Fully Profit (Asia) Ltd v. The Secretary for Justice
Read the full judgment text of FACV 17/2012 on BabelCite. This Court of Final Appeal judgment was delivered on 13 May 2013 before Chief Justice Ma, Mr Justice Chan PJ, Mr Justice Ribeiro PJ, Mr Justice Bokhary NPJ and Lord Hoffmann NPJ.
Land law – Government Leases – restrictive covenants – contractual construction – interpretation of 'house' – whether proposed 26-storey composite building straddling five subdivided Lots constitutes a 'house' under the restrictive covenants – whether the covenants permit erection of non-house buildings on each Lot. The plaintiff developer sought to redevelop five Lots at Nam Kok Road, Kowloon City (carved out of Mother Lot NKIL 3665) by building a 26-storey composite building straddling all five Lots; the Director of Lands rejected the plans on the ground that the proposed development breached restrictive covenants in the five individual Government Leases entered into in the 1960s prohibiting industrial use, factory buildings, and limiting construction to not more than one house on each Lot. Held, allowing the defendant's appeal: the word 'house' in the restrictive covenants must be construed in context, following Investors Compensation Scheme Ltd v West Bromwich Building Society and Jumbo King Ltd v Faithful Properties Ltd; the word has no free-standing meaning valid for all time (Wah Yick Enterprises Co. Ltd v Building Authority; Annicola Investments Ltd v Minister of Housing and Local Government) and must be construed in context (Annicola Investments). At the time the Government Leases were created, Chinese-type five-storey houses were already standing on each subdivided Lot, and the meaning of 'house' must have reference to those existing houses; the proposed 26-storey building is not such a house. Further, the restrictive covenants only permit the building of houses (and no more than one on each Lot) on each Lot, and no other type of building; the express prohibition on factory buildings emphasises the prohibition on industrial use and does not leave other building types unrestricted. The Court of Appeal erred in treating the Conditions of Exchange (which governed the undivided Mother Lots) as continuing to apply in the same way after the Lots were subdivided and the Government Leases were created. The question of straddling and the principle in Feather v The Queen did not require determination. Appeal unanimously allowed; order of Deputy Judge Pow SC restored; plaintiff to pay the defendant's costs of the appeal and the Court of Appeal, with costs of the action as ordered by the Deputy Judge; liberty to apply for different costs orders by written submissions within 14 days.
Legal issues: Meaning of 'house' in restrictive covenants in Government Leases · Scope of restriction in covenants – houses only, or any non-industrial non-factory building
Outcome: Appeal allowed; the Court of Final Appeal unanimously allowed the defendant's appeal and restored the order of the Court of First Instance (Deputy Judge Pow SC), holding that the proposed 26-storey composite building is not permitted under the Government Leases.
Cited by 92 cases · Cites 3 cases
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FACV 17/2012 IN THE COURT OF FINAL APPEAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION FINAL APPEAL NO. 17 OF 2012 (CIVIL) (ON APPEAL FROM CACV NO. 87 OF 2011) ____________
_______________ J U D G M E N T _______________ Chief Justice Ma: A INTRODUCTION 1.The plaintiff (the respondent in the present appeal[1]) is a developer and wishes to redevelop five Lots of land at Nam Kok Road in Kowloon City (“the five Lots”). There stands a house on each Lot. The plaintiff wishes to redevelop the five Lots (which are adjacent to one another) by building a 26 storey composite building[2] straddling across all five Lots. The central question in this appeal is whether the relevant Government Leases under which each of the five Lots are held (“the Government Leases”)[3] permit the construction of the proposed building. The issue before the court (as it was before all the courts below) is one of contractual construction. The practical effect of the plaintiff not being permitted to build the composite building under the Government Leases is that they may be required to pay a premium for the privilege. 2.Before identifying the relevant issues to be determined, I should first set out the relevant facts and the relevant contractual documentation. 3.By Conditions of Exchange dated 4 January 1952 (“the Conditions of Exchange”), the then owner of a property on Kennedy Road in Hong Kong surrendered this land to the government in exchange for two Lots of land at Nam Kok Road in Kowloon City on the terms set out in that document. These two Lots[4] were identified as NKIL Nos. 3665 and 3666.[5] As we shall presently see, it was anticipated under the Conditions of Exchange that the lessee[6] would build on the Mother Lots. 4.The Conditions of Exchange contained the following terms:-
5.I highlight some aspects of the Conditions of Exchange:-
6.As recorded by the relevant Occupation Permits, in about October 1952, 20 houses were erected on Mother Lot No. 3665.[8] These houses, described in the two Occupation Permits as “Chinese type houses”, were identical in design each having five storeys: a ground floor, a cockloft, three floors and a flat roof. The 20 individual, sub-divided Lots, on which the houses stood, each occupied areas of about 1,143 sq. ft. (it will be recalled that the total area of Mother Lot No. 3665 was 22,886 sq. ft.). 7.These houses having been erected in October 1952, it was not, however, until the 1960s that, pursuant to General Condition 6(b) of the Conditions of Exchange[9], individual Government Leases[10] were entered into in relation to each of the Lots on which the houses stood. Accordingly, Mother Lot No. 3665 became sub-divided into 20 separate Lots, each with a house. The five Lots (the subject matter of this appeal) which became governed by Government Leases created on various dates in the 1960s, are:-
8.The construction of the terms of these Government Leases is crucial to the resolution of the central question in these appeals. The relevant terms are those restricting user and the right to erect houses. The parties have referred to these terms as restrictive covenants. The effect of these restrictive covenants is the same although the wording of them differs in the following way:-
9.Since 2006, the lessee[12] of the five Lots has wanted to redevelop and for this purpose appointed the plaintiff as the authorized developer. Building plans for the redevelopment being principally the erection of the composite building earlier described were duly submitted to the Lands Department. They were rejected. The position of the Director of Lands (the defendant in the present proceedings and the appellant in the present appeal) was that the proposed redevelopment breached the restrictive covenants set out in para 8 above. The plaintiff disagrees. 10.It is this point that separates the parties and which has led to the present proceedings. B THE ISSUES 11.The parties’ respective stances can be simply stated:-
12.In the Court of First Instance, Deputy Judge Pow SC concluded that the building to be erected under the proposed redevelopment was not a house. He was of the view that the definition of the word “house” in the Government Leases had to be considered in the light of what that term meant at the time the Leases were created. At that time, the learned Deputy Judge observed, houses on the five Lots were already in existence. As he said, “The plaintiff submitted that the building standing on each Lot in 1965 must have been considered as a ‘house’. This must be right.”[18] After examining the plans for the proposed redevelopment, the Judge concluded that it would be a “quantum leap” for the proposed building to be described as a house. He accordingly found in favour of the defendant. 13.The Court of Appeal reversed the Judge’s decision and found in favour of the plaintiff, thus allowing the appeal. Like the judgment of the learned Deputy Judge, the judgment of the Court of Appeal[19] analyzed a large number of authorities (of both the Hong Kong and English courts), although the conclusion reached was quite different. In arriving at the view that the proposed composite building did constitute a “house” under the Government Leases, the Court of Appeal relied much on the effect of General Condition 7(a) and Special Condition (6) of the original Conditions of Exchange. Under those conditions, the original lessee of the Mother Lots could have built a building which occupied the whole of the Mother Lots. It therefore followed that a large composite building could come within the definition of house; in context, the term “house” was synonymous with the term “building”. Straddling caused no difficulties because under the original Conditions of Exchange, a building or buildings could have occupied the whole of the Mother Lots. 14.It is clear from the way the parties and the courts below have approached the case that it becomes necessary in this appeal principally to construe the meaning of the word “house” in the restrictive covenants and to ascertain the intention behind the restrictive covenants. C CONSTRUCTION OF THE RESTRICTIVE COVENANTS AND APPLICATION TO THE FACTS 15.We have been referred to the very well-known statement of principle regarding the construction of contracts contained in the speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society[20], to which can be added the judgment also of Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd[21]. What emerges from these cases – and other authorities on contractual interpretation – is the overall importance of context when construing contractual terms. The statements of principle in Investors Compensation Scheme and in Jumbo King refer time and again to the relevant background against which the relevant contract and contractual terms must be viewed. It is in my view not particularly helpful in most cases to refer to the “ordinary and natural meaning” of words because, as very often experience tells us, there can be much debate over exactly what is the ordinary or natural meaning of words. The surer guide to interpretation is context. Here, I would just add that in the area of statutory and constitutional interpretation, it is context that is key; context is the starting point (together with purpose) rather than looking at what may be the natural and ordinary meaning of words.[22] 16.The word “house” is a good example of where there is no ordinary or natural meaning; at least this is open to much debate. The number of authorities referred to in the judgments below and in the parties’ written Cases before us amply demonstrate this point and, for my part, very little assistance can be derived from these authorities. This Court has already stated that a “search for a free-standing meaning of the word house, valid for all time in all circumstances, is fruitless.”[23] Reference was made in Wah Yick to the judgment of Lawrence J in Annicola Investments Ltd v Minister of Housing and Local Government[24] where he said the word had a “distinct fluidity of meaning, and that it is best construed in relation to the context in which it is found.” 17.In context, it is clear that the meaning of the word “house” under the Government Leases must have reference to those characteristics of the houses which were actually standing[25] at the time the Government Leases were entered into. In this respect, I agree with the learned Deputy Judge. Unlike in the case of the Conditions of Exchange when that document came into existence (when there were no buildings on the Mother Lots that could be described as houses), houses were actually standing on each of the individual, sub-divided Lots at the time the Government Leases were created. In the context of those Leases, the meaning of the word “house” must be taken to mean the type of house existing on the individual Lots. It is significant that the word “house” should be used, rather than the word “building”. In the Conditions of Exchange, as seen earlier, both words are used. They have different meanings. General Condition 7(a)[26] allowed the lessee to build one or more “buildings” on the Mother Lots but if “houses” were to be built, then under Special Condition (6)[27] , this was limited to 20 houses (on the former Mother Lot No. 3665) and eight houses (on the former Mother Lot. 3666). 18.I have not lost sight of the user part of the restrictive covenants. The argument here was that since there was an express prohibition in the restrictive covenants to the erection of a factory building, it therefore followed that any other type of building[28] could be erected. There are two answers to this construction: first, it ignores the meaning of the word “house” in context; secondly, the reference to “factory building” in the restrictive covenants is really to emphasize the prohibition against industrial use. 19.Construed in this way, it is clear that the building that is proposed to be built on the five Lots cannot be regarded as a house for the purposes of the restrictive covenants. 20.What then of the plaintiff’s point that the restrictive covenants only contained a restriction as to the number of houses that could be built (no more than one on each Lot) but had no application to limiting either the type or number of other buildings that could be erected? I cannot agree with this construction of the effect of the restrictive covenants:-
21.The only permitted redevelopment under the Government Leases being the building of houses, and no more than one house on each Lot, and no other type of building, the proposed redevelopment by building a 26 storey building is also for this reason prohibited. 22.In view of the construction of the restrictive covenants reached above, it is unnecessary to consider the arguments based on straddling or whether it is permissible to build only a part of a house on each Lot. It does seem to me, however, on straddling it is unlikely that the Government Leases would, without modification, allow for this. Each Government Lease, as stated above, dealt with an individual Lot. The previous state of affairs when the Mother Lots were much larger and before sub-division, no longer exist. 23.It is also unnecessary to deal with the principle (if it exists and if so, its ambit) in Feather v The Queen. D CONCLUSION 24.The proposed redevelopment not being permitted under the Government Leases, this appeal should be allowed and the order made by the learned Deputy Judge, restored. As to costs, I would order that the plaintiff should pay the defendant’s costs in this appeal and in the Court of Appeal, such costs to be taxed if not agreed. The costs of the action shall be as ordered by the learned Deputy Judge. If any party wishes to have a different order for costs, written submissions should be served on the other party and lodged with the Court within 14 days of the handing down of this judgment, with liberty on the other party to lodge written submissions within 14 days thereafter. In the absence of such written submissions, the order nisi will stand absolute at the expiry of the time limited for these submissions. Mr Justice Chan PJ: 25.I agree with the judgment of the Chief Justice. Mr Justice Ribeiro PJ: 26.I agree with the judgment of the Chief Justice. Mr Justice Bokhary NPJ: 27.I agree with Chief Justice Ma’s judgment. Lord Hoffmann NPJ: 28.I agree with the judgment of the Chief Justice. Chief Justice Ma: 29.This appeal is unanimously allowed. The order of the learned Deputy Judge should be restored. The Court also makes an order for costs as set out in para 24 above.
Ms Audrey Eu SC & Mr Jenkin Suen, instructed by Department of Justice for the Appellant Mr Edward Chan SC & Mr Desmond Leung, instructed by Iu, Lai & Li for the Respondent [1] From the decision dated 18 January 2012 of the Court of Appeal (Tang VP, Fok and Chu JJA) allowing the appeal from the decision dated 20 April 2011 of Deputy Judge Jason Pow SC. [2] The plans for the proposed development show that there will be shops on the ground floor, utility, sports and function rooms on the first floor, and residential flats from the second to 26th floor. [3] As will be seen, they were Crown Leases entered into on various dates in the 1960s. [4] Ms Audrey Eu SC (for the defendant) described these two Lots as the Mother Lots. For convenience, I shall do the same in order to distinguish them from the individual Lots when the Mother Lots were sub-divided. [5] Lot No. 3665 occupied an area of some 22,886 sq. ft., Lot No. 3666 occupied 9,934 sq. ft.. The Lots were not adjacent to one another; they were on opposite sides of Nam Kok Road. The five Lots with which this appeal is concerned, were carved out of Mother Lot No. 3665. [6] The owner of the Lots is described in the Conditions of Exchange as the lessee, all property held from the Government (formerly the Crown) being held on leasehold. [7] In other words, a premium. [8] At this point, Lot No. 3666 is no longer relevant for the purpose of this appeal. [9] Para 4(b) above. [10] Then called Crown Leases. I shall use the term Government Leases to describe these leases: see definition of Government Leases in section 3 of the Interpretation and General Clauses Ordinance Cap. 1. [11] This Lot has the same number as the Mother Lot of that number but this is purely coincidental as it is quite clearly a different Lot. [12] Sino Plan Corporation Limited. [13] With him, Mr Desmond Leung. [14] Referred to in para 5 above. [15] This was a point which the Court of Appeal also made: see para 5 of the judgment of the Court of Appeal. [16] The defendant was represented by Ms Audrey Eu SC and Mr Jenkin Suen. [17] (1865) 6 B&S 257, at 283-4. [18] Para 42 of the judgment. [19] The judgment of Tang VP (as he then was, now Tang PJ), with which the other Judges agreed. [20] [1998] 1 WLR 896, at 912H-913F. [21] (1999) 2 HKCFAR 279, at 296D-I. [22] See Vallejos Evangeline Banao v Commissioner of Registration, FACV Nos. 19 and 20 of 2012 at para 75-77; HKSAR v Lam Kwong Wai (2006) 9 HKCFAR 574 at para 63. [23] See Wah Yick Enterprises Co. Ltd v Building Authority (1999) 2 HKCFAR 170, at 176H-I per Litton PJ. [24] [1968] 1 QB 631, at 640. [25] These houses had been described as “Chinese type houses”; see para 6 above. [26] Para 4(1)(a) above. [27] Para 4(2)(b) above. [28] Such as, as Tang VP pointed out in para 26 of the judgment of the Court of Appeal, a commercial building. [29] See para 6 above. | |||||||||||||||||||||||||||||||||||||
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