United Bright Ltd v. Secretary for Justice
Read the full judgment text of CACV 211/2012 on BabelCite. This Court of Appeal judgment was delivered on 18 March 2015.
1. On 19 June 1939, Hong Kong government sold the land known as New Kowloon Inland Lot No 2690 [“the Lot”] at public auction. The Conditions of Sale contained, amongst other terms, the following:
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CACV 211/2012 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 211 OF 2012 (ON APPEAL FROM HCMP NO. 382 OF 2011) ________________________
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___________ JUDGMENT ___________ Hon Lam VP (giving the Judgment of the Court): 1.On 19 June 1939, Hong Kong government sold the land known as New Kowloon Inland Lot No 2690 [“the Lot”] at public auction. The Conditions of Sale contained, amongst other terms, the following:
2.The land was subsequently divided into different subsections. The subject matter of this appeal is Section F of the Lot. The plaintiff, as owner of Section F, intends to carry out a re-development by erecting a residential block with 37 storeys of residential flats above several floors of car-parks and recreational facilities on the land. However, before it can do so, the plaintiff would need to obtain a modification from the government (and pay the necessary premium) in respect of the conditions mentioned above insofar as they are still applicable to Section F. 3.In these proceedings, the plaintiff contends that the height and other restrictions in those conditions are no longer binding because of a previous modification by a letter of 15 May 1957 from the Registrar General. The letter was in these terms:
4.In the Court of First Instance, Deputy High Court Judge Sakhrani rejected the plaintiff's contention in a judgment of 31 July 2012. From that judgment, the plaintiff appealed to this court. After hearing submissions from counsel, we reserved our judgment. We now hand down our judgment in the appeal. 5.Mr Yu SC (appearing with Mr Lam for the plaintiff in this appeal but not below) identified in his skeleton submissions the following as the issues in this appeal:
6.Though counsel put the first issue at the forefront of his submissions, in his reply Mr Yu submitted that on the facts of the present case the correspondence in question did not provide too much assistance on what did not otherwise appear on the face of the letter of modification. We shall therefore proceed to examine the question of construction first by reference only to the Conditions of Sale and the letter of modification. 7.Apart from the admissibility of the correspondence between the parties for the purpose of construction, Mr Yu did not dispute that the approach in Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279 is applicable in respect of construction of Government Leases as well as the letters of modification. Nor can this be disputed in view of the application of that approach recently by the Court of Final Appeal in Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351 and this court in New Mercury Holding Corporation v Secretary for Justice CACV 73 of 2013, 15 April 2014. 8.In Fully Profit, supra, Ma CJ said at paragraph 15:
9.Since the letter of modification of 15 May 1957 was to release the lessees from certain obligations or restrictions set out in the Conditions of Sale, the original restrictions in those conditions must form part of the relevant context for the construction of the letter. Mr Yu accepted that the conditions set out at the beginning of this judgement are relevant. The combined effect of these restrictions was that the only structure that could be built on each lot were detached or semi-detached houses of European type designated for the occupation of one family with a compound of not less than 7,000 square feet (in each house) not exceeding 2 storeys. Further the design of the exterior elevations and the disposition and height of the building had to be approved by the Director of Public Works. 10.In other words, the erection of multi-storey buildings with a number of flats (with each flat, possibly less than 7,000 square feet each, to be occupied by different families) was not permitted. 11.Mr Yu placed emphasis on the control as to the density of development in the land as the purpose of these restrictions. No doubt that was one of the important considerations for having these restrictions. However, from the point of view of the Government as the lessor, there could be other considerations. We need not speculate. Obviously, quite apart from planning considerations, if the land were to be occupied by larger number of family units, there would be more administrative work in terms of monitoring and enforcement of the lease conditions. Moreover, as discussed below, there was also an economic consideration in terms of the premium to be extracted for modifications. 12.Though there was also a height restriction of 2 storeys in Special Condition (6), it was an additional restriction to the main restriction that the design of the exterior elevations and the disposition and height ["DDH"] had to be approved by the Director. It meant that the Director could not approve a house of more than 2 storeys. 13.Turning then to the letter of modification of 15 May 1957, it was stated clearly in the letter that the purpose of the application was for a permit for “the erection of flats” on the lot. As explained above, without such modification, the lessees could not build a multi-storey building consisting of a number of flats there, not even a block of flats of 2 storeys. 14.The letter did not specifically address any modification of height restriction. However, under paragraph (b), it was provided that the buildings (which could be blocks of flats) of 3, 4 or 5 storeys must comply with certain coverage limitations. Thus, by implication, the modification must have released the 2-storey height restriction as far as buildings of 3, 4 or 5 storeys were concerned. But there was no provision for any general release as to the requirement for the approval of the Director in respect of DDH. 15.In Ying Ho Co Ltd v Secretary for Justice (2004) 7 HKCFAR 333, Ribeiro PJ held that the DDH clause in that case conferred a discretion on the Director the exercise of which is only limited by the principle of non-derogation of grant. In other words, the exercise of the discretion must not undermine the contractual rights granted to the lessee under the Conditions of Sale. Subject to that, the DDH clause did require the approval of the Director in respect of the height of a building to be constructed by the lessee. That was so notwithstanding that no specific height limit was set out in the conditions. 16.It is also noteworthy that in that case, the conditions also provided for site coverage under Special Condition 9(b) and there was no height restriction in there. Counsel for the lessee relied on that to argue that height was contractually unrestricted. That argument was rejected by Ribeiro PJ at paragraph 122:
17.Though the Conditions of Sale in Ying Ho were not the same as those in the present case, the overall scheme of the provisions relating to the DDH clause and the approval by the Director was similar. In respect of the Lot, Special Conditions (4) and (5) also provided for the need to obtain the approval of the Director before development. The DDH clause in Special Condition (6) has to be considered in such context. We do not see any reason why the DDH clause in the present case should not be construed in the same way as the DDH clause had been construed in Ying Ho. 18.Thus, as the learned judge correctly pointed out in his judgment, quite apart from the specific restriction of 2 storeys in the latter part of Special Condition (6), the DDH clause itself operated as an independent restriction in terms of the height of the buildings to be erected on the Lot. 19.As we have seen, there is absolutely nothing in the letter of modification of 15 May 1957 which suggests that the DDH clause was modified in any respect. 20.Mr Yu contended that one must have regard to the changes in the Building Ordinance in 1955 as part of the relevant context for the letter of modification in 1957. In particular, counsel referred to two aspects of the legislative changes in 1955 to support his contention that the modification in 1957 should be construed as removing the height restriction in the DDH clause:
21.Based on these changes in the statutory regime under the Building Ordinance, Mr Yu submitted that one should construe paragraph (d) of the letter of modification as displacing the power of the Director under the DDH clause in Special Condition (6). In a nutshell, counsel said, as from the date of the letter of modification, all aspects of town planning and building control which were previously achieved by the DDH clause were to be undertaken by the Building Authority under the statutory regime of the Building Ordinance. 22.With respect, we cannot accept these submissions. The differentiation between the Director qua Building Authority in the exercise of the statutory powers under the Building Ordinance and the Director qua land agent for the government in administering the DDH clause is well established. The question was considered by the Privy Council in an appeal from Hong Kong in Hang Wah Chong Investment Ltd v AG [1981] 1 WLR 1141. In that case, the court was concerned with another Conditions of Sale issued in the 1930’s which contained a DDH clause similar to the one before us. At p.1145-6, Lord Edmund-Davies said:
23.The case concerned the right of the Director to demand a premium for the approval of plan pursuant to a DDH clause. It was held that the demand for premium was within the power of the Director as land agent of the government as lessor. In other words, even if one accepts that the power under the DDH clause and those under the Building Ordinance could be exercised primarily for town planning purpose, this would not render the DDH clause otiose or ineffective in terms of the reliance on the same by the Director as a basis for demanding a premium to protect the economic interest of the government as lessor. Thus, a DDH clause serves the interest of the government as lessor beyond the public interest in planning control. Once this is appreciated, it is not possible to suggest that the DDH clause had been displaced by the planning control in the statutory regime under the Building Ordinance. 24.It follows that the legislative changes in 1955 per se could not have the effect of abrogating the DDH clause and the director could at all times up to 1957 rely on that clause to demand a premium for the approval of the height, disposition and design of a proposed building. Mr Yu however submitted that this was changed in 1957 by reason of the letter of 15 May 1957. We have already alluded to the absence of any express provision to such effect in the letter. Nor can we see any basis for saying that the terms of modification has that effect by way of necessary implication. The reference in paragraph (d) to compliance with the provisions of the Buildings Ordinance cannot carry with it the implication that henceforth the DDH clause had no further effect. As demonstrated by Hang Wah Chong and Ying Ho, there is no reason why the DDH clause cannot co-exist with the statutory regime under the Buildings Ordinance though they, to a certain extent, overlap in respect of the control over the use of the land. 25.In this connection, we do not derive much assistance from Mr Yu’s citation of the judgment of Litton PJ in Jumbo Gold Investment v Yuen Cheong Leung (2000) 3 HKCFAR 52 at p.59. In that judgment, His Lordship dealt with the question of risk of enforcement of a lease condition in spite of knowledge on the part of the Director of Public Works of building erected contrary to it whilst approval had been given under the Buildings Ordinance. That is a separate issue from the one we have to consider. 26.Nor do we find the very brief judgment of Finlay J in Polorace Investments Ltd v Director of Lands HCMP 703/1996, 1 May 1997, to be of much avail to Mr Yu’s case. At the highest, that case only decides that the provision for what can be described as site coverage could not be interpreted as a height restriction. Putting it to its highest, the plaintiff may rely on it to contend that paragraph (b) in the letter of 15 May 1957 does not impose any height restriction. However, the judgment had nothing to do with DDH clause. The question of the right to demand a premium under the DDH clause had been raised but struck out, see the earlier decision of the Court of Appeal in [1997] 1 HKC 373. Thus, the judgment of Finlay J does not have much bearing on the question before us. 27.We conclude, even without regard to the correspondence which Mr Yu contended to be inadmissible, that as a matter of construction the DDH clause had not been abrogated by the modification in 1957. In light of that, we agree with the judge that the court should not grant the relief in the originating summons and the appeal must be dismissed. 28.The correspondence in question was recited by the judge at paragraphs 8 to 21 of the judgment below. It would appear from such correspondence that due to the objection from one of owners in the other sections of the lot, an application for modification was stalled at one stage. That problem was resolved in 1955 after the sale of his interest by the person who objected. The application was then met with difficulty in terms of water supply. It was only in late 1956, after the Diamond Hill Service Reservoir had been completed, that there was renewed consideration to the application. The relevant letter for the renewed consideration was a letter of 5 October 1956 from the Public Works Department which could no longer be located. Based on the subsequent letter of 11 March 1957 from Mr Duff, the architect acting for the lessees, to the Superintendent of Crown lands and the internal minutes M33 kept by the Director of Public Works, the terms proposed were exactly the same as those set out in the letter of modification of 15 May 1957. As such, we agree with Mr Yu that the letter of 5 October 1956 did not add much to the materials for the exercise of construction. 29.But the case of the Director was that what happened in October 1956 was not the consideration of a fresh application. Rather, it was the renewed consideration of a pending application which had been made in 1955. And the application was, as described in a letter dated 16 June 1955 from Deacons (as solicitors for the lessees) to the Registrar General for permission to erect “buildings containing not more than four flats on each of the six sites”. The architect acting for the lessees was the same architect who pursued the application with the Director subsequently in 1956 and 1957. 30.This appears to be the basis on which the matter was argued before the judge. And that was how the judge considered the application, see paragraphs 41 to 45 of the judgment below. There was no submission before the judge that the application considered in 1956 was a fresh application. This finding was not challenged in the Notice of Appeal and it is not open to Mr Yu to argue on a contrary basis in the appeal. 31.The judge referred to earlier correspondence and also the internal calculation of premium by the Public Works Department in coming to the conclusion that the modification was limited in extent. Counsel appearing for the Plaintiff at the court below (not Mr Yu nor Mr Lam) did not refer the judge to the authorities now relied upon by Mr Yu to advocate a restrictive approach in the admissibility of such correspondence and calculation: Slough Estates Ltd v Slough Borough Council [1971] AC 958; Opua Ferries v Fullers Bay of Islands Ltd [2003] 3 NZLR 740; Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 and Cherry Tree Investments Ltd v Landmain Ltd [2013] Ch 305. However, counsel had objected to the admissibility of the correspondence and internal calculation on the basis that they were either declarations of subjective intent or facts in the course of negotiations. 32.Irrespective of the merits of Mr Yu’s contention based on those cases, we agree with Mr Fung SC that it must be open to the court to have regard to the correspondence in order to identify the subject matter of the application. In Slough Estates Ltd v Slough Borough Council, supra., the House of Lords held that the court could have regard to the correspondence to ascertain the subject of a planning application when the planning permission was not complete or self-contained on its face, see Lord Pearson at p.967H to 968C. 33.In the present case, the letter of modification of 15 May 1957 addressing Mr Duff started as follows:
34.Thus, it was meant to be read together with the application by Mr Duff on behalf of the lessees. It was an application for permission to erect flats (as opposed to houses of European types as prescribed by Special Conditions (2) and (3)). Insofar as there is any ambiguity as to the subject matter of the application in terms of whether it embodied an application for the modification of the DDH clause, the Director was entitled to ask the court to take account of extrinsic evidence including correspondence in that application to resolve the same, see Chitty on Contracts 31st Edn paragraph 12-123; Lewison, The Interpretation of Contracts 5th Edn paragraph 11.03. We do not read any of the authorities cited by Mr Yu to cast doubt on this on well established proposition. And that was the extent to which the judge made reference to the earlier correspondence. 35.The same can be said with regard to the judge’s reference to the internal calculation of premium. Mr Yu criticised the judge in placing reliance on that calculation in the absence of evidence of knowledge of the same by the lessees. As stated by the judge at paragraph 53 of the judgment below, the judge was keenly aware of the lack of such evidence. He dealt with it as follows:
36.These paragraphs have to be read together with what the judge had said earlier in respect of the Government policy as to setting of premium and common knowledge as to the same in the professional circle:
37.We do not find any flaw in such reasoning. Since the judge was concerned with the aim of the modification as opposed the meanings of the conditions laid down in the letter of modification, he was entitled to refer to extrinsic evidence to resolve the same. The admission of such evidence for this purpose is on a different footing from the admission of evidence for the interpretation of the terms of a contract, see Prenn v Simmonds [1971] 1 WLR 1381 at p.1385 and Chartbrook Ltd v Persimmon Homes [2009] 1 AC 1101 at paragraph 42. In the former, Lord Wilberforce said:
38.Thus, it is permissible to refer to objective facts known to both parties in ascertaining the aim of the transaction. In the present context, the objective facts as founded by the judge in respect of the premium, are as follows:
39.Mr Yu further submitted that there was no expert evidence on the increased value of the land and it could not be inferred that the premium demanded (and agreed upon) was only on the basis of a relaxation of height up to 5 storeys as opposed to the full abrogation of the DDH clause. We do not accept that this should detract from the utility of such evidence for present purposes. Insofar as the valuation of the increased value of the land is concerned, the internal minutes containing the calculations are evidence on the same. We accept it is not independent expert evidence. However, there has not been any challenge that these were calculations by person with the requisite expertise in the Government. And the purpose of this exercise is not to challenge the quantum of that valuation. Rather the purpose is to see whether the premium was calculated in respect of a relaxation of height up to 5 storeys or a complete abrogation of the DDH clause. The court does not need expert evidence to know that there was an immense difference between a relaxation up to 5 storeys and one for the complete removal of the DDH clause. The lessees in 1957 could not have been mistaken as to the extent of relaxation. 40.Hence, we do not find the judge to be in error in having regard to the correspondence and the calculation of premium in ascertaining the subject of the modification. 41.In light of the above conclusions, it is not necessary for us to consider at length Mr Yu’s submission that one should not have regard to extrinsic evidence in private correspondence or minutes in the interpretation of a document registered in the Land Registry. By way of obiter, in deference to the submissions advanced before us, we will say as follows:
42.For these reasons, we dismiss the appeal with costs. We would also grant a certificate for two counsel.
Mr Benjamin Yu SC and Mr Justin Lam, instructed by Kao, Lee & Yip, for the plaintiff Mr Eugene Fung SC and Mr Abraham Chan, instructed by Department of Justice, for the defendant |
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