New Mercury Holding Corporation v. The Secretary for Justice
Read the full judgment text of CACV 74/2013 on BabelCite. This Court of Appeal judgment was delivered on 15 April 2014.
1. These appeals concern the construction of the covenants in two Government Leases: one for Kowloon Inland Lot [“KIL”] 7085 and one for KIL 7080. Although the appeals (and the proceedings below) are heard together because the relevant covenants to be construed and the parties are identical, there was no consolidation of the proceedings. Thus, the evidence filed in one set of proceedings cannot be treated as the evidence filed in the other set of proceedings. As explained later, this has some si
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CACV 73/2013 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 73 OF 2013 (ON APPEAL FROM HCMP NO. 1497 OF 2012) ________________________ BETWEEN
________________________ CACV 74/2013 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 74 OF 2013 (ON APPEAL FROM HCMP NO. 1798 OF 2011) ________________________ BETWEEN
(Heard Together)
_____________ JUDGMENT _____________ Hon Lam VP (giving the Judgment of the Court): 1.These appeals concern the construction of the covenants in two Government Leases: one for Kowloon Inland Lot [“KIL”] 7085 and one for KIL 7080. Although the appeals (and the proceedings below) are heard together because the relevant covenants to be construed and the parties are identical, there was no consolidation of the proceedings. Thus, the evidence filed in one set of proceedings cannot be treated as the evidence filed in the other set of proceedings. As explained later, this has some significance in the determination of CACV 74 of 2013. 2.The two lots in question are situated in the locality commonly known as the Kadoorie Hill in Kowloon. They are lots carved out from what was originally a large plot of land (about 1,330,000 square feet) granted to a developer in 1931 as KIL 2657. KIL 2657 was sold by the government by auction and the Conditions of Sale No 3121 contained the following conditions which are relevant as background leading to the grant of the two lots which are the subjects of this appeal:
3.The developer had complied with those conditions and lots were carved out from KIL 2657 in accordance with Special Conditions 4 and 5 after houses were built on the land. In respect of KILs 7080 and 7085, such compliance was confirmed by the Director of Public Works in writing on 29 December 1959. 4.In the Government Leases for these two lots (as in the cases of the other 19 lots carved out from KIL 2657 in the vicinity), the lessee gave the following covenants:
5.The latter parts of these covenants are the focus of these appeals. We shall refer to them as the Curtilage Covenant. 6.The Government Leases for the two lots were granted on 19 March 1966 (for KIL 7085) and 17 May 1966 (for KIL 7080) respectively. By then, a detached house was built on KIL 7085 and another detached house was built on KIL 7080. In the land adjoining KIL 7080 which became KIL 7081, a pair of semi-detached houses was erected on it when the Government Lease was granted for that lot (also on 17 May 1966 with the same covenants as in the two lots in this appeal). 7.KIL 7085 has a lot area of 12,022 square feet. KIL 7080 has a lot area of 12,705 square feet. KIL 7081 has a lot area of 11,921 square feet. 8.The Plaintiff became the owners of these three lots (amongst others) and intended to re-develop the same. Its architect submitted building plans for a pair of semi-detached houses for KIL 7085 which were rejected by the Lands Department (amongst other grounds) for breach of the Curtilage Covenant. That led to HCMP 1497 of 2012 (and now CACV 73 of 2013). 9.For KILs 7080 and 7081, the architect submitted building plans for 3 detached houses, one falling exclusively within KIL 7080, another one exclusively within KIL 7081 whilst the third one with a curtilage straddling both lots (with 3,297 square feet falling within KIL 7081). Again the plans were rejected for contravention of the Curtilage Covenant in respect of the third house. This is the subject matter in HCMP 1798 of 2012 and CACV 74 of 2013. 10.At the court below, Chung J [“the Judge”] determined that on proper construction of the Curtilage Covenant the proposed re-developments were in contravention of the same. 11.Procedurally, the matters came before the court as construction summonses. The proceedings were not brought by way of applications for judicial review under the procedure in Order 53. In the circumstances, the court shall only determine the issues of construction raised in the Originating Summons. Though Chung J mistakenly described the matters as judicial review applications in his judgment, he had actually adopted the strict construction approach in determining the issues before him. At paragraph 7, the Judge succinctly set out some broad principles on construction which are not disputed (both at first instance and on appeal):
12.For the resolution of these appeals, we do not need to discuss at length the relevant principles on construction. We agree with the Judge on the broad principles set out above. In addition, we would highlight several authorities at this juncture. As Lord Hoffmann said in Jumbo King Ltd v Faithful Properties Ltd [1999] 4 HKC 707 at 726-7:
13.In Fully Profit (Asia) Ltd v Secretary for Justice [2013] 6 HKC 374 at para 15, the Chief Justice made this observation,
14.Further, since we are concerned with the construction of Government Leases, the following observations of Slade J in Earl of Lonsdale v Attorney General [1982] 1 WLR 887 are relevant:
15.The relevant context, in our view, should include the land ownership regime in Hong Kong. This was highlighted by Lord Millett NPJ in Director of Lands v Yin Shuen Enterprises Ltd (2003) 6 HKCFAR 1 at para 27:
See also para 57 of the judgment. 16.This remains the position after 1997, see the last sentence at para 28 in Yin Shuen and Article 7 of the Basic Law. CACV 73 of 2013 17.As succinctly pointed out by Mr Yu SC, the issue in this appeal is whether the Curtilage Covenant applies to each semi-detached house or to the whole of a pair of semi-detached houses. Since we are dealing with the re-development of the lot, the relevant part of the covenant is the latter part of it:
18.The minimum area is 8,000 square feet (referred to at the earlier part of the covenant). 19.The requirement is set with regard to “residential premises” to be erected on the land. Like the word “house” considered in Fully Profit v Secretary for Justice [2013] 6 HKC 374, the expression “residential premises” can have different meanings in different contexts. The crucial question is whether in the context of these Government Leases “residential premises” includes a pair of semi-detached houses. 20.Mr Ho SC submitted on behalf of the Plaintiff that the relevant context is as follows:
21.Mr Yu contended that the developments at the other lots are not relevant. Further, he submitted that the following matters provide the relevant context for construction of the Curtilage Covenant:
22.Though Mr Yu accepted “residential premises” could encompass a pair of semi-detached houses in the cases of the other lots, counsel contended that “residential premises” could only mean a single detached house for the purpose of the Government Lease for KIL 7085 because the developer had chosen to erect a single detached house there and provided for it in the general lay-out plan before the grant of the Government Lease. 23.Though superficially attractive, we must reject this last contention based on the general lay-out plan. Parties are unable to produce the approved general lay-out plan, presumably it had been misplaced or lost over the years. Even assuming that only one single detached house was shown on that approved general lay-out plan, we are not concerned with the construction or enforcement of Special Condition 4. The Government chose to enter into a separate Government Lease for each lot carved out of KIL 2657 and the rights and obligations of the lessee of KIL 7085 are governed by the terms of that Government Lease. If the terms in that Government Lease do not fully reflect the terms in the Conditions of Sale, we do not think the Government can ask the court to construe the Curtilage Covenant in a manner to supplement the lacuna. 24.At para 16, the judge placed some emphasis on Special Condition 5, in particular the reference to “each house” in a “separate lot” with a size of not less than 8,000 square feet. With respect, we do not think one can ignore the prevalent circumstances with a pair of semi-detached houses of less than 16,000 square feet being built on the various parts of KIL 2657 which had been accepted by the Government to be compliant with the Conditions of Sale, including Special Condition 5. In other words, for the purpose of Special Condition 5, “house” includes a pair of semi-detached houses. Seen in that light, the genesis of the Curtilage Covenant from Special Condition 5 actually supports the Plaintiff’s contention if “residential premises” in the Curtilage Covenant is to be given the same meaning as “houses” under Special Condition 5. 25.The judge regarded the situations at the 19 lots as irrelevant for present purposes because the Plaintiff is not relying on waiver or estoppel (see para 17(1) of the judgment). With respect, the judge had misunderstood the basis on which the Plaintiff referred to the situation at the 19 lots. Mr Ho submitted that they formed part of the factual matrix to which the court must have regard in the construction of the Curtilage Covenant. The submission was advanced in light of this proposition in Lewison, The Interpretation of Contracts, 5th Edn p.149 (citing Holding & Barnes Plc v Hill House Hammond (No 1) [2002] L & TR 7:
26.Mr Yu submitted that the facts of Holding & Barnes Plc are different from our case where the clause in question did not make sense and it was a clear clerical error. The other leases were executed together with lease in question as one single transaction. 27.We do not think it matters much whether Holding & Barnes Plc is directly applicable in the present case. It was just an illustration of the court’s reference to the underlying factual matrix to ascertain what a reasonable person would have understood the parties to mean. In Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, Lord Hoffmann had this to say at p.913 regarding the relevant factual matrix:
28.The exception (set out at (3) in the same page) is the previous negotiations of the parties and their declarations of subjective intent. 29.In BCCI v Ali [2002] 1 AC 251, Lord Hoffmann said at para 39 by reference to his speech in ICS cited above,
30.In the present context, the Government Lease for KIL 7085 was made between the same parties as the Government Leases of the 19 lots and they were all executed pursuant to Special Condition 5 of the Conditions of Sale No 3121. The knowledge with regard to those lots was reasonably available to the parties at the time when the Government Lease for KIL 7085 was executed. In our judgment, these were matters which would affect a reasonable person’s understanding of the language of the Government Lease, as such they should be taken into account in the construction exercise. 31.Whilst it is relevant to bear in mind that there was only one single detached house on the lot when the parties entered in the Government Lease for KIL 7085, we are driven by the factual background and the explicit permission for “detached or semi-detached residential premises” in that lease to the conclusion that residential premises in the context of the Curtilage Covenant can include a pair of semi-detached houses. This construction is not inconsistent with the intention to control the intensity of development reflected in Special Conditions 4 to 6 since, as we have explained earlier, the word “house” in the context of Special Condition 5 had actually been understood by the parties to encompass a pair of semi-detached houses. 32.We do not think the principle in Earl of Lonsdale can assist Mr Yu since we have come to a clear conclusion that in the context of the matter, residential premises in the Curtilage Covenant can mean a pair of semi-detached houses. 33.Mr Yu and the judge referred to Wong Bei-Nei v Attorney General [1973] HKLR 582. Though the case was also concerned with lots carved out of KIL 2657, we do not think that decision takes the matter further in this appeal. The principal issue in that case was: in the context of Special Condition 6 whether redevelopment to build a block of flats was precluded as outside the meaning of “residential premises” and “private dwelling-house” (which the judge held to be interchangeable terms, see p.593). The proposed redevelopment in that case was the erection of three detached buildings consisting of a total of 24 flats with a maximum height of two storeys (see p.592). That was a wholly different scenario from our case. Trainor J did not consider the possibility of the erection of a pair of semi-detached houses in one lot and there was no reference to a covenant similar to the Curtilage Covenant in the separate Government Lease for the lots in that case. There had been a Deed of Exchange of 30 November 1972 merging the two lots in question (see p.588) and the issues before the court were debated in the context of the Conditions of Sale. The answer to the main issues in dispute on the facts of the case appeared at p.595: the learned judge held that the expression “house” precluded a flat or a block of flats. 34.Admittedly, some parts of the judgment in Wong Bei-Nei can be read as supporting a proposition that there could only be one tenement within one house (see p.595), but that were said in the context of whether house could mean a block of flats. The significance of the reference to semi-detached house was apparently not considered and the evidence as to the erection of pairs of semi-detached houses at various lots carved out of KIL 2657 was apparently not before the court. 35.On the construction of the curtilage requirement in Special Condition 5, the analysis of Trainor J revolved around whether a “house” can include a building composed of flats, see p.597. For reasons we have already canvassed above, having regard to the relevant matrix of facts and the context of the Conditions of Sale as a whole, at the time when the Government Lease for KIL 7085 was executed, a reasonable person would have understood the word “house” in Special Condition 5 to include a pair of semi-detached houses and applied the same interpretation to the expression “residential premises” in the Curtilage Covenant. 36.Mr Yu also relied on Fully Profit v Secretary for Justice [2013] 6 HKC 374 to contend that the actual state of building on the land at the time of the execution of the Government Lease provided the context for construction of its terms. We have no problem with such a proposition. But what we do not agree is that the state of that building provides the determinative context for the construction exercise. In the present case, as we have explained, there are other matters relevant to the exercise which the court must have regard to. We do not find anything said in the judgment of the Court of Final Appeal in that case to elevate the actual physical state of a building to be the ONLY relevant consideration and to exclude other factual matters from consideration. 37.We therefore allow the appeal in CACV 73 of 2013 and grant a declaration in terms of paragraph 2 of the Originating Summons in HCMP 1497 of 2012. We also make an order nisi that the Defendant shall pay the Plaintiff’s costs in CACV 73 of 2013 and in HCMP 1497 of 2012, such costs are to be taxed if not agreed. CACV 74 of 2013 38.In his skeleton submissions, Mr Ho succinctly identified the issue in this appeal as follows,
39.Unlike the evidence filed in respect of the other set of proceedings, the Plaintiff did not file any evidence with regard to the other lots in HCMP 1798 of 2011. There was no suggestion in the evidence of the Plaintiff that it would be referring to the situation of the other lots as relevant factual matrix for the construction of the Curtilage Covenant in respect of the Government Lease for KIL 7080. 40.In his skeleton submissions, Mr Ho referred to the situation at KIL 4260 to support his case. Mr Yu objected to that reference as no evidence regarding that lot had been filed in HCMP 1798 of 2011. Mr Yu further told this court that if such evidence had been filed, the Government would adduce some evidence regarding that particular lot to account for the difference in development. 41.At the court below, the Judge ruled that evidence of the other lots is not before the court for the purpose of HCMP 1798 of 2011, see para 17(2) of the judgment. In the Notice of Appeal for CACV 74 of 2013, the Plaintiff did not challenge this ruling of the Judge. Nor is there any reference to the position at KIL 4260 or other lots in the grounds of appeal. The Plaintiff also did not apply for leave to adduce fresh evidence for the purpose of this appeal. 42.In such circumstances, we cannot be satisfied that we have all relevant evidence about KIL 4260 and it would not be fair to allow the Plaintiff to run any argument based on the position at KIL 4260. 43.Stripped of the contention based on KIL 4260, Mr Ho’s submission on the appeal can be summarized as follows:
44.Mr Ho also referred to some authorities on the meaning of “curtilage”. In particular, counsel relied on In re St John’s Church [1967] P 113 at 115D and submitted that there is no legal requirement that ownership of the curtilage of a building would need to coincide with the ownership of the building. 45.Mr Ho further said the word “curtilage” is not a term of art and it refers to an area of land which forms part and parcel of a house or a building: Dyer v Dorset County Council [1989] QB 346 at p.358E; Lowe v First Secretary of State [2003] 2 C & PR 24 at para 21. 46.In our judgment, Mr Yu is correct in his submission that the question here is not what is meant by a curtilage. Rather, the question is whether the relevant curtilage has to be within the lot. That question has to be determined by construing the Curtilage Covenant as a whole instead of simply ascertaining the meaning of “curtilage”. 47.In this connection, we do not think one can derive much assistance from the judgment in In re St John’s Church [1967] P 113 which was decided in a wholly different context. The question in that case was whether an unconsecrated yard surrounding a church could be the curtilage of the church within the meaning of section 7 of the Faculty Jurisdiction Measure 1964. If it was, the court would have jurisdiction. On the facts, the legal titles were held by the same person though the judge said it would not have mattered if the yard had been vested in a different estate. The case was decided in the St Alban’s Consistory Court as a matter of ecclesiastical law. The factual background leading to the decision was set out at p.116 of the report. 48.The Curtilage Covenant starts with a prescription for the existing condition of the land:
49.It is a covenant given in the Government Lease governing the rights and obligations between the Government as lessor and the developer as lessee in respect of the use of the land subject to the lease. It was clearly intended to run with the land and the land alone. Even though the Government and the developer were also the lessor and lessee of adjoining pieces of properties at the time of the Government Lease, there is no provision in the Government Lease or the Conditions of Sale to bind them to such relationship in the future. In other words, there is nothing to stop the developer from assigning its interests in these adjoining lots to different persons. Thus, the covenant does not and cannot purport to govern the rights and obligations of the lessor and lessee over another piece of property like KIL 7081. 50.It is not an answer to the objection that a covenant runs with the land can only govern the rights and obligations over the demised land by suggesting that conveyancing mechanism could be adopted to ensure the exclusive use of land outside the lot as part of the curtilage for a building within KIL 7080. Such conveyancing mechanism is something extraneous to the covenant. It would depend upon the lessee entering into a new transaction with a third party (the owner of the adjoining piece of property) to procure the necessary conveyancing arrangement. The Government, as lessor, does not have any proprietary right under the Curtilage Covenant itself to bind that third party to whatever conveyancing arrangement to be procured by the lessee. 51.As at the date of the execution of the Government Lease, the buildings on KIL 7081 and KIL 7080 and their respective curtilages were situated exclusively within each lot. 52.Mr Ho acknowledged that the residential premises must be situated exclusively within the lot since the covenant refers to “the residential premises now erected or being upon the demised premises”. We see no reason why one should distinguish between the curtilage which is outside the roofed over area and the other part of the premises. In the context of this covenant, the expression “residential premises” should be construed as including the non-roofed over area of the house. 53.Given the wording of the covenant, the nature of the transaction and the prevailing circumstances, a reasonable person would have understood the Curtilage Covenant as requiring the minimum of 8,000 square feet curtilage (including the area covered by the buildings) to be situated exclusively within the demised land, viz within KIL 7080 itself. 54.This construction is reinforced by the genesis of the Curtilage Covenant, which is a relevant context one must bear in mind in its construction. Special Condition 5 provided for each house to comprise a separate Lot of not less than 8,000 square feet and separate Government Lease of each lot shall contain a covenant “for ensuring the continued maintenance of such an area for the Lot”. It is common ground that the relevant covenant in the Government Lease is the Curtilage Covenant. If, as Mr Ho sought to argue, the 8,000 square feet could be situated partly at an adjoining lot, the objective of maintaining a minimum area of 8,000 square feet for the lot with one house in each lot cannot be achieved. Take this example: the lessee sub-divided the lot into two sub-lots of 4,000 square feet each in re-development, erecting two new buildings (each with 3,500 square feet of roofed over area and each using another 4,000 square feet from an adjoining lot to be the non-roofed over curtilage for each new building), it would still comply with the Curtilage Covenant according to Mr Ho’s construction. 55.As illustrated by the facts of the present appeal, the lot areas of each lot carved out of KIL 2657 can be more than 8,000 square feet and less than 16,000 square feet. Further, if Mr Ho were correct, instead of two sets of residential premises as erected on these two lots, there would be three sets of residential premises upon re-development. Thus, the overall density of the area, viz. in KIL 2657, can be affected. We agree with Mr Yu that the integrity of the scheme under Special Condition 5 would be undermined if we accept Mr Ho’s construction of the Curtilage Covenant. 56.With respect, we do not find the arguments in Sheenclass International v Attorney General HCMP 3382 of 1994, 28 Feb 1995 to be of much assistance to Mr Ho’s case for the present appeal. His contentions must stand or fall on their own merits. Arguments in another case, irrespective of the eminence of the counsel involved, cannot be regarded as authority particularly when the issues called for determination and the factual matrices in the two cases are materially different. 57.For these reasons, we dismiss the appeal in CACV 74 of 2013 and make an order nisi that the Plaintiff is to pay the costs of the Defendant in the appeal, such costs are to be taxed if not agreed.
Mr Ambrose Ho, SC leading Mr David Chen, instructed by Mayer Brown JSM, for the Plaintiff (in both cases) Mr Benjamin Yu, SC leading Mr Anthony Chan, instructed by Department of Justice, for the Defendant (in both cases)
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