REAL HONEST INVESTMENT LTD. v. THE ATTORNEY GENERAL

1996, No.MP902

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. On May 1st 1923, there was a Crown Lease granted to a gentleman Mr Ogilvia, which demised him a plot of land which is called Rural Building Lot No.193 which is towards the Peak at Stubbs Road. It was for a period of 75 years with the right of renewal for a further 75 years and there was going to be built on this plot of land a dwelling house. Standard covenants, which I have seen before, were imposed and there was a requirement that he build the house spending at least $10,000 within 24 months and the building so erected should be subject to special approval of the Director of Public Works and should not exceed 35' in height. Except with the consent of the Governor-in-Council first obtained, not more than one house should be erected on the demised premises. There were other clauses in standard form, for example, a user clause that during the continuance it should not be used for certain trades. There was nothing unusual, in my judgment, about the format of this particular demise.

2. There is no clear evidence, but one presumes from the matters which have been set out, when old foundations were found on the site, that the house was built. Time passed. Hong Kong's history changed, buildings in Hong Kong became higher and in 1948, there was a change in the ownership of this plot of land and architects and engineers acting for the new owner, Minutti & Partners, wrote a letter on 10 August 1948 asking for this plot of land to be redeveloped by the erection of a building containing basement and eight upper floors and it was to be an apartment building. It was therefore dramatically different from the single dwelling house with a maximum height of 35' - this was basically a block of flats standing some 80' high. The letter requested consent to the erection of this building. The tentative proposal was replied to on 25th August. The Buildings Ordinance Office suggested that the architects should obtain the consent of the Governor-in-Council because the height of the building would exceed 35'. The correspondence is of interest - and I do not refer to all the letters - but the Colonial Secretary (the forerunner of the Chief Secretary) ultimately replied on 29 September saying that there was no objection to the development and at any rate, the formal restrictions that were referred to in the Lease were expressly waived. I will refer to that letter again.

3. The building was then erected, albeit slightly lower than had been originally anticipated, and it became known as "Interocean Court", a well known block of flats in Hong Kong. Of course like all things, buildings change in character, the type of facilities available change over the years and the building which was erected in the end of the 1940s no doubt had out-lived its useful purpose by the 1990s, nearly 50 years on. The current owners, a company called Real Honest Investment Limited ("the Company"), wish to pull down this block of flats and to erect a new block of flats on the site. The overall plot ratio apparently is not being altered, there is little difference in the height, slightly lower, but of course this would be a modern, no doubt luxury, block of flats. I am not dealing in any shape or form with any of the standard building requirements, that is a matter for the appropriate government department and as I understand it there is no problem at all to the redevelopment of this site on the lines that the Company propose.

4. However, what has happened is that the government has now said to the Company that they will remove the height restriction and modify the lease but the Company will have to pay a substantial sum of money as premium. Not unnaturally this Company who are the current owners of an 85' block of flats are somewhat surprised that they have now to pay a large sum of money to redevelop this with a modern block which is no higher. The Crown, however, take the view that the Lease in 1923, now some 73 years old, contains a height restriction and that the Company, if they want to overcome that restriction, have got to pay for it. Therefore it is necessary to see whether or not the argument of the Crown has any basis of law. One has only to state the facts to appreciate that on any view the present owners are no doubt puzzled as to why the government is taking this view.

The Law

5. The Lease, in my judgment, which is in standard form contains a clear restrictive covenant as to the erection of a single dwelling house with a height restriction of 35'. Mr Andrew Li, Q.C., who appears for the Company, and I am grateful for the clarity of the skeleton argument which has been provided, submits that the covenant became spent when the development occurred and it was a covenant related solely to the development of that particular dwelling house and it was then, as he submits, spent. I acknowledge, of course, that later on those that were advising the new owners did not consider it to be spent because they made an application for this covenant to be overcome. However, that is purely their view which should not colour my own view. This is a matter of construction. In my judgment, the decision of the Court of Appeal of Fairfax Ltd. v. Attorney General [1995] 2 HKC 617 is binding on me. The reasoning behind that decision persuades me that the covenant here, in standard form, was a covenant that governed not only the development of the land but the redevelopment of the land. In so far as the point about a single dwelling house is concerned, it is accepted by the Crown that at any rate that would not be infringed because the word "house" would also connote a building containing several residential flats, see for example Kimber v. Admans [1900] Ch.412. In so far, therefore, as the first point taken by Mr Li is concerned, on a strict construction of the covenant, it would still be effective. However, the position is dramatically different when one turns to the second point which Mr Li takes, namely that the covenant is of no effect.

Waiver

6. He puts his submission in a variety of ways by saying that this has been waived, or has been acquiesced viz. by the Crown, or in some way they are estopped from asserting that it is effective. In my judgment, the correspondence, some of which I have read, is of great importance. The letter from the Colonial Secretary must be analysed in depth to understand really what was happening. Before me today it has been submitted by Mr Anderson Chow appearing for the Crown, to whom I am also grateful for his skeleton argument, that the waiver (and he accepts that there was indeed a waiver) relates solely to the building that was erected called Interocean Court. The letter however from the Colonial Secretary, as I said, must be analysed. It was a letter that was written after consideration of the matters and it reads as follows :

" Further to my letter ..... 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 ....." (emphasis added)

That may be, as Mr Li submits, an acknowledgement that the covenant had been spent. However, what it does disclose is what was being examined was not the building Interocean Court but the Lease which contained the restrictive covenant. The writer then goes on to say :

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

The words are clear. They are called "potential restrictions" and there is an "express" waiver. In my judgment, this letter is what it is. It is an express waiver of the restrictive covenant which was contained in the original Lease some 25 years or so before of the dwelling house, because a block of flats could be built and the height restriction removed. Although there is no precise evidence, the court is entitled to take judicial knowledge of the change in heights of buildings in Hong Kong. In my judgment, the clear inference to be drawn from the correspondence is that the ancient (which in Hong Kong's history was indeed ancient in the 1920s), height restriction was no longer applicable in this area of the Peak and also a single dwelling house was no longer applicable. This is caused by the shortage of land supply in Hong Kong. There is a limit to land. Nowadays, it is provided by filling in the harbour, or other water parts, but the pressure upon land demonstrated to the government that intense development would be permitted mainly of a flat type in high blocks. The letter follows from the Building Authority, when it says "potential restrictions in the conditions of sale" are waived. This letter was written, because there had been a "tentative" plan for the erection of flats and the potential restrictions in the conditions of sale were waived. Both these letters are general waivers. They are not related to a building; there is no reservation at all, and in my judgment there was no reservation, because it was recognised that these restrictions should be removed. It was pointless really to keep them. Looking at those two letters, 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. The developer developed the site, and the letters would of course form part of the documents of title to demonstrate why the original covenant had been overtaken by history. The government also would be estopped by virtue of this being acted upon from asserting otherwise, but I do not consider it necessary to look for a particular legal "tag". On any fair construction of these letters, this particular covenant is no longer of any effect at all. Therefore, in my judgment, the current owners can build to any height they wish.

7. At one time, I had thought that it might be the answer to this case that the waiver which was given was a waiver for 85' and therefore Mr Li's clients' building being only 81', there would be similarly no payment for premium. On more mature consideration and on closer analysis of the letter, there has been a general waiver of the covenant completely. Therefore the building erected can be to any height at all. Of course, it is subject to the other standard building restrictions which one finds on the Peak, namely the current zoning plan with its appropriate plot ratio.

(R.A.W. Sears)

Judge of the High Court