REAL HONEST INVESTMENT LTD. v. ATTORNEY GENERAL

IN THE COURT OF APPEAL

1996, No. 209
(Civil)

- Headnote -

Restrictive covenant in Crown lease - Height restriction to 35 feet - No modification or variation by deed to remove height limit - Whether exchange of correspondence had the effect of "waiving" the restriction for the purposes of the development referred to in the correspondence or operated as a "general waiver".

Held (Court of Appeal): Judge erred. The only "waiver" which was clear and unequivocal was of the height restriction in relation to the particular development covered by the correspondence. The Attorney-General's appeal allowed.

IN THE COURT OF APPEAL

1996, No. 209
(Civil)

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J U D G M E N T

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Litton, V.-P.:

Introduction

1. This appeal concerns the rights of the Crown as lessor of a piece of land located at Stubbs Road. It is RBL No. 193 on which an apartment block known as "Interocean Court" presently stands. Interocean Court is a 7-storey building, 85 feet in height, consisting of 14 residential flats.

2. The respondent, Real Honest Investment Ltd., acquired the property in July 1993 and proposes to redevelop the lot by demolishing Interocean Court and replacing it with a multi-storeyed residential block of the same external dimensions: that is, a building 85 feet in height. What is in issue on this appeal is the applicability of a covenant in the Crown lease restricting the height of any building on the land to 35 feet. The Government contends that the restrictive covenant prohibits such a development. The argument for the developer, as refined before us, is that the height restriction in the Crown lease has been generally waived, for the duration of that lease, by an exchange of correspondence which took place between the former owners of the property and the Government, before Interocean Court was built.

3. Sears J, in proceedings commenced by the developer by way of an originating summons, acceded to the developer's argument. Pursuant to his judgment dated 10 September 1996 the judge declared that the developer was entitled without the consent of the Crown as lessor to redevelop the lot by the erection of a multi-storeyed residential building exceeding 35 feet in height in place of the present building thereon, notwithstanding any covenants in the Crown lease. Hence the Attorney-General's appeal before us.

The Crown lease

4. The Crown lease was executed on 1 May 1923. The covenants, where relevant, state:

"... the design of the exterior elevations and the disposition of any building so erected shall be subject to the special approval of the Director of Public Works and shall not exceed thirty five feet in height and except with the consent of the Governor-in-Council first obtained not more than one house shall be erected on the hereby demised premises ...."

The issue

5. It is now common ground (though it was not so before the judge) that in 1948, when the former owner of the lot first put forward proposals to the Government to redevelop the land by erecting Interocean Court, the height restriction in the Crown lease was effective to prohibit the erection of a building exceeding 35 feet in height. So the argument boils down to this: Was the waiver of the prohibition, effected by the exchange of correspondence, confined to the scheme to build Interocean Court, as the Government contends, or was it a general waiver of the covenant for the duration of the Crown lease, as the developer contends?

The exchange of letters

6. The general waiver, according to the judge, was contained in two letters: one dated 29 September 1948 from the Colonial Secretary to Messrs Johnson, Stokes & Master, solicitors for the then owner, and one dated 20 October 1948 from the Building Authority to Mr R. Minutti, the architect.

The underlying problems

7. To appreciate the context in which the letters were written, some of the underlying problems prevailing at that time need to be understood.

8. There were, in essence, three matters which the solicitors and architect for the owner needed then to address:

(a) The covenant in the Crown lease restricting the erection of any building to 35 feet in height.

(b) The covenant in the Crown lease to the effect that "except with the consent of the Governor-in-Council first obtained not more than one house shall be erected on the demised premises".

(c) Various provisions in the Buildings Ordinance, then prevailing, governing height:

(i) s87(7) which provided: "No ... domestic building shall exceed 5-storeys in height unless with the consent of the Governor-in-Council."

(ii) Section 88(1)(c) which provided: "In no case shall any building hereafter erected or re-erected exceed five storeys in height or an overall height of 80 feet unless with the consent of the Governor-in-Council."

(iii) Section 160 which provided: "Every application for modification of or exemption from any of the provisions of sections ... 87, 88 ... which the Governor-in-Council is ... empowered to grant shall be made to the Building Authority in the first instance and may be granted by him either wholly or in part ... and a certificate under the hand of the Building Authority to the effect that any such modification or exemption has been granted by him shall be as valid and effectual for all purposes as if such modification or exemption had been granted by the Governor-in-Council."

How the problems were addressed

9. On 10 August 1948 Mr R. Minutti, the architect, wrote to the Director of Public Works as follows:

"10th August, 1948.

Hon. Director of Public Works,
Public Works Department,
Hongkong.

Sir,

Proposed Apartment Building on R.B.L. 193 for the Royal Interocean Lines

We have the honour to inform you that Messrs. Royal Interocean Lines have lately transferred their Headquarters to Hongkong which has caused them to bring into the Colony important additional staff of approximately 45 families. Present conditions in Hongkong have made it very difficult for Messrs. Royal Interocean Lines to house these families and they have decided to build an apartment building and some residences on their own in order to at least partly solve the problem they are facing.

Our Principals have recently purchased R.B.L. 193 on which they intend to erect an apartment building. We are annexing herewith a set of 5 plans together with a perspective showing the proposed building which would consist of a basement and 8 upper floors. The total height of this building would consequently be more than 80 feet and we take the liberty of requesting your consent to our carrying out the proposed scheme on the above mentioned general lines.

.....

In the hope that our request will meet with your kind approval, we have the honour to be, Sir,

		Your obedient servants, MINUTTI & PARTNERS
		R. Minutti."

10. The Building Authority's reply, dated 25 August 1948 was as follows:

"25th August, 1948

R.B.L. 193

Sir,

I have to acknowledge receipt of your letter dated 10th August, 1948 and I am directed to inform you that, as far as this Department is concerned, there is no objection in principle to the tentative proposals shown on the drawings submitted.

....

Before proceeding further the question of an alteration to the Special Conditions of Sale must be settled and I have to draw your attention to the fact that, at present, the height of any building erected on this lot may not exceed 35 feet in height without the consent of the Governor in Council. No doubt you will take the necessary action to obtain that consent.

Yours faithfully,

R.J. VERNALL
Executive Engineer
Buildings Ordinance Office"

11. As may be noted, there is a slight confusion of thought in the last paragraph of the Building Authority's letter. The height restriction in the Crown lease is unqualified: The "consent of the Governor-in-Council" refers not to the height restriction but to the "one house" limitation. Be that as it may, solicitors for the owner then came on the scene and, on 6 September 1948, they wrote a letter to the Colonial Secretary asking that the matter might be placed before the Governor-in-Council. This letter says:

 

"6th September, 1948.

The Hon. Colonial Secretary,
Colonial Secretariat,
Lower Albert Road,
Hongkong.

Sir,

Rural Building Lot No. 193.

On the instructions of Koniklijke Java-China Paketvaart Li jnen N.V., who have recently purchased the above property, we enclosed herewith a set of five plans together with a perspect showing the building which it is proposed should be erected on this lot. We further enclose a copy letter from Messrs. Minutte & Partners of the 10th August 1948 to the Hon. Director of Public Works and a copy of reply received from the Buildings Ordinance Office of the Public Works Department dated the 25th August 1948.

The attention of our clients is drawn up by the letter from the Buildings Ordinance Office to the fact that at present the height of any building erected on Rural Building Lot No. 193 may not exceed 35 feet without the consent of the Governor-in-Council, and as the proposed building will consist of a basement and eight upper floors, the estimated height will be in excess of 80 feet.

It is accordingly essential that, before proceeding further with the matter, the consent of His Excellency the Governor-in-Council may be obtained to the erection of the proposed building, as the height thereof will exceed 35 feet, and we shall be obliged if you will kindly place the matter before the Council at your earliest convenience and treat this as a formal application for consent.

We are, Sir,
Your obedient servants,
(Sd.) Johnson, Stokes & Master"

12. A preliminary reply to the solicitors was given by the Colonial Secretariat in these terms:

 

"23 September 1948

I am directed to refer to your letter DBE/D of 6th September, 1948, on the subject of Rural Building Lot No. 193, and to inform you that it is regretted that it is not yet possible to give you a definite reply to your letter of the 6th September.

It appears that there has been some misunderstanding and that consent of the Governor-in-Council is not required because the proposed building will exceed 35 feet in height but because of a clause in the Special Covenants of Sale for this lot with which the erection of a block of flats conflicts. It also appears that the Governor-in-Council's permission might be required under Section 87(7) of the Buildings Ordinance as the block of flats will exceed 5 storeys in height.

I am, Gentlemen,
Yours obedient servant,
for Colonial Secretary."

13. This was followed by a letter dated 29 September 1948 - the crucial letter for the purposes of this appeal - in these terms:

"29th September, 1948

Gentlemen,

Further to my letter No. 139/3091/48 of the 23rd September, 1948, on the subject of Rural Building Lot No. 193, I am directed to inform you that further examination of the terms of the lease dated 1st May, 1923, under which this lot is held indicates that the consent of the Governor-in-Council is not required in respect of any of the matters mentioned in my letter quoted above.

2. The Building Authority will, however, formally intimate to you or your clients that, the following potential restrictions are expressly waived:-

(a) Erection of building exceeding 35 ft. in height;

(b) erection of a block of flats;

(c) erection of a domestic building exceeding five storeys in height.

I am, Gentlemen,
Your obedient servant,
for Colonial Secretary"

14. There was then a follow-up letter from the Building Authority to the architect dated 20 October 1948:

"20th October, 1948

R.B.L. 193

Sir,

Further to my letter of the 25th August, 1948 in connection with your tentative plan for the erection of flats on the above lot, I am instructed to inform you that the following potential restrictions in the Conditions of Sale of the above lot are waived:-

(1) That the building may not exceed 35 feet in height.

(2) That not more than one house may be erected on the lot.

In this connection I would point out that, if the building exceeds the permissible maximum height under the Buildings Ordinance (1935), it will be necessary to apply for the usual modification and, secondly, the waiving of the clause relative to one house pre-supposes that one block of flats as shown in your tentative scheme will be substituted.

I shall be grateful if you will bring this letter to the notice of your client.

Yours faithfully,

Building Authority"

The effect of the correspondence

15. What emerges from a fair reading of the correspondence leading up to the "crucial" letter of 29 September 1948 is this:

(1) The architect, being of course aware of the restrictions to 5-storeys and an overall height of 80 feet in s88(1)(c) of the Buildings Ordinance, without the consent of the Governor-in-Council, sought the consent of the Building Authority for putting up an apartment block of 8-storeys, with an overall height exceeding 80 feet. Under s160 of the Buildings Ordinance, the consent of the Governor-in-Council could be given by the Building Authority in the form of a certificate.

(2) The reply of 25 August 1948 from the Buildings Ordinance Office, whilst indicating that the Public Works Department had no objection in principle to the tentative proposals shown in the drawings, alerted the architect to the prohibition in the Crown lease ("the special conditions of sale"), suggesting erroneously that to construct a building exceeding 35 feet would require the consent of the Governor-in-Council. In fact it required the modification of the Crown lease by the lessor (acting through the Governor or his delegate), not the consent of the Governor-in-Council. The solicitors failed to pick up this subtle point of distinction and in their letter of 6 September 1948 to the Colonial Secretary, they asked that the matter be placed before the Governor-in-Council. In that letter, the solicitors enclosed a set of plans showing the proposed building and also copies of the exchange of correspondence between the architect and the Public Works Department.

(3) In their reply of 23 September 1948 the Colonial Secretariat rightly pointed out that the "consent of the Governor-in-Council" in the Crown lease referred to the "one house limitation" - not the 35 feet height restriction. At the same time the letter pointed out, correctly, that the Governor-in-Council's permission might be required under s87(7) of the Buildings Ordinance - a consent which, under s160 of the Ordinance, could be given by the Building Authority in the form of a certificate.

Construction of letter of 29 September 1948

16. It is in the context of the correspondence up to this point that the letter of 29 September 1948 - now the main plank of the developer's case - is to be understood.

17. Sir John Swaine QC, Counsel for the developer, submits that where the letter of 29 September says:

"... further examination of the terms of the lease dated 1st May, 1923, under which this lot is held indicates that the consent of the Governor-in-Council is not required in respect of any of the matters mentioned in my letter quoted above"

this is to be construed as a waiver of all restrictions referred to in the previous letter, in particular, the 35 feet height restriction.

18. I cannot accept this submission.

19. It is to be noted that the letter was addressed to the solicitors, who had asked for the matter to be placed before the Governor-in-Council. In his reply, the Colonial Secretary was saying, in effect, this:

(i) As regards the height restriction to 35 feet contained in the Crown lease, the consent of the Governor-in-Council was neither relevant nor required: the "consent of the Governor-in-Council" in the Crown lease referred not to the height restriction but to the "one house" limitation.

(ii) The erection of a block of flats did not infringe the "one house" limitation: (a point which the judge thought was correct, based upon the construction of the word "house" in cases such as Kimber v. Admans [1900] Ch 412).

(iii) As regards relaxation of the restriction of domestic buildings to 5-storeys under the Buildings Ordinance, this could be effected by the Building Authority under s160: the consent of the Governor-in-Council was therefore not required.

20. It is, in my judgment, impossible to construe the first paragraph of the letter of 29 September 1948 as a general waiver of any of the rights of the Crown as lessor.

21. The second paragraph of the letter then went on to say that in relation to the "potential restrictions" set out in the letter, the Building Authority would formally intimate its waiver.

22. When the Building Authority followed up this matter with the architect in its letter of 20 October 1948 it was at pains to point out that the waiver was restricted to the "one block of flats as shown in your tentative scheme". It is, in my judgment, impossible to construe the intention expressed in the correspondence as anything other than a waiver limited to the project in hand, to enable Interocean Court as then proposed to be built.

23. The point is reinforced when one considers the next letter written by the architect to the Building Authority as follows:

"9th November, 1948

Buildings Ordinance Office,
Hongkong

Dear Sirs,

Proposed Apartment Building on R.B.L. 193

We thank you for your letter of 20th October, 1948, concerning the above, and are now forwarding herewith for your approval the required Schedule "A", duly signed by our clients, together with a complete set of plans of the proposed Building comprising the following Drawings: ....

At the same time we request for a modification of Clause 88 of the Building Ordinance (1935) in connection with the proposed building, to enable us to erect a building of 9 storeys and over 80 feet in height.

We likewise request a waiver of the clause relative to one house purposes that one block of flats, as shown on our accompanying drawings, may be built.

Please note that the required reinforced concrete plans and calculations will follow.

Yours faithfully,
MINUTTI & PARTNERS
R. Minutti"

24. Whilst it is true to say that the Building Authority, in its capacity as the Crown land agent, could formally bind the Crown as lessor in relation to covenants in the Crown lease generally - see Hang Wah Chong Investment Co. Ltd. v. Attorney General of Hong Kong (1981) 1 WLR 1141 at 1145 - nothing suggests that, in this case, the Building Authority was doing anything more than relaxing such prohibitions as needed relaxing to enable Interocean Court, as then shown on the plans, to be built.

Sears J's judgment

25. At p5 of his judgment the judge said:

"Looking at those two letters (that of 29 September 1948 from the Colonial Secretary and 20 October 1949 from the Building Authority), I am in no doubt whatsoever that they are a clear acceptance by the government that any building to be built can exceed 35' and can be in flats. What legal technical words one wishes to put on that is another matter. In my judgment, coming from a government department, it is a waiver of the clause. These are two serious letters. Governments are not permitted to resile from letters which are acted upon by the citizen." (Emphasis added).

26. In analysing the effect of the letters, it is not helpful to simply refer to the authorities concerned as "the government". There were, in fact, two authorities involved. The Colonial Secretariat was responding to the solicitors' request that the matter be referred to the Governor-in-Council for its consent. The Colonial Secretariat's reply of 29 September 1948 to the solicitors was, in effect, to say that it was unnecessary to put any of the matters mentioned in the letter of 23 September to the Governor-in-Council: The Building Authority could effectively deal with the matter and give such waivers as were necessary to be given to enable the development of Interocean Court to go ahead.

27. Upon this analysis of the effect of the correspondence, a conclusion that the Crown as lessor had "waived" generally all its rights to enforce the restrictive covenant, limiting any building to be erected on the lot to 35 feet in height, is in my judgment untenable.

Conclusion

28. It is as well to bear this point in mind: The restrictive covenant is enshrined in a deed granting an interest in land for a long term. One would expect, in normal circumstances, that any modification of the covenants to be likewise effected by deed. The matter is, ultimately, one of the intention to be imputed to the parties. It can be tested in this way: Under the terms of the Crown lease the "one house" limitation could be relaxed with the consent of the Governor-in-Council. Assuming that, to construct Interocean Court, such consent were necessary and had, indeed, been sought and given: Would it have been possible to argue that such consent must be deemed to have been given for every other development which might thereafter follow on the same lot, assuming Interocean Court to be demolished for redevelopment? The answer must be No. And yet, the developer's argument with regard to the height restriction amounts to this: Since the letter of 29 September 1948 said that the consent of the Governor-in-Council was "not required" in respect of the height restriction, this must be construed as a waiver of the Crown's right as lessor to impose a height restriction for the duration of the lease. The argument is palpably unsound.

29. In my judgment, the judge had erred in construing the effect of the correspondence. I would allow this appeal and discharge the judge's order of 10 September 1996, with an order nisi that the respondent should pay the costs of the appeal and in the court below.

Godfrey, J.A.:

30. I agree; but out of respect for the judge, from whom we are differing, I append a short judgment of my own.

31. The appellant ("the landlord") asserts and the respondent ("the tenant") accepts that the Crown lease here, made by deed dated 1 May 1923, contains a covenant the effect of which, if it is still in force, is to preclude the tenant, a successor in title of the original lessee, from building on the demised land a new block of flats exceeding 35 feet in height to replace an older block of flats (Interocean Court) similarly exceeding that height. The tenant further accepts that this covenant has never been formally varied or modified; i.e., has never been the subject of any deed of variation or modification of the lease releasing the tenant, or any predecessor in title of the tenant, from the burden of the covenant.

32. The tenant nevertheless contends that the covenant has altogether ceased to have effect, and that it is now entitled to build on the demised land a new block of flats exceeding 35 feet in height. It founds its case on the exchange of correspondence to which Litton V-P has referred in his judgment. But this exchange of correspondence, properly construed, operated, as it seems to me, only as a licence to a predecessor in title of the tenant to erect on the demised land the existing block of flats, the rigour of the covenant being "expressly waived" only to that extent.

33. I do not think there can be discerned, from this exchange of correspondence (the clarity of which leaves a lot to be desired) an intention on the part of the landlord, not simply to waive the benefit of the covenant so as to permit the erection of the existing block of flats, but also so as to permit the demolition of that block of flats and the erection on the demised land of another block of flats in its place.

34. A landlord may, no doubt, agree to a variation or modification of a covenant contained in the lease so as to release the tenant altogether from the burden of the covenant. Although in the case of a lease, such as the Crown lease here, made by deed, this would normally be done by deed, the landlord could, I suppose, do so informally, so as to preclude himself thereafter from denying the release. He could do so by contract (i.e. by agreement supported by consideration moving from the tenant to the landlord; not the case here). Or he could do so by promising the tenant, that for the future, he would no longer seek to enforce the covenant; in which case, if the tenant acted to his detriment on the faith of that promise, the landlord would be held bound to his promise (even in the absence of consideration moving from the tenant to the landlord).

35. But for this purpose the contract, or promise, would have to be expressed in clear and unequivocal terms.

36. Here, there was, as I think, a clear and unequivocal promise by the landlord that it would not object to the then tenant's erection of its proposed new building (Interocean Court). But to spell out of the exchange of correspondence between the parties a clear and unequivocal promise to the then tenant that it, and its successors in title, could demolish and rebuild the proposed new block of flats and replace it with another, as often as it wanted, which is what the tenant really contends, seems to me to be quite impossible.

37. For these reasons, as well as for those given by Litton V-P, I too would allow this appeal.

Ching, J.A.:

38. I agree that this appeal must be allowed for the reasons given by Litton, V.P. and Godfrey, J.A. I also agree with the order proposed by the Vice-President.