PAK FAH YEOW INVESTMENT (HONG KONG) CO LTD v. PROPER INVEST GROUP LTD

CACV 311/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 311 OF 2008

(ON APPEAL FROM HCA NO. 2589 OF 2007)

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal from a judgment of Deputy High Court Judge Au given on 12 September 2008.  The matter before the judge was an application for summary judgment by the plaintiff and an application for determination of 2 questions of law under Order 14A.  That was coupled with an application to strike out the statement of claim on the grounds that it was frivolous, vexatious or may prejudice or embarrass or delay the trial of the action or was otherwise an abuse of the process of the court.  The judge gave judgment for the plaintiff and granted a declaration that the defendant was not entitled to rename the building known as “The Sun’s Group Centre”.  The judge also granted consequential injunctions compelling the defendant to obliterate the inscriptions and plaque in the building which had been erected in furtherance of the change of name which the judge held the defendant had not been entitled to do.  There was also an order for an injunction to compel the defendant to withdraw the notices of change of name in the Land Registry.

2.  At the conclusion of the hearing of this appeal judge was reserved which we now give.

Background

3.  The plaintiff is the registered owner of the 11^th Floor of the building that before the events leading up to the present action was known as “The Sun’s Group Centre, 新銀集團中心”.  The defendant has since March 2004 been the registered owner of car parking space no. 28 and the external wall of the building.

4.  In March 2007, the defendant issued a notice to the owners of the building to the effect that from 11 August 2007, the building would be renamed as “Silver Base Centre 銀基中心”.  The defendant claimed the right to do so because it was the assignee from Win Oriental Investment Ltd (“Win Oriental”) of not only car parking space no. 28 but also the naming rights of the building which were said had been reserved to Win Oriental.  In the Deed of Mutual Covenant (“the DMC”) Win Oriental had been named as the second owner.  Clause 3 of Section D of the DMC (“clause 3”) provided as follows:

“Rights of Second Owner

3. The Second Owner shall during the residue of the term and any renewal thereof subject to the covenants and terms contained in the Crown Lease and in this Deed have:-

(i) the full and exclusive right and privilege to hold, use, occupy and enjoy ALL THAT the CAR PARKING SPACE NO.28 on the SECOND FLOOR of the Building;

(ii)    the right to name the Development and to change the name thereof at any time and from time to time on giving all other Owners three months’ prior written notice without becoming liable to any Owner or other person having an interest in the Land and the Development for any loss damage claim compensation and expense resulting from or arising out of any such change of name or in any way connected therewith.”

5.  The plaintiff’s case was that the defendant had no right to change the name of the building without the unanimous consent of all the owners.  It was said that, in the first place, the benefit of the covenant upon which the defendant relied as the source for its right to change the name could not be enforced against all the occupiers of the building because it was not a covenant which was “expressed and intended to benefit the land of the covenantee” as required under section 41(2)(c) of the Conveyancing and Property Ordinance Cap. 213.  It was also said that since there was no privity to the agreement in respect of the naming right between the new parties coming to the DMC, the naming rights did not bind them, unless there was anything to show that they had agreed afresh to the particular right.

6.  The plaintiff also relied upon Clause 13 of Section J of the DMC (“clause 13”) which reads as follows:

“Resolution requiring unanimous consent

13.   Notwithstanding the provisions of Clause 9 of this Section and Subject Always to the rights of the Second Owner under Clause 3 of Section D, the name of the Development shall not be changed or removed without the unanimous consent of all the Owners of the Shares of the Development.”

7.  The argument further proceeded on the footing that even without clause 13, the name of the building could not be changed without the consent of all the owners of the land.

The judgment below

8.  The judge held that on the basis of the decision in Lamaya Ltd v Supreme Honour Development Ltd (Li & Fung (Properties) Ltd, Third Party) [1991] 1 HKC 198, which was a decision of this court, and subsequent decisions following that, that the covenant in clause 3 was no longer binding on the subsequent purchasers, including the plaintiff and the other new owners, after the date of the DMC.  The basis of the decision in the Lamaya case was that a similar clause did not in any way benefit the exclusive occupation of any particular part of the building and that there was nothing to indicate that the assignee had intended to enter into contractual obligations over and above the enforceable covenants in the DMC.

9.  In contrast the judge held that clause 13 was binding on all the owners since it was a clause in the section of the DMC dealing with the voting rights of the owners amongst themselves.

This Appeal

10.  On this appeal Mr Chong, who appeared for the defendant, argued that the authority of the Lamaya case was somewhat diminished by the fact that there had been a concession by counsel that the right to name a building is not an interest in land capable of passing directly by assignment.  This court’s attention was drawn to a number of authorities including the judgment of Sir Nicolas Browne-Wilkinson VC in the case of Kumar v Dunning and another [1989] 1 Q.B. 193 where he said:

“The test whether a covenant touches and concerns land is that formulated by Bailey J. in Congleton Corporation v. Pattison (1808) 10 East 130 and adopted by Farwell J in Rogers v. Hosegood [1900] 2 Ch. 388, 395:

“the covenant must either affect the land as regards mode of occupation, or it must be such as per se, and not merely from collateral circumstances, affects the value of the land.”

But although the test is certain, its exact meaning when applied to different sets of circumstances is very obscure.  In Grant v. Edmundson [1931] 1 Ch. 1, 28 Romer L.J. said:

“In connection with the subject of covenants running with land, it is impossible to reason by analogy.  The established rules concerning it are purely arbitrary, and the distinctions, for the most part, quite illogical.” ”

11.  That passage was referred to with approval in the case of P & A Swift Investments v Combined English Stores Group PLC [1989] 1 A.C. 632 at page 640 in the speech of Lord Oliver.

12.  It was said that in view of the concession in the Lamaya case this court could approach that decision on the basis that what had been said was obiter.  It was said that it was clearly open to this court to hold that the naming right covenant must of its nature affect the value of the land.  The argument was illustrated by various examples relating to actual names and possible names of buildings, where the choice of name would clearly affect the value of the building.

13.  Whilst there is clearly force in that argument, as Mr Chong said in the course of argument, he was not able to say that the decision in the Lamaya case was clearly wrong, although he could argue against it.  The difficulty, in my view, for this court to overrule the Lamaya decision and not treat it as binding on this court is that it has clearly been followed for the last 20 years.  A disturbance in the settled conveyancing practice would be undesirable, particularly in circumstances where, as the Kumar and the Swift cases show, the application of the underlying legal principle is somewhat fraught.

14.  I would however mention that during the course of argument this court drew attention to the fact that in his judgment in the case of Union Insurance Society of Canton, Ltd v The Hongkong Land Co Ltd (05/12/1977, HCA 386/1977) Cons J, as he then was, held that changing the name of a building was a breach of the covenant of quiet enjoyment.  He said at paragraph 10 of his judgment:

“10.  In the present case the premises were let as offices.  The two relevant leases each contain a covenant “to use the premises as an office only and for no other purpose whatsoever”.  Of course, businesses of many kinds are carried on in offices and each may have its own individual peculiarities.  But one feature which I should think is common to almost all is that a large amount of the actual business is carried out through the post.  Thus, if the delivery of mail to the office is hindered or obstructed, there is bound to be disruption in the business of the tenant.  In other words he is not getting the full enjoyment of the premises for the purposes for which they were let.  If the disruption is sufficiently substantial there would be, in my opinion, a breach of the covenant for quiet enjoyment.”

15.  That decision was not mentioned by the same judge in his judgment in the Lamaya case.  For my part I find it difficult to understand how if the act of changing the name of a building constitutes a breach of a covenant for quiet enjoyment, a covenant relating specifically to changing the name of a building does not touch and concern the land.

16.  Mr Chong argued that even if this court felt itself bound to follow the decision in the Lamaya case, the fact that previously a majority of the owners, and now all owners save for the plaintiff, are content to have the name of the building changed should suffice to permit the change of name.  It was argued that if clause 3 was not binding on all the owners, so also clause 13, which also referred to the question of naming of the building, should for the same reasons not be binding on all the owners.

17.  In my view, the approach of the judge in the court below is, on balance, correct.  The provisions of clause 13 relate to the mode of the conduct of an owners’ meeting.  The reference in clause 13 itself to the rights of the Second Owner under clause 3 is not sufficient in itself to overcome the effect of the Lamaya decision.  But even if it were, clause 3 would give the Second Owner the right to choose the name of a building but, under clause 13, that would be subject to the unanimous consent of all the other owners.

18.  In my view, quite irrespective of the provisions of clause 13, it would be necessary for all the owners of the building to agree to the change of name.

19.  I would therefore dismiss this appeal with an order nisi of costs in favour of the plaintiff.

Hon Le Pichon JA:

20.  I agree.

Hon Hartmann JA:

21.  For the reasons given by Rogers VP, I agree that the appeal should be dismissed.