Fully Profit (Asia) Ltd v. The Secretary for Justice for and on behalf of the Director of Lands

HCMP 82/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 82 OF 2010

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BETWEEN

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Before: Deputy High Court Judge Pow, SC in Court

Date of Hearing: 8 March 2011

Date of Judgment: 20 April 2011

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J U D G M E N T

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Agreed Facts

1.By a memorandum of agreement dated 4 January 1952, the Government agreed to grant New Kowloon Inland Lots Nos. 3665 and 3666 to one Wong Kam Kwong.  The terms of the agreement were embodied in a document called “Conditions of Exchange”.

2.Under General condition No. 6(b) of the Conditions of Exchange it was provided that:

“(b) The lessee of the new lots shall execute and take up Crown Leases for the new lots when called upon to do so by the Land Officer. … In the event of more than one building being erected on the said lots the lessee may be required to take up separate leases for the site of each separate building and shall pay the Land Officer the prescribed fee for every additional leases so required to be taken up.”

3.Further, under Special Condition No. 6 of Conditions of Exchange it was provided that:

“(6) Not more than 20 houses shall be erected on N.K.I.L. No. 3665 ...”

4.Building plans for the proposed buildings on N.K.I.L. No. 3665 were subsequently submitted to the Building Authority.  On 1 May 1952, the Building Authority approved building plans of “8 dwelling houses” at Nam Kok Road on N.K.I.L. No. 3665.  On 9 July 1952, the Building Authority approved building plans of “12 tenement houses” on N.K.I.L. No. 3665 at Nam Kok Road.

5.In about October 1952, 20 “Chinese type houses” were erected on N.K.I.L. No. 3665.  This was evidenced by 2 occupation permits dated 2 October 1952 and 10 October 1952 granting permission to occupy “eight Chinese type houses at Nos. 59-73 Nam Kok Road on N.K.I.L. 3665” and “twelve Chinese type houses at Nam Kok Road on N.K.I.L. 3665” respectively.

6.According to the approved building plans, the 20 “Chinese type houses” then erected were a row of town houses, each house or building had 5 storeys, viz. the ground floor, cockloft, 1^st,  2^nd and 3^rd floor and a flat roof on top of the 3^rd floor.  Access to the ground floor was directly from Nam Kok Road, with a back door opening into the service land running behind the row of town houses.  Access to the upper floors (including the cocklofts) was via a flight of staircases running from Nam Kok Road right through to the roof which was to be shared by 2 adjacent town houses.  With the exception of the cockloft, each floor would have its own bathroom so that each floor could be used as a separate dwelling.

7.By a memo dated 17 October 1952, the Director of Public Works certified that the “B.C.” (i.e. the building covenant, General Condition No. 7(a) of the Conditions of Exchange) of N.K.I.L. No. 3665 had been fulfilled.

8.A certificate of compliance in respect of N.K.I.L. No. 3665 was issued by the Director of Public Works on 9 June 1959.  As seen from the certificate of compliance, the original N.K.I.L. No. 3665 had already been sub-divided into 20 smaller lots, viz. the new N.K.I.L. No. 3665 and N.K.I.L. Nos. 4032 to 4050.

9.Between 1 March 1960 and 2 October 1969, the owner of each of the 20 sub-divided lots was granted a formal Government lease.  Inthe present proceedings, the Court is to consider the Government leases of N.K.I.L. Nos. 4036, 4037, 4038, 4039 and 3665 only (“the Land”).  The Crown leases of N.K.I.L. Nos. 4036, 4037, 4038, 4039 and 3665 were granted on 14 October 1965, 2 October 1969, 2 February 1966, 9 August 1965 and 11 September 1965 respectively.

10.In April 2000, the Director of Lands issued Practice Note Issue No. 3/2000 “to assist the developers and concerned parties in preparing building plan submissions for developments which are subject to a restriction in the government lease or land grant on the number of houses which may be erected on the affected land.”

11.Since about 2006, the owner of the Land has intended to redevelop the 5 houses erected on the Land.  By a letter of appointment dated 1 October 2006, Sino Plan Corporation Limited (“Sino Plan”) duly appointed Fully Profit (Asia) Limited (“Fully Profit”) as the authorised developer for and on behalf of Sino Plan in the proposed redevelopment of the Land.

12.Building plans for the redevelopment of the Land (“the Redevelopment Plans”) were submitted by A & B Design Consultants Limited (“A & B”) through the “Centralised Processing System” in about October 2006.  The Redevelopment Plans were received by the Buildings Department (“BD”) and the District Lands Office/Kowloon East of the Lands Department (“DLO/KE”)on 11 October 2006 and 18 October 2006 respectively.

13.As revealed from the Redevelopment Plans, Fully Profit intends to replace the 5 existing houses by one composite multi-storey building with some 26 storeys.  The composite building will straddle across all 5 lots of the Land.  The ground floor of the building is to be occupied by 2 shops each having direct entrance from Nam Kok Road and another small back door opening to the service lane.  Entrance to the upper residential floors is gained from Nam Kok Road through a separate entrance and a corridor leading to the lift hall and staircases on ground floor.  There is also another flight of back staircases serving all the upper floors opening into the service lane.  The said corridor separates the 2 shops so that there is no direct access from one shop to the other without passing through Nam Kok Road or the service lane.

14.On 6 December 2006, BD approved the Redevelopment Plans.

15.By a letter dated 12 June 2007 from DLO/KE to A & B, DLO/KE rejected the Redevelopment Plans on the grounds that there would be breached of 3 covenants in the Government leases of the Land.

16.Correspondence between the representatives of Fully Profit on one part and DLO/KE on the other part ensued.  In the correspondence parties exchanged their views on the proper interpretation of the 3 covenants of the Government leases in question.  Ultimately, the only outstanding issue is whether the proposed development as envisaged under the Redevelopment Plans would be in breach of the following covenant of the Government leases of the Land:

“AND will not erect or allow to be erected more than one house on the demised premises …” (for N.K.I.L. Nos. 4036, 4038, 4039 and 3665)

“AND will not erect or allow to be erected more than one house on the said piece or parcel of ground …” (for N.K.I.L. No. 4037)

17.The position of DLO/KE is that the proposed development under the Redevelopment Plans would be in breach of the said covenants of the Government leases of the Land.  “DLO/KE has taken such stance for two reasons.  First, it is the contention of DLO/KE that upon proper construction, the covenants only allow the erection of one house on each of the 5 lots comprising the Land, no more and no less, and a proposed development straddling across all 5 lots is not permissible. Secondly, it is the contention of DLO/KE that the composite multi-storey building proposed to be developed by the Plaintiff does not fall within the meaning of a “house”.”  DLO/KE contends that lease modification of the Government leases is required to implement the proposed development.  The position of Fully Profit is that the proposed development would not be in breach of the said covenants and that no lease modification is required.

18.The facts set out in paragraphs 1 to 17 above are taken from a Statement of Agreed Facts filed by the parties.  At the hearing, the Defendant filed and sought to rely on a Supplemental Affirmation of Leung Kam Wing.  This was not opposed by the Plaintiff.  The purport of this Supplemental Affirmation was to show that the Land was subject to height restrictions due to the presence of the Kai Tak Airport.  The said height restrictions were imposed according to the Hong Kong Airport (Control of Obstructions) Order of 1957 (“the Airport Order”).  The Chinese type houses sitting on the Land were within the said height restrictions.  However, the proposed building intended to be erected on the Land by the Plaintiff would clearly exceed the height limit.  The Defendant argued that although the said height restrictions were subsequently lifted following the removal of the airport, the existence of such restrictions as from 1957 was part of the factual matrix that the court may wish to take into account in the construction of the relevant Crown leases.

19.It can be noted that the Airport Order was promulgated in 1957.  It therefore sits between the period when the Director of Public Works first certified that the “B.C.” of N.K.I.L. No. 3665 had been fulfilled and the time when a certificate of compliance in respect of N.K.I.L. No.  3665 was issued.  Certainly, by the time the relevant Crown leases were executed and granted, these height restrictions were there.  The Plaintiff did not seek to dispute that, it simply questioned the relevance of this factor in the construction exercise.

The Originating Summons

20.In the Originating Summons filed on 12^th January 2010, the Plaintiff sought a declaration in the following terms:-

“Declaration that the covenants in the Crown leases of New Kowloon Inland Lot Number 4036, 4037, 4038, 4039 and 3665 restricting the erection of more than one house on the demised premises of each of the lots do not restrict the erection of one house or having less than one house on the demised premises of each of the lots.”

21.At the start of the hearing, Mr. Edward Chan SC, leading counsel for the Plaintiff acknowledged that the aforesaid prayer was rather pointless and would not serve to resolve the actual dispute between the parties.  Mr. Chan invited the court to consider instead the granting of a declaration in line with the List of Issue filed by the parties on 28^th February 2011.  The only issue framed for the court’s consideration was in the following terms:-

Whether the proposed development of the Land, as shown in the building plans received by the Buildings Department on 18^th October 2006, or such other similar forms of development with one composite multi-storey building straddling over 5 lots of the Land, contravene the following covenants of the Government leases:

“And will not erect or allow to be erected more than one house on the demised premises … (for N.K.I.L. Nos. 4036, 4038, 4039 and 3665)”

“And will not erect or allow to be erected more than one house on the said piece or parcel of ground … (for N.K.I.L. No. 4037)”

Miss Audrey Eu SC, leading counsel for the Defendant did not oppose to such invitation.

Applicable legal principles on construction

22.Mr. Chan SC began with referring the court to the rule for construction of a lease as conveniently summarized in Woodfall Landlord & Tenant §§ 11.007 & 11.008:

“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background is referred to as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to (3) below, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification.

(4) The meaning which a document would convey to a reasonable man is not the same thing as the meaning of its words. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even to conclude that, for whatever reason, the parties must have used the wrong words or syntax.

(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents.  On the other hand, if one would conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.”

23.The above quotation was taken largely from the dictum of Lord Hoffman in Investors Compensation Scheme Ltd. v. West Bromwich Building Society [1998] 1 W.L.R. 896, at 912-913.  Parties are not in dispute as to the above principles.  Adding to this quotation is a useful summary, by the learned author of Chitty on Contracts, 13^th ed., §12-063, of the principle that a contract should be construed in its entirety:-

“Every contract is to be construed with reference to its object and the whole of its terms, and accordingly, the whole context must be considered in endeavouring to collect the intention of the parties, even though the immediate object of the inquiry is the meaning of an isolated word or clause.” [emphasis added]

24.Further, for the purpose of reminding the court of the subtle difference between “contemplation of the parties” and “intention of the parties”, Mr. Chan SC referred to Doe D. The Marquis of Bute v. Guest, Bart (1846) 15 M&W 159.  Under the memorandum of agreement, the lessor agreed to let to the lessee a piece of land, with liberty to build thereon such structures necessary for carrying on the business of a glass manufactory, for 61 years. The lessee also agreed to build in a substantial manner and not to use the premises for any other purpose than a glass manufactory during the term.  When it came to formal execution of the lease, the lessor insisted on including an affirmative covenant by the lessee that he would carry on the business of a glass manufactory on the demised premises during the term.  Pollock C.B. said:-

“The question is, whether, on the agreement between these parties, we are to infer that it was the intention of both parties that Sir John Guest should enter into this covenant, and be bound thereby. Mr. Wood’s argument consists of two parts: First, that, although this intention is not expressed in terms, still, if it is to be collected from the whole instrument that such was the intention of the parties, a Court of equity will carry it into effect; and the cases he has cited abundantly support that proposition. But the other branch of his argument is also to be established; namely, that it can be collected that such was the intention of these parties; and, in my opinion, no sufficient argument has been advanced to show that such was their intention. I do not see anything to show that Sir John Guest had any intention so to bind himself, or that Lord Bute had any reason so to expect. The parties expected that the trade of a glass manufactory would be carried on upon the premises, because they thought, no doubt, that trade would be profitable; but they never intended that the less-[165]-ees should be bound to carry it on at all events, during this long term, at any loss. Looking at the agreement set out in the case, there is nothing to lead me to suppose that there was any such intention as would be effectuated by this covenant. I think, therefore, that it ought not to stand.”

25.Mr. Chan submitted that on the authority of Doe D. The Marquis of Bute v. Guest, Bart, a covenant “not to erect more than something” does not give rise to obligation to erect something.  Mr. Chan stressed that what the parties contemplated as to certain state of affair is one thing, what they actually agreed to be bound is another.  Miss Eu, did not dispute this principle.  In fact, I do not understand Miss Eu as arguing that the subject covenant should be construed as a positive covenant to erect a house on each lot.  The ultimate question is to objectively decipher, by looking at the factual matrix as at the time of contract and the language they adopted in its proper context, what did the parties intend to be bound by the subject clause.

26.Miss Eu then referred me to the first instance decision of Deputy Judge Whaley in Wah Yick Enterprises Co. Ltd. v. Building Authority [1997] HKLRD 1177 on what this court needs only to decide in this Originating Summons.  In Wah Yick, the plaintiff wished to erect a 33-storey block of flats comprising a total of 99 flats on a site in Yuen Long, New Territories in accordance with general building plans submitted to the defendant, the Building Authority.  The defendant refused to give its approval on the ground that the proposed development contravened the draft Yuen Long Outline Zoning Plan (“OZP”).  The plaintiff sought a declaration that its proposed development did not contravene the OZP plan and that the defendant’s refusal was unlawful and hence null and void.  According to the OZP, the site fell within an area zoned for “village type development”.  In the Notes to the OZP, under the heading “village type development zone”, “house” was listed, in column 1, as one of the uses always permitted.  The plaintiff argued that it was entitled to erect its proposed 33-storey block of flats under this use.  The defendant argued that the proposed development did not properly fall within the use “house” and thus contravened the OZP.  Deputy Judge Whaley said [at 1190C-D]:-

“It is not in my view necessary, in order to decide this matter, to first formulate a definitive definition of ‘House’. It suffices that it is clear, to my mind, that in the context in which it appears, namely under Column 1 (uses always permitted) in a Village Type Development Zone, the use ‘House’ properly construed, does not include the 33-storey block of flats which the plaintiff proposes to build.”

27.The case was eventually appealed to the Court of Final Appeal the judgment of which is reported in (1999) 2 HKCFAR 170.  I will return to this decision in closer detail when the meaning of the word “house” is examined.  At the moment, my focus is on the observations made by Mr. Justice Bokhary PJ on the approach adopted by Deputy Judge Whaley as shown above.  Mr. Justice Bokhary PJ said [at 182E]:-

“The developer runs what I would call a ‘where do you draw the line?’ argument. Thus, it contends that one cannot say that any building is too high to constitute a village type development because one cannot say precisely how low a building must be in order to do so. This argument is untenable. Precision is a good thing. But just because a court cannot pronounce in a vacuum precisely where a line is to be drawn, it does not mean that the court cannot say on which side of the line something necessarily falls. All that such lack of precision means it this – where there is a doubt, the decision must go in favour of the party entitled to the benefit of the doubt.”

28.Mr. Chan did not argue against such approach and said that perhaps, it is not necessary for this court to definitively say what is a “house”.  He however submitted that if I were to reject the declaration, I will have to find that the proposed development is “more than one house” and give adequate reasons as to why I find so.  The proposed development is a composite structure intended to be built on the 5 subject lots each of which is governed by a separate Crown Lease containing the same covenant.  At the hearing, I ask Mr. Chan to describe the structure that would be erected on each of the said 5 lots.  Mr. Chan described the structure as “part of a composite multi-storey building”.  In my judgment, the proper question for this court to answer is whether the erection of “part of a composite multi-storey building” on each of the 5 lots constitutes a breach of the covenant prohibiting the erection of “more than one house” on each of the 5 lots.  I certainly accept that in answering that question, I must provide adequate reasons.

Meaning of “house”

29.Both counsel referred me to the Court of Final Appeal decision in Wah Yik, ibid as to the meaning of the word “house” in which Litton PJ said [at page 176G]:-

“Meaning of ‘house’

At the hearing before us, and in the courts below, submissions were made concerning the meaning of the word house.  We were taken through a number of English cases where courts have sought to construe the meaning of house or dwelling house in the context of the instruments in which those words appeared.  Little assistance can be derived from those cases. A search for a free-standing meaning of the word house, valid for all time in all circumstances, is fruitless.  The word has, as Lawrence J in Annicola Investments Ltd v Minister of Housing and Local Government [1968] 1 QB 631 at p.640 remarked, a fluidity of meaning; it takes its flavour from the context in which it is used.  It is clear that, as a matter of the ordinary use of language, a residential block with one common entrance but containing a number of flats within the building envelope can be considered a house.  An example of this, in the context of restrictive covenants attaching to the grant of land located on Hong Kong Island, is Real Honest Investment Ltd v A-G [1997] 2 HKC 182, where it was common ground that an apartment block of seven storeys, with one common main entrance, 85 ft in height, consisting of 14 residential flats, was a house.  That was a result arrived at by concession by the grantor, not by adjudication in court.  The examples from English cases cited in the course of argument were old cases, decided at a time when residential tower blocks of over 30 storeys were unknown.  In this regard, it is worth noting that the Town Planning Ordinance (Cap. 131) was first passed in 1939 when Hong Kong’s population was approximately one and a half million and multi-storey buildings were few: see the observations of Leonard J in Singway Ltd v A-G [1974] HKLR 275 at p.283 to this effect.  In such a setting, a residential block might well, in ordinary parlance, be referred to as a house, whatever its internal division.  It does not follow that, in the ordinary use of language today, a 30 storey residential block can be referred to as a house: most people would simple call it a block of flats.”

30.Mr. Chan submitted that the Court of Final Appeal did not lay down any legal principle as to how the word “house” should be construed in every situation and the above dictum should be applied with great caution.  He submitted that the Court of Final Appeal was concerned with interpretation of the word “house” as used in the OZP and hence was heavily influenced by the factor that the word “house” should be construed so as to be compatible with the rural setting as envisaged under the “village type development” zone.  Furthermore, Litton PJ also relied on the definitions of “house” and “flat” in the explanatory notes of the OZP in arriving at his decision.  Mr. Chan distinguished Wah Yik on the basis that all these features are not present in this case which involves the pure construction of a restrictive covenant in a Government lease. 

31.Miss Eu did not suggest that the decision in Wah Yik is of direct application.  She acknowledged that Litton PJ cautioned against a search for a free-standing meaning of the word “house” valid for all time in all circumstances.  She accepted that the word “house” has to be construed in its context and in each case against its own facts. Miss Eu emphasised that whist Litton PJ recognized that “a residential block with one common entrance but containing a number of flats within the building envelope” can be considered as a “house”, his Lordship made it clear that not every residential block is a “house”, particularly a block with nearly 30 storeys. She relied on his Lordship’s stress on ordinary use of language and submitted that one would not refer a 26-storey composite building with shops and several separate entrances as a “house”.  She submitted that most people would simply call such composite building a block of flats.  And in this regard, Miss Eu also relied on the ordinary meaning of a “house” as defined in the Shorter Oxford English Dictionary as:-

“A building for human habitation, a dwelling, a home; spec. a self-contained unit having a ground floor and one or more upper storeys (as opp. to a bungalow, flat, etc)”

32.In my judgment, the dictum of Litton PJ in Wah Yik was made in the context of what the word “house” generally means.  His Lordship’s observations were not confined to the special context of the OZP.  The dictum is of much assistance although I have to construe the word “house” as used in the subject covenants under the then prevailing circumstances and in particular, with regard to the special factual matrix existing at the time the respective Crown Leases were granted.  

33.Both parties referred me to Kimber v. Adams [1900] 1 Ch 412.  In that case, the plaintiffs were owners of 2 plots of land forming part of a building estate and had built a house on each of these plots.  The whole estate comprised of 4 plots of land.  The defendant bought the remaining 2 plots and proposed to erect on them 4 blocks of residential flats with each block consisting of 2 flats on the ground floor and 2 flats on the first floor.  There were 2 covenants in question: (1) that no house shall be erected on any part of the 4 plots of less value than £500; and (2) that not more than 10 houses shall be erected on the said 4 plots.  The plaintiff commenced an action for a motion that injunction be granted to restrain the defendant from erecting the 4 blocks of flats.  The plaintiff argued that each proposed flat is a house, hence there would be more than 10 houses in the estate and that each of such houses would be of value less than £500. 

34.The motion was first heard by Cozen-Hardy J. who said:-

“It is after all nothing more nor less than a question of the construction of this particular document, and one has to consider what is the meaning of the word ‘house’ in a deed or document where there is no context to cut it down or to alter its popular interpretation. On that point I have the authority of Sir George Jessel in Attorney-General v. Mutual Tontine Westminster Chambers Associa­tion (2), where he said that a building of this nature is, both in ordinary parlance and in legal meaning, a dwelling house, although it may also be for certain purposes regarded as a number of separate messages. He illustrated the proposition by saying that any one of the buildings in the Temple or Lincoln’s Inn, which, as we all know, are divided into separate chambers, is nevertheless one house.”

“I have seen the plans. That which it is proposed to erect seems to me to be a house of the value of more than 5001, and none the less a house of that value because it is proposed to be used as a series of flats. I must, therefore, make no order on the motion except that the costs be costs in the action.”

35.The matter then went on appeal and in the leading judgment, Lindley M.R. said:

“A property was sold in lots according to a plan for building purposes, and each lot was subject to a covenant that not more than one house should be built upon it. What does that mean? Does it refer to the mode in which the building to be erected is to be subdivided or let, or does it refer to the aggregate of the rooms or whatever the contents of the building may consist of? I think that the latter is the meaning. The house is the whole amalgamation. We know, of course, that a portion of a house may for some purposes, such, for example, as rating and franchise, be a house; but when the word is used in connection with a covenant of this description, I cannot agree that that is the meaning. It applies, not to the interior portions of the building, but to the whole building.”

And Vaughan Williams L.J. said:-

“I assent to the argument in support of the appeal to this extent: that I think one must, in construing this restrictive covenant, ask oneself what was the object of the covenant, and if I found myself in such a position that I could see no object in the covenant if it was simply limited to the bricks and mortar erection, I should have been disposed to put upon the word ‘house’ a meaning which would cover the user of the house as distinguished from the physical erection. But I do not find myself in that position, and I do not think that any one who is familiar with building estates in London would have any difficulty in ascertaining the object of this covenant, if we construe it as a covenant in which the word ‘house’ means the physical erection and not the interior arrangement.”

36.What I can gather from Kimber v. Adams, ibid, is that in construing a covenant similar to the subject covenants in this case, and in endeavouring to answer the question whether the building intended to be erected is a “house”, one should not focus just on the internal portions of the building but should instead look at the proposed building in its entirety.  The proper approach is to look at the plans of the proposed building and ask the question: can the physical erection fairly be described as a house?

37.One can see very similar approach adopted in The Attorney General v. The Mutual Tontine Westminster Chambers Association Ltd.  (1876) 1 Exch. 469.  In that case, the Westminster Chambers belonged to an association and consisted of seven blocks of building.  Each block was divided into two ranges by an internal staircase, which had only one door at the principal or street entrance.  Each block was in its internal arrangement structurally divided into different tenements or suites of rooms.  These suites were quite distinct from and have no means of communication with each other, except that each had a door opening onto the common staircase.  The street door was locked at night and was supervised by a porter employed by the association.  The case did not involve the construction of a covenant.  It actually involved the interpretation of a statute under which inhabitant duties were chargeable.  Jessel M.R. however made observations on the ordinary legal meaning of the word “house” as follows:-

“There are seven blocks of buildings in Victoria Street built by the appellants, the Westminster Chambers Association. They differed slightly, no doubt, from ordinary inhabited dwelling-houses, but not materially; because externally they are exactly like seven ordinary dwelling-houses built on to the street with ordinary windows, roofs, &c.; but internally they are divided into separate tenements or suites of apartments in such a way that each suite has, so to say, its own door, cutting it off from all the other tenements or suites. That is the substantial distinction; each set of apartments is, so far as possible, self-contained, and has all the necessary conveniences to enable people to take it as a place of business. Except for its size, and except for this peculiarity, as to each landing having only one door, or one door in each set of apartments, the block does not differ from an ordinary building. Then how would you describe each one of those seven buildings? There cannot be a doubt that you would call each a house. It was not denied before us, nor does it seem to have been denied in the Court below, that both the ordinary and the legal meaning of the word ‘house’ would comprise the building in question. Therefore, whether we look at the word as in common use in the English language or in legal documents, there is no doubt as to its being a term which would properly describe each of these seven buildings.”

38.Miss Eu further relied on The Attorney General v. The Mutual Tontine Westminster Chambers Association Ltd. ,ibid for the proposition that the overall external appearance of the building to be erect can also be important in the analysis as to whether the building can fairly be regarded as a “house”. However, on the other hand, a building which appeared externally as one structure can in fact amount to two houses.  In Ilford Park Estates Ltd. v. Jacobs [1903] 2 Ch. 522, there was a covenant that no more than one house should be erected on a plot of land.  The defendant there proposed to erect a double-tenement house on the plot, consisting of a ground-floor tenement and a first floor tenement above it.  These tenements were distinct and complete in themselves and had no communication with each other.  They were entered by separate front doors with separate staircases.  There was no way of getting from one tenement to the other except through the front doors.  In holding that there were in fact two “houses” built on the plot, Swinfen Eady J. said:-

“It is not disputed that if the defendant were to erect a building consisting of two semi-detached houses, vertically separated by a party wall, it would constitute two houses within the stipulation. But the defendant contends that each building in the present case is only one house. Now there is no internal communication between the ground-floor and first-floor tenements. There is no staircase common to the two tenements. No staircase is, in fact, required for the ground-floor tenement. There is a private staircase leading to the first-floor tenement and a separate staircase from the kitchen of that tenement to a separate w.c. on the ground-floor in the rear of the building. There is no common front door, but each tenement has a separate front door, and the only way of passing from one tenement to the other is by going out at one front door on to the small space under the archway facing the street and entering at the other front door. The language of Lord Brampton in Grami v. Langston (1) is exactly appropriate to this property. He says: ‘One roof covers the whole building, but each storey is so structurally composed and arranged for permanent occupation by a separate occupier that there is no internal communication of any kind between the two storeys, nor any common staircase or access to or from the street, or from any part of the outside of the premises, each having a separate entrance or entrances therefrom. In short, it would be impossible to erect two separate houses under one roof, or to divide one building into two distinct and separate houses more completely than has been accomplished in the building now under consideration.’

Now in this case there is no question of one house being built and then used as two houses.  In substance each building constitutes two houses which are structurally separate in every respect, with separate approaches to the street and no internal communication. It is quite different from a case where one building is erected containing separate flats.  In that case there is internal communication between the flats by means of the common staircase.  In the present case there is no internal communication whatever.  It is merely a case of one house superimposed on another from which it is divided horizontally, while in the ordinary case of semi-detached houses the division is vertical.”

39.In my judgment, Ilford Park Estates Ltd. v. Jacobs, ibid is an illustration of the importance of identifying the substantial features of a building structure and then ask oneself, bearing in mind the usual attributes of what a “house” is normally understood to entail, whether it should be regarded as a “house”. 

40.In Jasmin Enterprises Ltd. v. Chan Yuk Hon [1998] 4 HCA 224, the court was faced with the construction of a covenant in a Government Lease in these terms:-

“And shall not nor will erect any building or buildings on the said piece or parcel of ground hereby demised or any part thereof other than two houses of a European Type…”

What was erected on the land was a 22-storeys multi-storey building.  The purchaser of a unit in that building raised requisition alleging that there was a breach of the Government lease which rendered the title defective.  The vendor argued that the covenant meant that there was to be a maximum of two houses and the erection of one multi-storey building would not be in breach of the covenant. In rejecting the vendor’s argument, Sakhrani J. said:-

“Counsel also relied on concessions made by the Government in two cases, namely Wong Bei Nei & Anor v A-G [1973] HKLR 582 and Hang Wah Chong Investment Co Ltd v A-G [1981] HKLR 336. The concessions were to the effect that a block of flats can be included in the term ‘residential premises’ and ‘dwelling house’. I do not see how the concessions made in those cases can assist the defendant at all. The concessions were only made for the particular cases where the Crown leases were different and it cannot be said that by so conceding the Government has accepted that in all government leases the erection of a 22 storeys multi-storey building as is the case here is equal to a house of a European type. I agree with the plaintiff’s counsel’s submission that the case of Kimber v Admans [1900] 1 Ch 412 must be viewed in the context of what the particular structure or building the court was considering in that case. That was a two-storey house in that case, unlike the situation in Rogers v Hosegood [1900] 2 Ch 388 and certainly unlike the situation here. Each case must be decided on its own facts and one has to bear in mind that in 1934 when the Government lease was executed, it is doubtful whether there were any 22 storeys multi-storey buildings existing in Hong Kong. I also do not see how the earlier covenant requiring the lessee to build one or more tenements within 24 months for at least $18,000 can assist the defendant in the construction of the covenant in question. It is clear in my view that the proper construction is that only two houses are to be erected and the erection of one house would be in breach of the covenant. But none of this matters anyway on the facts of this case because as will emerge later in my judgment, when answering the requisitions the defendant’s solicitors seemed to have accepted that the covenant in question required two houses to be erected and they were seeking to argue that two houses could combine together to form one multi-storey buildings.

I agree with the plaintiff’s solicitors’ contention that it is inconceivable that two houses are equivalent to one multi-storey building containing some 46 shops and apartments.”

41.The covenant in Jasmin Enterprises Ltd. V. Chan Yuk Hon is differently worded as compared to the subject covenants. Although this authority is not of direct application, it seems quite clear to me, however, that basing on the dictum of Sakhrani J. and the dictum of Litton PJ in Wah Yik, it will be straining one’s interpretation of the word “house” to an intolerable extent if one were to equate it with a composite multi-storey building of 26 storeys (with the features set out in paragraph 43 hereunder).  Neither would it be conceivable to describe such composite multi-storey building as the combination of 2, 3, 4 or 5 houses.

Discussion

42.The Plaintiff accepts that relevant time frame for the construction of the meaning of the word “house” in the subject covenants was around 1965 when the Crown Leases were granted.  As a matter of fact, the grant of each individual Crown Lease was preceded by the Conditions of Exchange dated 1952. The conditions as set out in paragraphs 2 and 3 above indicated that each building erected on Inland Lot 3665 was intended to be the subject of and governed by an individual Crown Lease.  This intention was in fact materialized because by October 1952, 20 “Chinese type houses” were erected on Inland Lot 3665.  What followed was the sub-division of Inland Lot 3665 into 20 individual smaller lots, one for each of the 20 “Chinese type houses”, and each smaller lot became the subject of an individual Crown Lease.  The Plaintiff submitted that the building standing on each lot in 1965 must have been considered as a “house”.  This must be right.  The Government would not have granted a Crown Lease if the building erected thereon already constituted contravention of the subject covenant.  In other words, the word “one house” in the subject covenants must be wide enough to cover a building of up to 5 storeys (viz. the ground floor, cockloft, 1^st, 2^nd and 3^rd floor and a flat roof top) containing separate flats served by a common staircase. This is in fact consistent with the observation of Litton PJ in Wah Yik when he said that as a matter of ordinary use of language, a residential block with one common entrance but containing a number of flats within the building envelope can be considered as a house.

43.The Plaintiff then submitted that accordingly, the word “house” must be wide enough to cover also the proposed development.  With respect, this submission involved a quantum leap which I find difficult to accept.  Miss Eu had taken me through the plans submitted by the Plaintiff in relation to the proposed development.  The composite structure proposed to be erected on the 5 lots contained the following features:-

(i)    The Ground Floor Plan shows that there are 2 distinctly separate shops each with its own entrance to Nam Kok Road. Each shop also has one separate back door leading into the service lane;

(ii)   There is a third separate entrance to Nam Kok Road which will lead to a lift lobby.  The lifts will serve residents of the upper floors.  The lift lobby is also distinctly separate from the 2 shops and has one separate back door leading to the service lane;

(iii)  On the first floor, there are utilities rooms, a table tennis/game room, a function room and a gymnasium. These facilities will commonly serve residents of the upper floors;

(iv) From the 2^nd to 28^th Floors, there are 3 self-contained residential units on each floor;

(v)   The Gross Floor Area for Non-Domestic portions is 451 odd square metres and that for Domestic portions is around 3,956 square metres.  There are 182 odd square metres of Recreational Facilities; 

(vi)  The height of the proposed building is just under 85 metres; and

(vii) The elevation plans show that the building is in all respects a modern multi-storey building. 

44.As observed by Litton PJ in Wah Yik, a 20 odd storey residential block in today’s language would be “a block of flats”. It may well be difficult in 2011 to be sure as to what exact term one would adopt in 1965 to describe such a structure.  However, in my judgment it is most unreal to expect a reasonable person in 1965 to understand the word “house” as including the proposed development which must have been a mega structure to him.  The size, height, complexity and appearance of the building structure as well as the number of separate tenements contained therein are far removed from the ordinary notion of a “house”.  In all probabilities, a person in 1965 (if asked) would describe the structure as a “high rise block of flats/apartments” or “a multi-storey building of flats/apartments”.  It is interesting to note that the Multi-story Buildings (Owners Incorporation) Ordinance was first promulgated in 1970 to regulate the management of multi-storey buildings erected in Hong Kong.  It is thus most likely that the term “Multi-storey building” would have been in common use several years prior to 1970.  In my judgment, the word “house”, when used in the subject covenants, was not wide enough to encapsulate a building structure of such size, height, complexity, appearance and number of separate tenements as envisaged in the Plaintiff’s proposed development.  Although the exact delineation between what is and what is not a “house” may not be easy to draw, I have no hesitation in finding that the Plaintiff’s proposed development falls clearly outside the description of “a house”.

45.The Plaintiff then argued that the covenant merely requires the lessee not to erect or allow to be erected “more than one house” on each lot.  There is no obligation on the part of the lessee to erect anything on the lot at all.  If the lessee were to erect something which could not fairly be said to be “more than one house” on the lot, the covenant is not infringed.  Mr. Chan posed an example that if the lessee were to erect just 4 swimming pools on the lot and no house at all, the lessee would not be in breach of the covenant.  The Plaintiff then submitted that one composite multi-storey building straddling over 5 lots would not result in “more than one house” being erected on each of the 5 lots.

46.First of all, I agree that the subject covenants do not impose a positive duty on the lessee to build any structure on each of the lots.  However, as Miss Eu emphasized, if the lessee does erect any structure on a lot, one has to examine whether it would infringe the restriction contained in the subject covenant.  The Plaintiff seems to be arguing that the lessee can erect any number of structures on a lot so long as each of those structures is not a house.  If the structure is not a house, than any number of it on the lot will still not amount to “more than one house”.  It then argues that since what will rest on each lot is only “part of one composite multi-storey building”, the lessee is not erecting “more than one house” on each lot.  With respect, the fallacy of this argument lies in interpreting the phrase “erect …more than one house” as a mere quantitative restriction. It is also fallacious to argue that the restriction under the covenant controls only the number of “house” but could not apply to structures of other descriptions.  In my judgment, it is not difficult to see that the object of the subject covenants was to control the nature and extent of building activities on each lot. The overall concern was to prevent over crowdedness.  Accordingly, restriction under the covenant can consists of both quantitative and qualitative aspects.  In common parlance, the phrase “more than” is not confined to sheer quantity and can also mean “to a greater extent” (see the Shorter Oxford Dictionary).  In that sense, the phrase embodies quantitative as well as qualitative notions.  If a building structure intended to be erected on the lot is qualitatively describable as a “house”, then the covenant exerts a quantitative control, namely only one such structure can be erected thereon.  On the other hand, if the building structure intended to be erected on the lot cannot be described as a “house”, one is then required to examine whether the nature and extent of the intended erection exceed the ordinary attributes of a “house” in terms of size, height, complexity, appearance and/or the number of separate tenements involved.  In using the Plaintiff’s example of 4 swimming pools, I do not necessarily accept that their erection on one lot could not amount to contravention of the covenant.  Much depends on their sizes, manner and complexity of construction, purpose as well as overall appearance.  For instance, if each pool is of considerable size built one on top of the other within a huge concrete building structure, I would have no hesitation in finding that the lessee is erecting something “more than one house” on the lot.  The nature and extent of the building activities involved in the erection of such a structure will clearly exceed those pertaining to a “house” as such term is generally understood to connote.  On the other hand, if one is to erect 4 mini-pools as part of the amenities of a house built on the lot, I would consider the covenant not infringed as they could properly be said to be part of the house and hence there was no erection of “more than one house” on the lot.

47.Accordingly, in considering whether the erection of a composite multi-storey building straddling 5 lots constitutes infringement of the 5 corresponding Crown Leases, I would approach the issue both quantitatively and qualitatively.  Firstly, as Mr. Chan acknowledged, the structure that will rest on each of the 5 lots is to be described as “part of a composite multi-storey building”bearing the features as set out in paragraph 43 above.  As I have already held, the composite multi-storey building is not a “house” within the meaning of the covenant.  The structure resting on each lot is thus not just part of a “house”.  Secondly, bearing in mind the size, height, complexity, appearance and/or number of separate tenements involved in the composite multi-storey building, each part of the said composite multi-storey building intended to be erected on each lot still clearly exceed the ordinary attributes pertaining to a “house”.  In the circumstances, the structure intended to be erected on each lot is and can fairly be described as “more than one house”.  Again, it may well be difficult to identify the exact point of delineation.  However, on the facts of the present case, I have no difficulties in finding which side the proposed development falls into.  I therefore find that the intended development on the 5 lots will contravene the subject covenant contained in each of the 5 Crown Leases.

48.Miss Eu further argued that the subject covenants permit only the erection of “one” house on each of the 5 lots, but not a joint development straddling over them.  Miss Eu submitted that the relevant factual matrix was: at the time of the issuance of the Crown Leases, there was a separate building erected on each of the lots.  And when the Crown Leases were issued, a separate lease was executed in respect of each building on each lot.  This echoed General Condition No. 6(b) of the Conditions of Exchange.  Against such factual matrix, Miss Eu submitted that if the lessee wishes to build on the lot, he is not permitted to build a composite structure straddling 5 lots.  In effect, Miss Eu submitted that the subject covenant is not different from a covenant “not to erect other than one house”.

49.I have some difficulties accepting this submission.  It is certainly true that General Condition No. 6(b) of the Conditions of Exchange contemplated that each building will be governed by a separate Crown Lease.  It is also true that it was so achieved eventually. However, as explained in Doe D. The Marquis of Bute v. Guest, Bart, ibid, there is a difference between what the contracting parties contemplated as to certain state of affair and what they had actually agreed to be contractually bound.  The question is whether by agreeing to the subject covenant, the lessee can be said to have agreed not to build “other than one house” on each lot.  The wording of the subject covenants is “not to erect…more than one house”.  In my judgment, the Court cannot re-write the covenants into “not to erect…other than one house”.  I can test the argument by using this example:  assuming that the Plaintiff has acquired 2 such adjoining lots and intends to build one house (with all usual attributes of an ordinary house) straddling both lots with the rest of the land decorated as garden.  Then, in relation to each lot, the Plaintiff is only erecting part of a house.  The Plaintiff will then be in breach of a covenant “not to erect …other than one house” because he is building less than one house.  However, the Plaintiff will not be in breach of a covenant “not to erect … more than one house”.  I cannot read into the subject covenant a promise by the lessee that he will not erect a structure on one lot that would connect to or form part of another structure on the adjoining lot.  In other words, the mere fact that the proposed structure will straddle 5 lots is not a ground for holding that the subject covenants will be infringed.  What matters, in my judgment, is the nature and extent of the structure that is intended to be built straddling the 5 lots.  As I have held in paragraph 47 above, the nature and extent of the composite multi-storey building intended by the Plaintiff to be erected on the 5 lots are such that each portion of the composite multi-storey building resting on each of the 5 lots should fairly be regarded as “more than one house”, and hence will infringe the subject covenants.

Miscellaneous arguments  

50.The above conclusion is sufficient to dispose of the Plaintiff’s application.  However, for completeness sake, I will also deal briefly with the following arguments raised by the parties in the course of arguments:-

(i)    Miss Eu argued that the Airport Order and hence the height restrictions imposed thereby was part of the relevant factual matrix.  I do not agree.  The memo of the Director of Public Works dated 17^th October 1952 showed that the 20 Chinese type houses had already been erected in compliance with Condition 7(a) of the Conditions of Exchange. Condition 7(a) required the lessee to build “one or more permanent buildings … as may be approved by the Director of Public Works…”.  Accordingly, the height of the 20 Chinese type houses was the result of approval obtained from the Director of Public Works and not due to the Airport Order which was not yet promulgated at the time.  Although the Crown Leases were not granted until around 1965, clearly, they were granted because the Government considered that all conditions in the Conditions of Exchange had been complied with.  As far as the Condition 7(a) was concern, it was considered as having been complied with as early as 1952.  The promulgation of the Airport Order had absolutely no bearing on the granting of the Crown Leases.  In this regard, I accept the submissions of Mr. Chan.

(ii)   DLO/KE also seek to rely on Practice Note Issue no. 3/2000 in support of their arguments that the proposed development does not fall within the meaning of a “house”.  The Practice Note stated that:

“[the Director of Lands] will henceforth accept that a building with one main entrance and one secondary entrance, together with such means of escape (MoE) as may be required under the Building Ordinance to serve the buildings [providing such MoE] are designed and constructed to be for exit purpose only and are openable only from the inside is one house…

For the avoidance of doubt, a multi-storey residential/ commercial development with shops on the ground floor, each shop having its own separate access to and from the street, would not comply with the definition of one house.”

I agree with the submission of Mr. Chan that the Practice Note merely constitutes the view expressed by one contracting party on how the subject covenant should be construed.  It is thus not binding on the court nor does it have any evidential value.

(iii)  In fact, Miss Eu did not seek to rely on the Practice Note in her submissions although she maintained the argument that the proposed development does not constitute a “house” because it is not a block of flats with one common entrance.  Miss Eu essentially relied on the dictum of Litton PJ in Wah Yik, ibid at page 176I-J saying that “a residential block with one common entrance but containing a number of flats within the building envelope can be considered as a house”.  She also relied on the dictum of Bokhary PJ at page 182C-D to the same effect.  Miss Eu thus submitted that the proposed development fell foul of this requirement as there were all together 6 entrances to the building.  For my part, I am not prepare to hold that a building structure, which has otherwise all usual attributes of a house as understood in ordinary parlance, shall cease to be such merely because it has more than one common entrance.  I consider that such an approach has the danger of focusing too much on one leaf and misses the tree.  I am contended to rest my judgment on an overall consideration of the nature and extent of the proposed development in answering the question whether it can be regarded in its entirety as a “house”.  In my judgment, this approach is more consistent with the caution made by Litton PJ in Wah Yik against the attempt to search for a free-standing meaning of the word “house” valid for all time in all circumstances.  

Conclusion

51.For the reasons expressed above, I refuse to grant the declaration sought by the Plaintiff and dismiss the Originating Summons with costs to the Defendant, to be taxed unless agreed on party-and-party basis with certificate for two counsel.

Mr. Edward Chan SC and Mr. Desmond Leung, instructed by Messrs Iu, Lai & Li, for the Plaintiff

Ms. Audrey Eu SC and Mr. Jenkin Suen, instructed by Department of Justice, for the Defendant

Please refer to CACV87/2011 for the relevant appeal(s) to the Court of Appeal.