001, the town planning board rezoned about 50 lots in the KBIA accordingly.  The effect of this was to reduce the future demand for public car parking spaces because much higher internal parking provision for private cars would have to be provided in buildings erected on the newly rezoned lots, whereas in industrial lots the stipulated requirement for such parking provision is minimal.

16.It also pleads that the Government indicated that the Lands Department would process in parallel premium payments for lease modifications of the rezoned industrial lots to the full extent of such as zoning, whereas the Government could have followed a narrower modification policy so as to maintain the level supply of commercial space and the demand for parking space.

17.These actions constituted breaches of the implied terms, and the plaintiff had no alternate but to mitigate its losses by taking steps to extricate itself from the position the Government had put it into.

Mitigation

18.On 7 February 2001, the plaintiff objected to the draft outline zoning plan and on 10 August 2001 the town planning board agreed in principle to propose amendments to meet into a layer part of the objections of the plaintiff.

19.The plaintiff stopped all construction works on site after the basement had been constructed in order to review the development content in the light of the latest planning change.  It is averred that the Government, being in breach of the agreement, was not entitled to enforce the building covenants while the breach continued.

20.On 10 August 2001, the Director of Lands invited the plaintiff to seek a lease modification to omit the car park requirement, despite the then prevailing rule prohibiting significant modification within five years sale.  As a result of the latest planning change, demand for parking within the KBIA became greatly diminished.  On 25 September 2001, the plaintiff through its consultant applied for modification of the Agreement to omit the requirement for public parking spaces.  However, the Director replied to the effect that such an application would not normally be entertained within five years from disposal.  Further correspondence followed, but on 27 December 2001, the plaintiff’s application was refused in the light of objections from several Government departments to the deletion of the car park requirement.

21.On 4 February 2002, the plaintiff, through its consultant, suggested to the Transport Department the reduction of parking spaces from 320 to 77.  On 6 February 2002 the Transport Department replied that it had no comment, which the plaintiff avers to mean that there would be no objection to such reduction.  The plaintiff accordingly further applied to DLO/KE to reduce the number of car park spaces.

Further breaches of agreement

22.On 25 June 2002, the Chief Executive in Council approved the draft outline zoning plan, thereby sanctioning an 8.8 fold increase in the supply of total permissible gross floor area of office and commercial space within the KBIA.  The Government further reiterated to other government lease holders in the KBIA that applications for lease modification would be entertained in accordance with the full extent of permitted uses under the rezoning upon payment of premium.  This resulted in a considerable diminution in the value of the Lot.

23.By reason of the actions of the Government and the consequent decrease in future demand for public car parking spaces, it became impossible or alternatively not viable for the plaintiff to discharge its obligations under the Agreement to operate, conduct, manage and maintain the car park throughout the term of the agreement, in that there would be no or alternatively little revenue for same.  The plaintiff pleads that it is excused from the performance of its obligations, particularly in respect of the car park, so long as the breach continues.

Further mitigation

24.On 4 October 2002, DLO/KE offered the plaintiff terms for modification of the grant to reduce the number of car parking spaces to 77.  One such term envisaged that number might be further reduced subject to approval of the Director.  By such offer, says the plaintiff, the Government admitted that there was no longer any demand or any substantial demand for public car parking spaces with the KBIA.

25.On 15 October 2002, the plaintiff applied for lease modification to include cinema, hotel and petrol filling station uses.  At the suggestion of DLO/KE, the plaintiff applied for planning permission for hotel development on the Lot.  The application was approved on 21 February 2003.  The plaintiff accordingly requested DLO/KE to proceed with processing the application for lease modification.  On 15 July 2003, the application was approved in principle.

26.On 8 August 2003, the plaintiff’s consultant submitted a report to the Transport Department indicating that it was unnecessary to provide public car parking spaces in the Lot.  On 28 October 2003, the Transport Department indicated that it had no objection to the proposed deletion of the public car park for goods vehicles in the Lot.  The plaintiff, through its consultant, informed DLO/KE of this and applied for amendment of the basic terms for modification of the Agreement to omit all the public car parking spaces.  This was approved in principle on 17 December 2003.  This, says the plaintiff, indicates that the Government confirmed and admitted that there was no longer any demand for public car parking spaces in the Lot specifically and the KBIA generally.

Still further breaches of Agreement

27.The plaintiff avers that on 5 February 2003 and 5 January 2004, in breach of the implied terms pleaded, the Government approved lease modifications for two other lots within the KBIA so as to change the user of these lots to “ non-residential purposes” excluding “hotel, petrol filling station and residential care home”.  The result of this change is not pleaded, but I take it to be a further reduction in the demand for public car parking spaces.

Still further mitigation

28.The plaintiff pleads the further dealings and correspondence between itself and the Government between late 2003 and late 2005.  In brief, the plaintiff decided not to pursue the modification for hotel use and asked the Government to proceed with the assessment of premium.  Correspondence followed -- I do not propose to set it all out here — but ultimately the lease modification was completed, and the plaintiff premiums for extension of the building covenant period and paid a premium of $771,780,000 for the modification, the latter without prejudice to its rights in the present action and its parallel application for judicial review of certain decisions of the DLO/KE and the Director of Lands made in the course of the negotiations.

Damages claim

29.The plaintiff says that it has elected to keep the Agreement on foot and mitigate its loss.  It has suffered loss and damage by way of aborted expenditure and the cost of mitigation.  Particulars are given but need not be reproduced here.

Estoppel

30.The plaintiff pleads that if, which is denied, there is no implied term of the Agreement that the scheme of development and/or the land-use pattern should be maintained or not materially change during the term of the grant, the plaintiff had in reliance on the representations pleaded in paragraphs 4 to 24S of the proposed Amended Statement of Claim acted to its detriment, so that the Government is estopped from:

(a)     denying that the requirement to build the car park was predicated upon an assumed demand for public car parking based on the Transport Department studies of public car parking demand and the basis of land use pattern existing in 1998 or thereabouts in the KBIA;

(b)    denying that as from September 1999, the supply of commercial space would substantially increase and demand for public car parking spaces would substantially indeed crease in the KBIA;

(c)     denying that the supply of commercial space in the demand for public car parking spaces in the KBIA would so change that there was no demand or alternatively negligible demand for the public car park to be built on the Lot, thereby rendering the public car park redundant, valueless or substantially reduced in value;

(d)    denying that the additional supply of commercial land in the KBIA would reduce the value of the lot; and

(e)     insisting upon performance of the Special Condition relating to the car park.

31.In the premises, the plaintiff says, it would be unjust and inequitable for the Government to a levy any charge for building covenant extension or to delay the calculation of premium until May 2005 or to calculate it on any basis other than established Government policies or practice or be enriched to the extent of any levies for building covenant extension and any excessive premium paid by the plaintiff to the Government, which upon inquiry was due to the Government’s delay or departure from established policies and practices, namely that once an application is approved the basic terms including premium will be offered in a reasonable time, valuation should be at a date soon after the approval is given, and premium assessment should take account of principles of market value assessment well established by the Lands Department valuation.

32.Under this head the plaintiff claims damages and interest, a declaration that the Government is estopped from enforcing the building covenant, an inquiry as to whether the premium of $771,780,000 and contains any element of building covenant extension and delay and/or departure from established Government policies and practices, and repayment to the plaintiff of any excess of the amount found upon such inquiry.

General principles on striking out

33.These are not in dispute.  Various cases were cited to me, but it is not necessary to refer to them all here.  The principles are well encapsulated by Silke JA in Ha Francesca v Tsai Kut Kan & Ors. (No.1) [1982] HKC 382 at 392G-H:

“… striking out should only be done in plain and obvious cases, there should be no trial up on affidavit.  Disputed facts are to be taken in favour of the parties sought to be struck out.  The claim must be obviously unsustainable, the pleadings inarguably bad and that it be impossible, not just improbable, for the case to succeed before the court will strike out.  If the court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious, then there should be no striking out.  One must be careful not to drive the plaintiff from the judgment seat nor should the court decide difficult points of law in proceedings such as this.”

34.The pleadings are lengthy and appear complicated, and the questions of law quite difficult.  However, the fact that in a particular case the point appears difficult or obscure does not preclude the court from striking out pleadings if it is satisfied that it has all the necessary information to decide the question and if it is satisfied after full argument in the face of all the relevant information that the case is plainly and obviously one for striking out.  See Byjoy Ltd v Thorogood Estates Ltd [1985] 2 HKC 746.

35.The defendant accepts the facts as pleaded as true, for the purpose of the application to strike out.  In fact, so far as I can see, most of the facts pleaded are directly supported by contemporaneous documents.

Issues

36.The lengthy pleadings concerning the intention of the Government, which was to be inferred but which at the same time amounted to a clear representation appear to be a plea of a representation standing alone.  In argument Mr Yu SC for the defendant originally approached it as such, but Mr Neoh SC for the plaintiff confirmed that the plaintiff was not relying on the representations on their own.  Rather the facts and inferences pleaded were relied on as part of the background matrix of facts, to be taken into account for the purposes of establishing the implied terms pleaded and as representations for the purposes of estoppel.

37.So far as the averments relating to a scheme of development and/or pattern of land use are concerned, again Mr Neoh says that the plaintiff is not pleading a “scheme of development” in the strict sense used in Elliston v Reacher, [1908] 2 Ch 384.  Rather the whole phrase is intended to have its ordinary meaning, and it is pleaded as part of the state of affairs which constituted the common objective of the parties when the Lot was sold.  These averments are therefore relevant as averments of the background to the pleas of implied terms and also to the plea of estoppel.

38.The main plank of the plaintiff’s case is that the Government, by changing the zoning, changed the underlying conditions of demand for public car parking within the KBIA so as to make the plaintiff’s car park a white elephant.  The effect of the change was to make it impossible, or not viable, for the plaintiff to operate the car park throughout the term of the Agreement.  The Government therefore derogated from its grant.

39.The duty not to derogate may be regarded as an independent rule of law or as a term implied by law.  In Johnston & Sons Ltd v Holland [1988] 1 EGLR 264 at 276JNicholls LJ noted that inMegarry and Wade on the Law of Real Property, 5th edition, page 849, the view is expressed that in truth the doctrine is an independent rule of law.  In Canon Kabushiki Kaisha v Green Cartridge Co. (Hong Kong) Ltd [1997] AC 728 Lord Hoffmann at page 736 expressed the view that

“The principle of non-derogation is however based upon the presumed intention of the parties ... It is the conveyancing equivalent of an implied term derived, in a broad sense, from the construction of the transaction into which the parties have entered.”

40.The pleas of derogation on its own, and derogation as a term implied by law, can therefore be considered together.  Connected with them is, of course, the pleaded term implied by law not to act so as to disturb or substantially interfere with the plaintiff’s quiet enjoyment of its rights, although there is no specific plea that that term was breached. 

41.The plaintiff’s reliance on terms implied as being necessary to give business efficacy to the Agreement are, I think, secondary to those relating to derogation from grant.  Indeed Mr Neoh conceded that, given the reliance on terms implied by law, the plaintiff did not necessarily require to rely on terms implied so as to give business efficacy to the contract in order to proceed as a viable action.  If the matter goes to trial, he said, the primary matter will be the derogation point.  However, he said, this would not dispense with the factual matrix and these pleadings should remain.  The second, and secondary issue, then, is whether such terms are to be implied, and whether the Government’s actions amounted to breaches of them.

42.The first main issue is therefore whether there was a derogation from grant.  Since this is an application to strike out it is necessary also to consider whether this includes factual issues which would require trial.

43.The second main issue is estoppel.  This depends on whether the actions of the Government pre-contract, and indeed during the course of negotiations, amounted to representations sufficiently definite to bring estoppel into play.

Background facts

44.In the 1990s, as is well-known, the demand for industrial space in Hong Kong decreased, because many companies moved their industrial processes to the mainland.  The Planning Department commissioned two studies on the provision of industrial premises, on the Restructuring of Obsolete Industrial Areas (ROBINA) and on the Provision of Industrial Premises and the Development of Guidelines and Design Parameters for New Industrial Areas and Business Parks (PIPNIB).  The plaintiff relies on the PIPNIB Study and case studies arising from the ROBINA Study as indicating that the Government would not implement fundamental land use changes in the relatively new industrial areas.

45.The studies are exhibited to the affirmation of the plaintiff’s witness, Mr Corrigall.  The ROBINA case studies dealt directly with specific obsolete industrial areas which did not include the KBIA; presumably that is why the plaintiff seeks to rely on them.  The PIPNIB study indicated that many industrial establishments had taken on new roles as control centres, supporting manufacturing operations in China or South-East Asian countries and that manufacturing firms were generally using only about 40% of floor space for actual production.  Further more than 60% of firms occupying industrial buildings were non-manufacturing establishments.  It noted the demand for business estates providing flexibility of use and noted the need for more “industrial/office” buildings, which could permit up to 100% office use as long as it was directly related to industrial operation.

46.The recommendations of the two studies were announced at a press conference on 18 February 1998.  The press release stated, inter alia, that there would be a surplus of 300 hectares of land for general industrial uses, and that the consultants had recommended changes to the planning system to broaden the commercial uses to be allowed in industrial areas, and to increase the percentage of total floor area permitted to be used for ancillary office purposes in industrial buildings for 30% to 50%, and to facilitate the development of more “industrial/office” buildings.

47.The studies and the press release appear to show that the Government was aware of the need to reduce the area restricted to industrial use and increase that for commercial use.  While it is true that the ROBINA study was confined to areas which did not include Kowloon Bay it is not clear from the press release or the studies themselves that they contain any real indication that a different approach was to be taken in respect of more recently-developed industrial areas and in particular the KBIA, or in particular that the only areas to be re-zoned would be those covered by the ROBINA study.

48.There is, obviously, no dispute that when the Agreement was signed, the great majority of the buildings in the KBIA were zoned for industrial use and that there were six lots, including the Lot itself, permitted for commercial development.  Nor, I think, can there be any dispute that the demand for public car parking has been reduced; if it had not, the Transport Department would not have indicated that it had no objections to the deletion of the car park.

49.It is no doubt right, as the plaintiff points out by reference to a letter dated 22 March it received from the Secretary for Planning and Lands, that the re-zoning of the KBIA was not planned at the time of sale.  That letter was sent in answer to a letter from the plaintiff raising concern over the proposed change of use of the building to be erected on lot 5877, a matter which is now pleaded as a further breach of the Agreement.  In that letter the Secretary indicated that the re-zoning, a move which ‘could not have been envisaged at the time of sale’ might provide justification for departure from the normal policy guideline that there would be no major or significant lease modifications shortly after disposal. 

50.I have no evidence as to the kind of building that the plaintiff intended to build.  The argument proceeded only by reference to the fact that there was to be a public car park in it.  It would be easy to conclude from the pleadings and the approach taken by the plaintiff that it intended to build a car park building but this is obviously not the case from the documents.  I note that by Special Condition No.11 the gross floor area of the development was to be not less than 38,300 square metres or more than 63,672 square metres, including the public car park.  There is no height restriction but I note that in the modification offered by DLO/KE on 4 October 2002 (reducing the car parking spaces to 77) a height restriction of 172mPD is added.  Special Condition No.17 provides for the requirements of the car park itself including provisions for entry and exit by way of ramps.  The intended building appears to have been usual kind of multi-story office and retail building, with the car park on the lower floors or in the basement.

51.It is helpful in this connection and in relation to the plaintiff’s objectives generally to set out here part of the plaintiff’s letter dated 7 February 2001 to the Town Planning Board, objecting to the Outline Zoning Plan:

“In early 1998, the Hong Kong Government invited tenders for the sale of a “commercial lot” no.6268 in the above area.  After detailed inspection, examination, planning and consideration in various aspects, we came to understand that the lot was the one and only one remaining undeveloped commercial site in the Draft Kowloon Bay Outline Zoning Plan.  It stood out when compared with the “industrial lots” in the vicinity.  It was only after careful evaluation taking into account the demand and future supply of office premises and commercial buildings in Kowloon Bay area that our company prudently decided to give up other investment opportunities and made a successful bid for that ‘commercial lot’ at a price several times higher than that of the other nearby ‘industrial lots’.

At present, our company has put in a lot of resources to build a first-class commercial building on the lot in accordance with the originally scheduled plan.  The building is expected to be completed by mid-2002 as required by the lease.

However, the Board’s recent proposed amendments will result in a significant increase in the number of lots for general business use in the area.  This directly defeats the basis upon which our company made the commercial decision to make a bid for the lot and will affect the work which is currently under construction.  Moreover, as the proposed amendments will greatly increase the supply of commercial buildings in the area, the value of the premises currently put up for lease and pre-sale under the project launched by our company has dropped significantly.  We, therefore, strongly object to the above proposed amendments.”

52.I note that the plaintiff’s original complaint did not mention the car park at all.  It was rather that the increase of supply of commercial lots had diminished the value of its own commercial building.

Principles of derogation from grant

53.A useful statement of the principles by reference to the cases, many of which were cited before me, appears in the judgment of Neuberger J in Platt & Ors.  v London Underground Ltd [2001] 2 EGLR 121 at 122B-K:

“Derogation from grant: principles.

1.      It is well established that a landlord, like any grantor, cannot derogate from his grant.  To put it in more normal language, as has been said in a number of cases, a landlord cannot take away with one hand that which he has given with the other: see, for instance per Younger LJ in Harmer v Jumbil (Nigeria) Tin Areas Ltd (1921) 1 Ch 200 at pp 225-226 and Lord Denning MR in Molton Builders Ltd v Westminster City Council (1975) 30 P & CR 182 at p 186.

2.      In order to determine whether a specific act or omission on the part of the landlord constitutes derogation from grant, it is self-evidently necessary to establish the nature and extent of the grant: see Leech v Schweder(1874) 9 App Cas 463 at p 467, per Mellish LJ.

3.      [The exercise of determining the extent of the implied obligation not to derogate from grant] involves identifying what obligations, if any, on the part of the grantor can fairly be regarded as necessarily implicit, having regard to the particular purpose of the transaction when considered in the light of circumstances subsisting at the time the transaction was entered into per Sir Donald Nicholls V-C in Johnston & Sons Ltd v Holland [1988] 1 EGLR 264 at p 267M.

4.      There is a close connection, indeed a very substantial degree of overlap, between the obligation not to derogate from grant, the covenant for quiet enjoyment and a normal implied term in a contract.  Thus, in words that apply equally to an implied term in a contract, Bowen LJ said in Myers v Catterson (1889) 43 ChD 470 at p 481, in relation to the derogation from grant principle, that one should give effect to what he called “the obvious intention of the parties, so as to give the transaction between them a minimum of efficacy and value which upon any view of the case it must have been their common intention that it should have”.  In Southwark London Borough Council v Mills [1999] 4 All ER 449 at p 467F, Lord Millett explained that, to a large extent, the covenant for quiet enjoyment, and the obligation of a landlord not to derogate from his grant amounted to much the same thing.

5.      The terms of the lease will inevitably impinge upon the extent of the obligation not to derogate.  Express terms will obviously play a part, possibly a decisive part, in determining whether a particular act or omission constitutes a derogation.  An express term should, if possible, be construed so as to be consistent with what Hart J called “the irreducible minimum” implicit in the grant itself.  However, as he went on to say, a covenant relied upon by the landlord “if construed as ousting the doctrine in its entirety is repugnant ... and should itself be rejected in its entirety”: see Petra Investments Ltd v Jeffrey Rogers plc [2000] L & TR 451 at p 471.

6.      When considering a claim based upon derogation from grant, one has to take into account not only the terms of the lease, but also the surrounding circumstances at the date of the grant as known to the parties: see Chartered Trust plc v Davies [1997] 2 EGLR 83 at 87C per Henry LJ.

7.      One test that is often helpful to apply where the act complained of is the landlord’s act or omission on adjoining land is whether the act or omission has caused the demised premises to become unfit or substantially less fit for the purpose for which they were let: see Browne v Flower [1911] 1 Ch 219 at p 225, as per Parker J, and also Aldin v Latimer Clark, Muirhead & Co [1894] 2 Ch 437.

8.      However, even that formulation, although helpful, may in many cases be too generous to the tenant.  Thus, permitting a competing business to be run from a next-door property was held not to be derogation from grant, see Port v Griffith [1938] 4 All ER 295, but compare Oceanic Village Ltd v Shirayama Shokusan Co Ltd unreported 6 February 2001.

9.      The circumstances as they were at the date of the grant of the lease are very important.  Thus, in Southwark [1999] 4 All ER 449, the claim failed because it was based upon an alleged defect in the demised premises that existed as at the date of the grant: see, for instance, at [1999] 4 All ER 455 to p 456 per Lord Hoffman and at pp 467-468 per Lord Millett.

10.    However, given that a lease is essentially prospective in operation, the central issue, where the complaint is of activities on the neighbouring premises owned by the landlord, is not merely “the use to which the adjoining premises are put at the date of the tenancy”, but also “the use to which they may reasonably be expected to be put in the future”, per Lord Millett at p 468J in Southwark.  See also per Lord Hoffman to the same effect at p 456C, who, like Lord Millett, relied upon Lyttleton Times Co Ltd v Warners Ltd [1907] AC 476.

11.    When assessing what the parties to a contract actually, or must have, contemplated, one should focus upon facts known to both parties, and statements and communications between them.  A fact that could only have been known to one party could not, save in very unusual circumstances, be a legitimate part of the factual matrix.  A thought locked away in the mind of the parties, or even perhaps of both parties, cannot normally be a relevant factor when assessing the parties’ understanding.  In English law, at any rate, contract is concerned with communication as well as mutuality, see Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd [1953] 2 QB 450.”

Discussion

54.The plaintiff argues that the positive covenant for the plaintiff to build, maintain and operate the car park for the term of the lease was the consequence of the existing demand for public car parking in the KBIA.  That demand had come about because the Government zoned most of the buildings there for industrial purposes; which meant that they had no or minimal car parking facilities.  The common purpose of the parties was to provide those public car parking facilities by means of the lease.  But the Government frustrated that common purpose by changing the zoning, effectively taking away the plaintiff’s customers and so rendering the car park premises unfit or substantially less fit for the purpose for which they were let.  The Government’s deliberate step undercut the common assumption between the contracting parties as to the underlying conditions of demand.

55.Furthermore, says the plaintiff, any question of derogation from grant is a question of fact.  It is necessary to establish from the facts both the extent of the grant, and whether what the Government did amounted to derogation from it.

56.Applying the principles set out above, it is necessary first to identify the grant, or particular benefit conferred.  The application has been argued as if what was granted was simply the right to operate a public car park.  In fact what was granted was wider than that.  It was the right to develop the Lot as a commercial building, with special conditions including the obligation to build and operate a public car park as part of the development.  How large a part of the development it was is not known but that is not relevant here.  In any event the plaintiff would have, as part of its grant, the right as well as the duty to operate a car park for the term of the lease; though no doubt it could assign that right to another, if it so wished.

57.Then it is necessary to identify what obligations, if any, on the part of the grantor can fairly be regarded as necessarily implicit, having regard to the particular purpose of the transaction; and here it is necessary to look at the surrounding circumstances which I have noted at least in part above.

58.It is easy to see that one of the Government’s purposes in making the transaction was to provide public car parking space for customers in the surrounding area.  The plaintiff’s purposes, as set out in its letter dated 7 February 2001 to the Town Planning Board, appear to have been to put up a commercial building which would have no competition in the area, but since the car park was to be part of the commercial building it is no doubt right that one of the plaintiff’s purposes was likewise to provide public car parking space.  However, while the plaintiff obviously made a commercial decision based on what it saw in the area at the time, it seems to me impossible, in the circumstances of Hong Kong, to say that that the common, if secondary purpose of providing public car parking space purpose must remain the same, and be in the contemplation of the parties to remain the same for 50 years.

59.Apart from the history of change over the past 50 years in Hong Kong, there is also the fact of the press release of the PIPNIB and ROBINA studies which, as I have indicated, show that there was a need for planning change but not that it was to be specifically restricted to any given area.

60.Really the plaintiff’s complaint is that it could not make the money out of the car park that it estimated it would be able to make, by reference to what it saw in 1998.  There was no indication from Government in the tender documents – and those were the only place in which the Government could have made such an indication, for there was no prior negotiation – that that state of affairs would remain the same.  The plaintiff thought that it would remain the same, but I cannot see anything to indicate an implicit agreement to that effect.  These were matters in the mind of the plaintiff, or at any rate of those persons who controlled it, but not necessarily in the minds of those making policy in the Government.  I do not see that the plaintiff can rely on any common purpose or common assumption.

61.The plaintiff argues that the question of whether there has been derogation is always one of fact, and relies in particular on dicta of Cohen LJ in Kelly v Battershell & Anor [1949] 2 All ER 830 at 837A and and Aussie Traveller Pty Ltd v Marklea Pty Ltd (1998) 1 Qd. R. 1 at 10-11.

62.In Kelly v Battershell, the landlord leased the top floor of a house to the plaintiff.  He later sold his interest in the whole house to the defendant who operated a hotel next door. The defendant incorporated all but the top floor into the hotel, and the plaintiff’s complaint was that this amounted to derogation from the landlord’s grant to her.  The court held that the user of the lower part of the house was merely an interference with the plaintiff’s convenience, amenity or privacy and not so serious as to frustrate the use of the premises for the purpose for which they were demised, so there was no derogation; but the question of whether the particular circumstances amounted to derogation as distinct from mere interference with amenities was a question of fact.

63.In Aussie Traveller, the plaintiff operated a business of manufacturing and selling canvas awnings and camping equipment.  Its complaint that its business was interfered with by the activities of the tenant of adjoining premises who operated a business making timber staircases; the plaintiff and its customers and goods were affected by the noise and sawdust emanating from the woodworking shop, so that ultimately it had to move.  Again it was held that the question of whether a disturbance or interference with the tenant’s occupation amounted to a breach of the landlord’s implied obligation not to derogate from the grant was a question of fact.

64.The plaintiff also relies on the English case of Chartered Trust plc v Davies and the New Zealand case of Nordern v Blueport Enterprises Ltd [1996] NZLR 450.  In Chartered Trust, the tenant operated a shop selling executive toys; the landlord permitted a pawnshop to operate in the same shopping arcade and the complaint was that the pawnbroker’s customers drove away the toyshop’s business.  In Nordern, the complaint was similar; the operation of a brothel on the fourth floor of a building, and the actions of its customers, affected the business of a personnel agency on the floor below.  In both cases there was held to be a derogation from grant.

65.The plaintiff’s complaint is also in effect that it could not make money out of the car park because of competition.  The other commercial buildings would provide their own parking space for tenants.  The defendant relies on the cases of Port v Griffith [1938] 4 All ER 295, referred to by Neuberger J, and Romulus Trading Co Ltd & Anor v Comet Properties Ltd[1996] 2 EGLR 70 as authority for the proposition that for the landlord to permit competition with the tenant is no derogation.  This is in effect the situation here.  The effect of the zoning would effectively be to provide competition for the plaintiff’s car park, in the form of other car parks nearby.  It is perhaps not entirely the same as if the Government had allowed another public car park or parks to open nearby, in that the car parks in the commercial buildings would be provided for the use of their tenants; but no doubt the tenants would have to pay for parking by buying or renting car parking spaces, and there would be nothing to stop any tenant in another building, who did not want to buy or rent a space there, from using the plaintiff’s public car park.

66.Mr Yu argues that the cases relied on by the plaintiff do not assist because they really all deal with nuisance in one form or another and particularly with physical interference.  They do not deal with competition. 

67.In Port v Griffith, as noted above, permitting a competing business to be run from a next-door property was held not to be derogation from grant.  In Romulus Trading, a case involving a similar situation, Garland J noted that: 

“The issue between the parties is whether, as Mr Warwick contends, the law remains as stated in Port v Griffith and echoed in the textbooks or, as the plaintiffs submitted, it has moved on and now extends to any substantial economic disadvantage rather than a rendering of the demised land unfit or materially less fit for the particular purpose for which it was let.”

Garland J went on to consider other authorities, including in particular Johnston & Sons Ltd v Holland and British Leyland Motor Corporation Ltd v Armstrong Patents Co Ltd[1986] AC 577 and came to this conclusion:

“The issue, which I defined at the beginning of this section of my judgment, and repeat, is whether Port v Griffith is still good law or whether the two more recent decisions are indicative of a much less rigid approach to landlord and tenant obligations and the time has now come when it may be at least properly arguable that Port v Griffith is wrongly decided and the textbooks must be revised.

I am not persuaded that Port v Griffith can no longer be taken as representing the law.  So far as the facts of this case are concerned, I have to consider the deemed contemplation of the parties at the very latest in February 1981.  Any deemed contemplation must have been that as the law then stood it would be open to the defendants to let another of the retail units to a competing business without derogating from the grant.  I do not consider that Lord Templeman’s application of the doctrine of derogation to the copyright dispute in BLMC v Armstrong impinges on its application as between landlord and tenant.  Although Lord Templeman used Branson J’s phrase “greater expense or with less convenience”, the judge in fact rejected it in the passage already cited when he said that he would be extending the application of the principle into a region quite different from that which it had hitherto been applied.  I wholly accept that O’Cedar was decided nearly 70 years ago and Port v Griffith nearly 60 years ago, but I am deterred from the more liberal approach urged on me by the plaintiffs partly because I consider myself constrained by authority for the reasons already given and partly because of the great element of uncertainty which a more liberal approach would necessarily involve.  In any case all the surrounding circumstances would have to be considered: sometimes it is an advantage to have businesses of the same sort in close proximity, sometimes it is not, sometimes it may not matter.  There would also be issues as to what extent deemed contemplation might or might not extend to future or uncertain events.  In my view, the law is clear and certain; it has not been altered by BLMC v Armstrong or by anything said by Nicholls LJ in Johnston v Holland.  I take the view that the plaintiffs have not disclosed any reasonable cause of action by their amended statement of claim: I dismiss their Order 14 appeal and allow the defendants’ application to strike out.”

68.In Lam Kwok Leung & Ors. v Attorney General [1979] HKLR 145, McMullin J, having considered the principle enunciated in Browne v Flower said this:

“Does an act of the Crown which has the effect of making a grant of Crown land materially less profitable to the grantee in using the land for the purpose for which it was granted fall within this principle? I think it does not and the authority which I regard as decisive on the point is that relied on by Mr Barlow: the case of O’Cedar, Ltd v. Slough Trading Co. Ltd…”

McMullin J then considered the O’Cedar case, which was also referred to extensively by Garland J in Romulus Trading Co.and continued:

“I think I must refuse to extend the principle into such a region as this and, I think, with even more reason than prompted the refusal of Mr Justice Branson in the O’Cedar Case since the acts of the grantor which are complained of in the present case were done not out of any motive of private profit, however legitimate that might be, but in pursuance of the Crown’s obligation to promote the welfare of the public at large.”

69.It seems to me that the test must be that which goes back to the case of Browne v Flower, which was relied on or adopted in all the above cases, namely whether the act or omission has caused the demised premises to become unfit or substantially less fit for the purpose for which they were let.  I do not see that the cases cited indicate any different approach.  Although Platt at first glance appears to arise out of a similar situation to the situation here, in fact it arose out of a physical diversion of customers away from the kiosk rather than from the landlord having allowed competition. 

70.The Government as landlord, in the shape of its Lands Department, did not itself change the zoning in the KBIA; rather it proposed the change to the Town Planning Board, an independent statutory authority, and the Board accepted the change.  Accepting that the plaintiff procured the change, the question therefore is whether by so doing it caused the Lot to become unfit or substantially less fit for the purpose for which it was let. Given that the Town Planning Board is an independent statutory authority the first objection must be that the Lands Department did not cause anything.

71.Letting that pass, however, it seems, as I have indicated, that the purpose for which the Lot was let was the development of a commercial building which included a car park, rather than the development of a car park building but even if it was the latter I do not see that procuring a zoning change, the effect of which would ultimately be to reduce the business of the car park, could be said to make the Lot unfit or substantially less fit for its purpose.  The car park could still be built.  Members of the public could still use it if they wished.  There would be nothing physically to impede them from doing so; it would be a matter of choice for them albeit perhaps a weighted choice. 

72.I questioned whether there would in any event need to be a trial to find out exactly what the effect on the plaintiff’s car parking business would be; if the effect was, as the plaintiff says it was and the Transport Department’s acceptance of the lease modification seems to indicate, to take away the need for a public car park in the KBIA entirely, would this cause the Lot to become unfit or substantially less fit for the purpose for which it was let and so amount to derogation? However I accept the argument put forward by Mr Yu that if it is not derogation of grant for a landlord to allow a competitor to rent close by, so as to impact on the tenant’s business, that must be so even if the effect of the competition is ultimately to put the tenant out of business. 

73.For these reasons it seems to me first, that it could not have been regarded as being in the contemplation of both parties when the Agreement was made that the Government would not, for the next fifty years, cause the change of the zoning of the KBIA; and second, that if it did so, that would not make the premises unfit or substantially less fit for the purpose for which they were demised.

74.Another point relied on by the defendant is that the Government performing a public duty if it changed the zoning or proposed zoning change to the Board and the doctrine of derogation of grant could not prevent it from performing its public duty.  The case of Spurling v Bantoft [1891] 2 QB 384 gives some assistance to this view. 

75.In that case, which arose from a prosecution under the Public Health Act 1875, it was held that a borough corporation which had leased premises within the burgh to a general auctioneer and cattle salesman had not derogated from its grant to a the tenant by opening its own cattle market as Urban Sanitary Authority under the Act and demanding tolls for the sale of cattle on the tenant’s premises as if they had been sold in the public market.

76.Mr Neoh says that this case should be distinguished, because the local authority was acting under statute and the court considered that if it had not been so acting it would have been in breach of its duty not to derogate.  Further, he refers to the general principle that the Government in a question with its tenant is in no different position from that of a private landlord; see Hang Wah Chong Investment Co. Ltd v Attorney General [1981] HKLR 336.

77.In Spurling v Bantoft,Cave J said at page 392:

“The strongest way of putting in the appellant’s case is to take it that the corporation cover mounted that they would not establish a market.  I think there is no ground for that contention as regards the lease of 1864, but the lease of 1883 May be alleged to have that effect.  But supposing that to be so, the corporation can have no right to grant to the appellant an exclusive right to sell cattle.  They could only covenant not to interfere with his business; and if they did so that would afford no answer to the appellant’s liability.  Power is given to the respondents, as the urban authority, by s. 166 of the Public Health Act, 1875, to establish a market; and they also happen to be the corporation.  But this power is not given to them for their own benefit, but for the benefit of the public; and they are not at liberty to enter into any covenant to do something which may conflict with the public benefit, in order to get a better rent for their property.  They can have no powers except such as are given to them by common law or by statute.  The power now in question is given by statute, and it is given for the general welfare of the inhabitants of the borough.  I do not think that the corporation were ever in a position to bind their successors by covenanting not to establish a market; for the urban sanitary authority would always be entitled to decide whether a market was required or not, and in so deciding they would be bound to be guided by the public advantage, and not by any considerations as to their own interest.”

78.I think there is a valid analogy here.  What is argued is that the Government covenanted with the plaintiff not to change the zoning of the KBIA for fifty years.  However the Government in planning matters must surely be guided by the public advantage.  Certainly the Town Planning Board is required by section 3 of the Town Planning Ordinance to draft its plans “with a view to the promotion of the health, safety, convenience and general welfare of the community”.

79.If the Government is to be regarded as a private landlord only, then it seems to me that as the largest landlord in Hong Kong it could not be expected, in covenanting with one tenant, to bind itself for the next fifty years as to how it would covenant with other tenants in the same area.  This however is all secondary to my findings above.

80.I conclude that the plaintiff has no case on derogation from grant.

Implied terms

81.As I have indicated, any implied terms as to derogation from grant or covenant for quiet enjoyment stand or fall with the point of non - derogation as a distinct duty.  I turn here to the implied terms pleaded as being necessary to give business efficacy to the Agreement.  There is no dispute that the law is as set out by Lord Simon in B.P. Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of Shire of Hastings[1978] 52 ALJR 20 at 26:

“Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express.  In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

82.The plaintiff pleads that there is an implied term that neither party will do anything to destroy the efficacy of the bargain.  I suppose that term can be implied into any contract.  However on my above findings there was nothing to stop the plaintiff from operating its car park; and it was no part of the bargain that the Government had to guarantee that the plaintiff would make a profit by doing so.

83.The plaintiff further pleads an implied term that Government would not hinder, prevent or frustrate the plaintiff’s performance of its obligations, including the operation to construct, operate and maintain the car park for the duration of the grant.  Again, there was no hindrance.  The plaintiff could operate its car park but its profits were never guaranteed.

84.The next plea is that there was an implied term that the Government may not act so as to frustrate the purposes for which, in the contemplation of both parties, the Agreement was made.  This falls with my finding that plaintiff cannot rely on any common purpose or common assumption.

85.The final term pleaded is that the Government would not change the scheme of development or pattern of land use in the KBIA, in order that the plaintiff may be able to operate, manage and maintain the car park viably throughout the term of the grant.  This also, in my view, falls with the same finding.

86.Overall, it seems to me, none of the terms is necessary and none is so obvious as to go without saying.  Further they contradict an express term of the contract, namely General Condition No.5 which provides:

“The Purchaser hereby expressly acknowledges:

(a)	(i)	that the Government shall be under no liability whatsoever to the Purchaser (which expression shall for the purpose of this Condition only include his successors, assigns, mortgagees, tenants or other occupiers of the lot whether lawful or otherwise) for any loss or damage howsoever arising in connection with or as a consequence of his purchase of the lot and its subsequent development;
	(ii)	that he has purchased the lot based upon his own evaluation of land records and available geotechnical information whether obtained from Government sources or otherwise and has satisfied himself as to the state and condition of the lot in relation to the purposes for which the lot is to be developed or redeveloped;
	(iii)	that he takes the lot, whether on, above or below the surface of the ground, in the state and condition as it exists on the date on which possession of the lot is deemed to be given in accordance with Special Condition No. (1) of these Conditions; and
	(iv)	that he shall not be entitled to revoke, withdraw, cancel or resile in any way whatsoever from this Agreement nor be entitled in any way whatsoever to compensation or a reduction in the sale price or any other compromise whatsoever should be subsequently determine that the lot is not fit for the purposes for which he purchased the  lot.
(b)	(i)	The Government has given no warranty, express or implied, as to the suitability or fitness of the lot or any part thereof for development whether in accordance with these Conditions or otherwise.  The Purchaser for himself, his successors or assigns undertakes not to make any claim against the Government for any loss or damage whatsoever which he may suffer as a result of or arising from the state and condition of the lot making it either unfit for the purpose for which he purchased the lot or rendering it impossible to achieve the scale of development originally intended; and
	(ii)	the Government in no way warrants the accuracy or correctness in any way whatsoever of any information made available or obtained, and in particular does not warrant that the lot is fit and suitable for any particular purpose.”

87.As noted in the excerpt from the judgment in Platt, above, a covenant relied upon by the landlord if construed as ousting the doctrine in its entirety is repugnant and should itself be rejected in its entirety.  See also Nordern v Blueport at 456 line 43 where Elias J held that a clause which disclaimed any warranty of suitability was not to be construed to permit derogation.  However we are not here dealing with the duty not to derogate whether as a distinct duty or an implied term but rather with terms implied to give business efficacy to the agreement, and I do not see why this clause should not be effective against such terms.

88.I conclude therefore that the plaintiff has no case on these implied terms.

Estoppel

89.In paragraph 26 of the draft Amended Statement of Claim the plaintiff pleads estoppel by reason of “the various matters set out in paragraphs 5 to 24S above” and says that the plaintiff had “in reliance upon the various representations by the Government therein set out” acted to its detriment.  As Mr Yu points out in his written submissions, one is left to sift through paragraphs 4 to 24S to guess what the pleaded representations are.

90.The plaintiff then claims that the Government is thereby estopped from denying certain facts and from insisting upon performance or alternatively strict performance of Special Condition no.8 of the Agreement, i.e. the requirement to build and maintain the public car park.  Then in paragraph 26 the plaintiff pleads that “in the premises” it would be unjust and inequitable for the Government to do the various things there set out.

91.In his written submissions Mr Neoh says that the plea is based on the material facts pleaded in paragraphs 2 to 24S of the draft Amended Statement of Claim.  However he goes on to say that from 10 August 2001 onwards the Government had, by inviting the plaintiff to apply for lease modification and engaging the plaintiff in the process, acknowledged that the public car park was no longer necessary.  In oral submissions Mr Neoh said that “it all started” with what the Director of Lands, Mr Pope, said at the Town Planning Board meeting on 10 August 2001.  This is pleaded at the new paragraph 19A.  There is said that Mr Pope:

“invited the Plaintiff to seek a lease modification to omit the Multi-Storey Car Park requirement despite the then prevailing rule prohibiting significant modification within five years of sale.”

92.In fact paragraph 107 of the Minutes of the Town Planning Board meeting reads as follows:

“In respect of the parking requirements stipulated in the lease, some Members said that the issue should be dealt with by the Transport Department and the Lands Department.  Mr R. D. Pope remarked that the requirements were probably included in the lease based on the Transport Department’s advice.  Notwithstanding that it was not the usual policy for the Lands Department to modify a lease significantly shortly after a land auction, lease modification might be considered should there be changing circumstances.”

93.Mr Neoh argues that from that point on, neither party was contemplating that a public car park was going to be built.  He says that the “killer point” is that while the Government was saying that it did not really need the car park, at the same time it demanded premiums for extending the building period and ultimately for the lease modification, and this was oppressive and unreasonable.

94.The defendant relies here on the case of Hughes v Metropolitan Railway Co. [1874-80] All ER Rep 187.  I take the facts from the headnote, as follows:

“By the lease of a house which the respondents, as tenants, held from the appellant, as landlord, the respondents covenanted to repair the premises within six months after notice in writing, the lease further containing a proviso for reentry.  In October 1874, the appellant gave the respondents notice to repair.  Negotiations were then entered into between the parties for the sale of the respondents’ interest to the appellant, and those negotiations were not terminated till December 31, when they fell through.  The respondents effected the repairs within six months from that date.  In an action of ejectment brought by the appellant for a forfeiture for non-repair under the covenant,

Held: the entry by the appellant into the negotiations had the effect of leading the respondents to believe that for the time being the notice to repair was in abeyance and induced them not to proceed at once with the repairs, and in equity the appellant must be taken as having waived the notice as respected the period ended on December 31; in view of the terms of the lease a period of six months must be taken to be a reasonable time within which to do the repairs and the repairs had been done within six months from December 31; and, therefore, the respondents were not in breach of the covenant to repair and the appellant was not entitled to a forfeiture.”

95.Whether the “various representations” are to be regarded as estoppel by representation of fact or promissory estoppel or waiver, to found a valid estoppel the representation must be clear and unambiguous or unequivocal.  The requirement is the same under either doctrine.  See Spencer Bower, Estoppel by Representation, 4^th Ed., pp. 74, §IV.2.1.

96.It is impossible to see how, by considering an application for lease modification, or even by going outside the normal policy of not considering such an application within five years of the grant, the Government could be said to have made a clear and unequivocal representation that it would allow the lease modification sought, and delete the car park requirement.  There is nothing in what Mr Pope is recorded as having said, or in the correspondence emanating from the Government, which can be construed as such a representation.  Nor can it be said that there is anything in the correspondence to indicate, before the DLO/KE’s letter of 17 December 2003 approving in principle the lease modification to remove the car park requirement, that the Government accepted that there was no need for the car park.

97.The only point on which the Hughes decision might assist would be the charging of premiums for extension of the building covenant.  In fact no estoppel is directly pleaded in paragraph 26 of the proposed Amended Statement of Claim, although it is pleaded at paragraph 27 that it would be unjust and inequitable to levy any charge for building covenant extension or delay the offer of premium until May 2005 “or be enriched to the extent of any levies for building covenant extension”.  However, there is nothing in the correspondence which can be construed as a representation which would estop the Government from insisting on the building covenant or from charging premiums for its extension.

98.In fact, as Mr Yu points out, the correspondence and actions of the Lands Department in relation to the building covenant extension showed that the Government as landlord was enforcing its strict legal right.  An offer of extension for one year from 30 June 2002 was made, at a premium which the plaintiff paid; and later, further premium payments were required also.  The plaintiff protested later payments, but the point is there was nothing in the Government’s actions relating to premium payments that the plaintiff could take as a representation that the Government would not enforce its rights.

99.I take it that the pleadings in paragraph 27 of the proposed Amended Statement of Claim are premised on those in paragraph 26 which in turn relies on representations.  If the representations are not accepted as giving rise to estoppel, then paragraph 27 goes out along with paragraph 26.  It is not therefore necessary to consider the arguments concerning delay, although I have to say that to plead that there should be an inquiry to find out whether there was delay or departure from established policies seems strange.  I would have thought that if there was such delay or departure it should be pleaded directly.  As to the allegation of excessive premium it is noted that when the Government acts as landlord in agreeing or refusing to modify a lease condition or to charge a premium for the modification, it is not subject to an implied obligation to act reasonably.  The amount is not a matter of equity.  See Lok On Co. Ltd v Attorney-General [1986] HKLR 857. 

100.I conclude that there is no case on estoppel.

Result

101.Since the plaintiff has no reasonable cause of action on derogation, implied terms or estoppel as pleaded in the proposed Amended Statement of Claim, the plaintiff’s Writ and Statement of Claim are struck out and the action dismissed.  The defendant’s summons to amend is also dismissed.  The costs of the action, including those of the dismissed summons be (nisi) to the plaintiff to be taxed if not agreed.

Mr Anthony Neoh SC and Mr Valentine Yim, instructed by Messrs Wong, Hui & Co., for the Plaintiff

Mr Benjamin Yu SC and Mr Godfrey Lam, instructed by Department of Justice, for the Defendant