XCHRX POLORACE INVESTMENTS LTD. v. THE DIRECTOR OF LANDS

MP703 of 1996

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an application by the Defendants to strike out certain relief sought by the Plaintiffs in their originating summons dated 1st March 1996. Before I proceed to deal with the relief sought which the Defendants seek to strike out together with certain paragraphs in an affirmation filed on behalf of the Plaintiffs, it will be more helpful to deal with the background to this particular dispute.

2. Property known as No. 1 Ho Man Tin Hill Road designated as K.I.L. 2411 which consists of land and buildings is held on a Crown Lease by the Baptist Convention of Hong Kong. The original lease was granted in 1934 for a term of 75 years from 7th August 1923 with a right of renewal for one further term of 75 years.

3. The Baptist Convention of Hong Kong became the current lessee by virtue of an assignment in February of 1956. There were, of course on the granting of the original lease, a number of covenants, one of which restricted the buildings which may be erected on the land to one of a European type, the design of the exterior elevations and disposition of which was subject to the approval of the Director of Public Works, as he was then known, and the height of the building was restricted to 35 feet unless extended with the consent of the Governor in Council.

4. Shortly after the assignment to the Baptist Convention of Hong Kong, an area of Crown land of about 8,200 sq. feet was granted as an extension to the existing area on the condition that that extension should only be used for garden purposes and that no building should be erected on it. In March 1960, the Baptist Convention was permitted to use the rear portion of a designated property for scholastic buildings connected with a theological seminary with certain stipulations as to the positioning of these buildings in relation to two boundaries. In the same year in May, the Crown granted a Deed of Variation in which certain covenants replaced conditions in the original Crown Lease to the extent that the premises were not to be used for other than private residential purposes and any development or re-development of the lot was restricted to a roofed-over area of 100/25 in the case of a three-storey building, plus 100/22 in the case of four-storey buildings. There were other covenants in the Deed of Variation and in particular it was stipulated that the approval of the Director of Public Works was required for the design disposition and height of any building which was to be erected on the lot. By 1963, there existed on the site a four-storey building with a site coverage of 10.6% of the total area and a premium was paid for the permission which resulted in that building.

5. By 1984, further building had taken place as a result of which the site area coverage had increased to a little over 23.5%. No premium was paid for that further development.

6. In March of 1985, there was a further Deed of Variation of the Crown Lease by which the covenant which had been varied in 1960 was further modified to provide for a very small increase in the roofed-over area of four-storey buildings and again, the Director of Public Works had the right to approve or disapprove of the design disposition and height of any building to be erected on the lot. That Deed of Variation was made in order to cover the fact that there had been a minor increase in the site coverage as a consequence of the development permitted in 1984.

7. In 1986, there was an application by the Baptist Convention for a further building in the form of an extension on top of the four-storey building which had been recently built in 1985, making that building a nine-storey building and this application was approved. The Crown Lease was not modified or varied to permit that development, nor was the payment of a premium required.

8. We now move across time to 1993, the position then being on the site the existence of a four-storey building and of a nine-storey building, the gross floor area of which was 3,705 meters. Through 1993 and 1994, various plans for development were submitted for approval including in May 1993, a plan for the development of a 23-storey residential building. Those plans were not acceptable because they appeared to be in breach of the roofed-over covenant. Within that period of two years, there were also various discussions, negotiations and certainly an exchange of correspondence, setting out the approaches of the respective parties. Matters really culminated at the end of 1994 and in January 1995, and a letter of 14th January 1995 from the Director of Lands to Sun Hung Kai Properties Limited who appeared to be linked with the Plaintiff in this action as agents and/or co-venturers of the lessees. The bone of contention appeared to be whether or not the Director of Lands would or could, in the circumstances that existed and in the light of the history of the development, charge a premium either for approval of the design disposition and height which was the subject of one of the covenants or for a modification of the Crown Lease to permit a development in excess of four storeys on the existing development on the lot.

9. The Director took the view, and it appears to me to be quite clear, that the wording of the covenant in the 1985 Deed of Variation prevented the lessee from developing the lot with anything more than a four-storey building with a coverage of a little in excess of 23.5% without a lease modification. That letter of the 14th of January 1995 was followed by a letter from the principal solicitor in the Legal Advisory and Conveyancing Office of the Lands Department on the 16th of January. This letter sets out the decision of the Director of Lands in which he decided that an existing policy of not charging a premium for the Landlord's approval under the design disposition and height clause would continue in the meantime, but remained of the view that despite his legal rights under a design, disposition and height clause (such right being to charge a premium for any variation), he would not approve any development in excess of four storeys and 23.5% coverage without a lease modification at an appropriate premium. The principal solicitor, Mr. Berry, summarised the matter in this way: a lease modification to permit development in excess of four storeys with the required coverage was necessary and at a premium in that particular case.

10. This brings me to the nature of the relief sought which the Defendants seek to strike out as being an abuse of the process of the court and disclosing no reasonable cause of action. The first relief sought is a declaration that the Director is not entitled to refuse to give his approval to the design disposition and height or any building to be erected on the plot under the whole or any part of the roofed-over covenant, unless the Crown Lease is modified to allow for the erection of such building upon the payment of a premium for such modification. Put shortly, it means the Director is not entitled to insist upon a premium for a modification of the lease as a prerequisite to giving approval to the design disposition and height of the building on the plot. The second relief is really very little different from the first sought-an injunction to stop him from refusing to give its approval unless the Crown Lease is modified and a premium paid to permit the erection of such a building.

11. It was originally in the forefront of the Plaintiff's argument in support of its claim for these two reliefs that the Director of Lands had regularly practised a land administration policy of not charging a premium, merely for granting approval and the design disposition and height clauses in crown leases. It is the argument in respect of an alleged policy which was in the forefront of the Plaintiff's affirmation supporting the originating submissions.

12. It is important to bear in mind and it is clearly what has led to the Plaintiff's abandonment of their policy argument as indicated very frankly by Mr. Martin Lee, Q.C. on their behalf, that the position here is one of a contract under the lease between two parties. Within that contract are a number of covenants. Those covenants require the leasee to comply with a number of conditions, to prevent development of the site without the consent of the Crown as landlord. There may be a number of reasons why a landlord adopts certain policies, some involve a temporary waiver of a landlord's rights in certain circumstances. Those circumstances may well change leaving it necessary for the landlord to insist strictly upon the obligation under a covenant. A lessee is not in a position to insist upon a landlord adopting a certain attitude or continuing to adopt a certain attitude in respect of that landlord's rights under the lease. As Miss Maria Yuen has rightly set out in her skeleton submissions, as a matter of law, any policy of the nature referred to by the Plaintiffs is irrelevant to the question of contractual rights under the lease.

13. The Plaintiff's case as advanced by Mr. Martin Lee Q.C. on their behalf then puts in the forefront, the doctrine of estoppel as giving the Plaintiff certain rights. When one examines the skeleton argument and Mr. Lee's careful oral arguments, it seems to me that estoppel or the argument based on it, is simply the argument on policy by another name. Going back to the letter from the Director of Lands of the 14th of January, it is contended that he made a clear and unequivocal promise or assurance or representation in the nature of a promise upon which the Plaintiff relied and with the intention that the Plaintiff would rely on the promise. It contends that the Director's refusal to give approval to the proposed plans is a breaking of a promise and that it would be inequitable for the Director to be allowed to adhere to that requirement. In effect, the argument concludes that Director must be required to give approval under the design disposition and height clause, that he cannot require a modification to the lease and that he cannot require the payment of a premium.

14. I cannot accept that whatever the Director of Lands may or may not have indicated, as the policy that he would follow, binds him to give approval in respect of plans sought under the design disposition and height covenant without extracting a premium. In effect, that would be a uni-lateral rewriting of the covenant. The Plaintiffs have relied on a number of authorities with some of which I will deal. Waltons Stores (Interstate Ltd.) v. Maher (1988) 62 ALJR page 110 which was an Australian decision of high authority considering the composition of the High Court, including Chief Justice Mason and Justices Wilson, Brennan, Dean and Gaudron, was concerned with negotiations for a lease in respect of commercial premises. The lessors submitted executed documents by way of exchange in reliance upon the proposed lessees' solicitors' saying that they believed that approval would be forthcoming and that if any amendments were not agreed to, they would notify such tomorrow. The lessors' solicitor heard nothing further hence the submission of the executed documents. Two months went by before the proposed lessee indicated that he was not going to proceed with the transaction. In reliance upon all the indications that the lease would be executed, the lessors had demolished the old promises and construction of new premises was well advanced. The Learned Judge at first instance, holding in the lessor's favour, stated that the appellant was estopped from denying a concluded contract by way of exchange. In my view, the facts of this case are significantly different from the matter which we have been considering and is not an authority supporting the Plaintiff's contention that the Director of Lands, in seeking to exert the full tenor of the covenants is, estopped from so doing because he had decided at some stage that a policy of not seeking a premium would be followed. In the case of the Plaintiff's in this action, it was not a situation whereby the Plaintiff was acting to his detriment on the assumption that a covenant would not be enforced, it was part and parcel of the preparations and negotiations with a view to development, of the site in a manner which conflicted with the existing covenants.

15. In Chan Ho Har Wan Daisy and Another v. Clearwater Bay Golf and Country Club [1992] 2 HKC page 104 Bokhary J. as he then was, was faced with an action in which a husband and wife sought a declaration that they were members of a golf club and that the suspension of the husband was in violation of rules of natural justice and therefore of no legal effect. The Golf Club argued that the Plaintiffs were not members and that the suspension of Mr. Chan was valid. Bokhary J. held that the general principle of estoppel applied to the case. The Club and the Plaintiffs dealt with each other as if the Plaintiffs were members of the Club. The Learned Judge found that since the parties had treated each other on that basis, one party was not entitled to go back upon that relationship. He held that while a party cannot in terms found a cause of action on estoppel, he may be able to rely on estoppel in order to succeed in a cause of action in which he would otherwise have failed. The Learned Judge referred to the general principle stated by Lord Denning in Amalgamated Property Company v. Texas Bank 1982 1 QB 84 (at page 122 letters C to D)

"When the parties to a transaction proceed on the basis of an underlying assumption either of fact or of law, whether due to misrepresentation or mistake makes no difference, on which they have conducted the dealings between them, neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so, if one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands."

That is a classic statement. It can readily be seen that the circumstances of the case I am considering are wholly different. The Plaintiffs, in effect the Hong Kong Baptist Convention, are bound by the covenants of the lease. They seek a development which requires a consideration of those covenants. They are not entitled to rely upon the fact that at some stage for some period, the landlord has not insisted upon his full entitlement in relation to applications to vary covenants or to permit development which requires his consent. The situation may have been different had the landlord in principle permitted the commencement of development, having hitherto indicated that it would not require a premium and then changed his policy or decision at a later stage by which time the Plaintiffs and/or their co-venturers had embarked upon considerable expenditure to their disadvantage in the form of actual building work. That is not the case. The rights of the Plaintiffs and for their co-venturers are to be determined by the terms of the original lease as varied by the deeds of 1960 and 1985.

16. The Plaintiffs submitted on 13th September 1995 plans for a new building of 22 flats on the site seeking approval under the design, disposition and height clause. The Directors reply of the 2nd October 1995 indicated approval under the D.D.H. clause. However these plans were superseded by a further set providing for 82 flats submitted with a letter dated 6th November 1996. The Directors response on the 15th November 1995 was that he was not able to give any assurance of approval because he needed detailed comments from other departments. The Plaintiffs well knew the Director's approval was necessary. The relief sought by the Plaintiffs is, essentially to prevent the Director from refusing approval to the design, disposition and height of a new building. That is not amenable to this court's jurisdiction.

17. Just as I consider the "estoppel" argument is the "policy" argument by another name, so too I consider the concept of "legitimate expectation" to be the same argument under another title.

18. In the context of dispute or negotiations in respect of a lease, the Crown is in the same position as a private landlord. I have considered the Privy Council's decision in Hang Wah Chong Investment Co. Ltd. v. Attorney-General 1981 1 W.L.R. 1141; Canadian Overseas Development Co. Ltd. v. Attorney-General 1991 1 HKC 288 and Secan Ltd. v. Attorney-General 1995 2 HKC 629. The words of Lord Edmund Davies in the first case are apposite:

"It is sufficient .... simply to say that, the applicants' seeking a concession from their landlords in relation to the development of land leased, the landlords were entitled to make the granting of that concession conditional upon the payment of a premium."

The contention of the Plaintiff in relation to "legitimate expectations" is the assertion of a public law right. It has no place, in my judgment, in the context of a private contractual relationship.

19. It follows that the Respondent's application must succeed. In the widest sense of the term these reliefs claimed by the Plaintiffs are an abuse of process and cannot succeed. No reasonable cause of action is disclosed. Accordingly I order the striking out of paragraphs 2 and 3 of the Originating Summons and paragraphs 9 to 11, 30 to 34 and 58 to 59 of the affirmation of Mr. Chang Hong Ki, affirmed and filed on the 25th March 1996.

20. The Respondents having succeeded in their application are entitled to an order for costs against the Plaintiffs.

(Conrad Seagroatt)

Judge of the High Court