FAIRFAX LTD. v. ATTORNEY GENERAL

1994, No. MP 794

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. The Plaintiff is seeking to obtain a Declaration that a covenant in the Crown Lease of land they have purchased restricting development of the land to the erection of one or more villa residences only cannot now be enforced against them. They purchased the land with the object to redeveloping it with a multi-storey building.

2. The Crown Lease of Inland Lot 757 was dated the 16th June 1862 and was for a term of 999 years from the 7th January 1862.

3. It contained a Building Covenant the relevant part of which reads:

"And that the said [Lessee], his Executors, Administrators or Assigns shall and will, before the expiration of the first year of the term hereby granted, at his and their own proper costs and charges, in a good, substantial and workman-like manner erect, build and completely finish fit for use, one or more good, substantial and safe brick or stone messuage or tenement, messuages or tenements, upon some part of the ground hereby demised, with proper fences, walls, sewers, drains and all other usual or necessary appurtenances, and shall and will lay out and expend thereon the Sum of Three Thousand two hundred and thirty Dollars and upwards in the erection of one ore more Villa residences only, in accordance with the term of sale..."

4. Over the years the Lot has been subdivided into a number of sub-divisions and there are even sub divisions of the subdivisions.

5. It is evident from the undisputed evidence that prior to the Pacific War there were Terrace Houses built on the Lot. It may be the case that some or all of these houses were in the single occupation of individual families.

6. The land comprising nos. 9 & 10 Hing Hon Road are sections H & I of the Inland Lot 757. In 1958 the land was redeveloped and a 6 storey building was erected upon the said sections. An occupation permit was issued by the Building Authority on the 29th November 1958 granting permission for the occupancy of the building which consisted of 12 European type flats for domestic purposes.

7. It would appear that 3 of the sections of the Lot have not been redeveloped since the war and Terrace Houses remain there. All of the other sections have been redeveloped at different times. A number of the sections have been redeveloped in a similar way to the Plaintiffs land. However what is of particular significance is that 4 separate high rise blocks have been erected on parts of the lot. They are 26, 25, 21 and 14 storeys high respectively. Sir John Swaine Q.C. who represents the Plaintiff submitted that this development could not by any stretch of the imagination comply with the covenant I have referred to at the beginning of this judgment.

8. These high rise buildings were built between 1973 and 1992. It is accepted that no modification of the terms of the Crown Lease was ever sought throughout the 36 years period from the redevelopment of nos. 9 & 10 Hing Hon Road up to the present time and no premium has ever been required to be paid by any of the owners of the land comprised in the Lot.

9. Sir John submitted that the covenant was a restrictive covenant in the present context and what had to be considered was whether it was still enforceable. He argued that there had been waiver of the covenant. He based this argument on the notes contained in para. 922 of Vol. 16 of the 4th Edition of Halsbury's Laws of England which treated the subject of waiver.

10. By allowing the redevelopment referred to the Crown's conduct had either expressly or by implication been inconsistent with the continuance of the right or alternatively the right had been abandoned.

11. In any event it would be inequitable for the Crown to now enforce the covenant.

12. Sir John placed particular reliance upon the cases of Hepworth v. Pickles 1900 1 Ch 108 and in re Summerson a note of which was appended to Hepworth. Farwell J. said at 110 of Hepworth:

" I find as a fact that, very shortly after the date of that conveyance, beer, and, after a short interval, spirits, were both sold at that shop and have ever since been sold openly with the licence appearing in large letters over the door for upwards of twenty-four years. That being so, the first question I have to determine is whether the shop is in fact now bound by the restrictive covenant. In my opinion it is not so bound, although on its construction the covenant is of course a continuing covenant. I think the case is covered by the authority of Gibson v. Doeg (1), and by the unreported case, which I have referred to, before Romer J. of In re Summerson. (2) I apprehend the law is well stated by Pollock C.B. [His Lordship read the passage referred to and stated by Romer J. as set out in the note (2), and proceeded:-]

That I take to mean this-that if you find a long course of usage, such as in the present case for twenty-four years, which is wholly inconsistent with the continuance of the covenant relied upon, the Court infers some legal proceeding which has put an end to that covenant, in order to shew that the usage has been and is now lawful, and not wrongful. This case was followed by Romer J. in the case I have mentioned, which is in some ways a stronger case. It was a case in which there was a sale under the order of the Court, the corporation of Newcastle being the lessors. There was a similar restrictive covenant. The actual lease was anterior to the root of title fixed in the case, and there was a very stringent covenant. In that case it was also shewn that for thirty years the house had been carried on as a public-house. Romer J. held, following Gibson v. Doeg (1), that there must be presumed to have been an actual waiver or release.

I propose to follow those authorities, and I find in this case that the covenant has been waived or released, and that there is no longer any doubt or question about it."

13. The observations made by Farwell J. were particularly germane to the present case. It was clear on the facts that the Crown must have knowledge of the development or redevelopment of the Lot. As part of the evidence adduced in support of the Plaintiff's case were details of the different functions which had been performed by the Lands Department and their predecessors. What was clear was that for almost all of the relevant time the duties discharged by the Building Ordinance Office and the Crown Land & Survey Department were subject to overall control by the Director of Public Works and subsequently the Secretary for Lands & Works. This being the case the Crown must have been fully aware of the development which had taken place on the Lot. In addition to this it was evident that a number of surveys of the Lot had been undertaken by the Crown so it must be the case that it had knowledge of the development.

14. Mr. Andrews for the Defendant did not accept that the Crown's conduct could amount to waiver of the restrictive covenant.

15. What had to be borne in mind was that the restrictive covenant still existed and the only issue which was alive was whether it was still enforceable.

16. He dealt first with the issue as to whether the Crown had acquiesced in the breach of covenant. Fry J. considered what might amount to acquiescence at p. 105 of Willmott v. Barber 15 Ch 96

"In the next place it is said that Bowyer is bound by reason of his acquiescence in the Plaintiff's expenditure on the one acre to give effect to the agreement. It must, however, be borne in mind that a person who stipulates for a written license to assign a lease wisely stipulates for evidence in writing of his consent to an assignment, in order that the contest which often arises when there is only parol evidence may be avoided; the writing is to be an end of all strife between the parties. It requires very strong evidence to induce the Court to deprive a man of his legal right when he has expressly stipulated that he shall be bound only by a written document. It has been said that the acquiescence which will deprive a man of his legal rights must amount to fraud, and in my view that is an abbreviated statement of a very true proposition. A man is not to be deprived of his legal rights unless he has acted in such a way as would make it fraudulent for him to set up those rights. What, then, are the elements or requisites necessary to constitute fraud of that description? In the first place the plaintiff must have made a mistake as to his legal rights. Secondly, the plaintiff must have expended some money or must have done some act (not necessarily upon the defendant's land) on the faith of his mistaken belief. Thirdly, the defendant, the possessor of the legal right, must know of the existence of his own right which is inconsistent with the right claimed by the plaintiff. If he does not know of it he is in the same position as the plaintiff, and the doctrine of acquiescence is founded upon conduct with a knowledge of your legal rights. Fourthly, the defendant, the possessor fo the legal right, must know of the plaintiff's mistaken belief of his rights. If he does not, there is nothing which calls upon him to assert his own rights. Lastly, the defendant, the possessor of the legal right, must have encouraged to plaintiff in his expenditure of money or in the other acts which he has done, either directly or by abstaining from asserting his legal right. Where all these elements exist, there is fraud of such a nature as will entitle the Court to restrain the possessor of the legal right from exercising it, but, in my judgment, nothing short of this will do."

17. This was however somewhat modified by the Court of Appeal in Shaw v. Applegate 1977 1 WLR 970. At p. 977 Buckley L.J. stated:

" As I understand that passage, what the judge is there saying is that where a man has got a legal right-as the plaintiffs have in the present case, being legal assignees of the benefit of the covenant binding the defendant-acquiescence on their part will not deprive them of that legal right unless it is of such a nature and in such circumstances that it would really be dishonest or unconscionable of the plaintiffs to set up that right after what has occurred. Whether in order to reach that stage of affairs it is really necessary to comply strictly with all five tests there set out by Fry J. may, I think, still be open to doubt, although no doubt if all those five tests were satisfied there would be shown to be a state of affairs in which it would be dishonest or unconscionable for the owner of the right to insist upon it.

In Electrolux Ltd. v. Electrix Ltd. (1954) 71 R.P.C. 23, Sir Raymond Evershed M.R. said, at p. 33:

"I confess that I have found some difficulty-or should find some difficulty if it were necessary to make up my mind and express a view whether all five requisites which Fry J. stated in Willmott v. Barber, 15 Ch.D 96 must be present in every case in which it is said that the plaintiff will be deprived of his right to succeed in an action on the ground of acquiescence. All cases (and this is a trite but useful observation to repeat) must be read in the light of the facts of the particular case."

So I do not, as at present advised, think it is clear that it is essential to find all the five tests set out by Fry J. literally applicable and satisfied in any particular case. The real test, I think, must be whether upon the facts of the particular case the situation has become such that it would be dishonest or unconscionable for the plaintiff, or the person having the right sought to be enforced, to continue to seek to enforce it.

In the present case, having regard to the doubtful state of mind of the parties during the period from the spring of 1971 to August 1973, I do not think that one could reach the conclusion that in this case the plaintiffs would be acting dishonestly or unconscionably in seeking to enforce their rights under the contract because of their failure to sue at an earlier date. After all, it should not, I think, be the policy of the courts to push people into litigation until they are really sure that they have got a genuine complaint and have got a case in which they are likely to be able to succeed, and acquiescence at a time when the parties are in doubt as to what their true rights are could, it seems to me, seldom satisfy the tests I have been discussing. Accordingly, in my judgment, there is not here sufficient acquiescence to bar the plaintiffs from all remedy in respect of this covenant, or to deprive them of any continuing cause of action."

18. Even thus modified I do not think that the Crown's action or more relevantly in action can possibly have amounted to acquiescence.

19. The question of waiver is more difficult. Some guidance can be obtained from T.S. Cheng & Sons Ltd v. A.G. (Unreported) being MP1595 of 1986. In that case it was submitted that because the character of the neighbourhood had changed significantly similar covenants to those presently under consideration should not be enforced against a developer.

20. Macdougall J. as he then was had this to say at p. 18:

" Mr. Chang further submitted that even if the interpretation of the Crown Lease for which he contends is incorrect the Crown cannot enforce that part of the covenant restricting development to the erection of villa residences only without enforcing the rate and range provision. As the erection of high rise apartment buildings in the immediate vicinity has completely altered the character of the neighbourhood it is no longer possible to erect villa residences that would rate and range with other messuages in the same street. The only buildings that could truly be said to rate and range with others in the same locality are high rise buildings. The whole covenant has therefore become impossible to perform.

It is apparent that this argument rests on the premise that as the restriction as to the building of villa residences only and the rate and range provision are both part of the same covenant they must stand on full togeher.

I do not accept this bald proposition for which Counsel concedes he has been unable to find any authority. If it has now become impossible to erect villa residences that rate and range with messuages or tenements in the same street, I am unable to see any reason why this should render ineffective that part of the covenant that stipulates that villa residences only may be erected on the site. This restriction is able to stand perfectly well on its own without the support of the rate and range provision. The effect of the change in the nature of the neighbourhood is simply to relieve the lessee from compliance with the rate and range provision. The restriction as to villa residences only still applies.

Moreover, in my view, the mere fact that the Crown may have permitted other lessees or their successors in title, either with or without the payment of a premium, to depart from strict observance of the terms of the building covenants relating to other sites, does not affect the right of the Crown to insist on compliance with the restrictive covenant on the present site or to demand the payment of a premium in return for its relaxation.

Indeed, Mr. Chang accepts that the fact that the Crown allowed redevelopment of a site which was part of the original lot and subject to the provisions of the same Crown Lease does not amount to a waiver by the Crown of its rights in respect of other parts of the whole lot. He merely points out that by its own action the Crown has assisted in the change in the nature of the neighbourhood and that by so doing has represented to the public in general and other lessees in particular that it is content to permit other land in the vicinity to be redeveloped in a similar manner. I fail to see how this confers any rights on those other lessees or operates as an estoppel against the Crown."

21. While I accept that Sir John Swaine places reliance upon waiver of breaches of covenant relating to buildings on Lot 757 rather than changes to the surrounding neighbourhood I do nonetheless consider that the observations made by Macdougall J. are of assistance. I can see no justification for adopting different criteria in respect of the surrounding neighbourhood as a whole than for the buildings in the immediate vicinity of the land. I consider that Macdougall J. was right in holding that the non enforcement of the terms of building covenants relating to other sites does not prevent the Crown from insisting upon compliance with covenants in this case.

22. I think that it is true to state that Sir John Swaine places very heavy reliance upon Hepworth v. Pickles 1900 1 Ch 108, in re Summerson and Gibson v. Doeg 2 H&N 615.

23. These cases were considered by Blair Kerr Acting Chief Justice in Re A Compensation Board Ex parte Attorney General 1971 HKLR 338. In that case an owner of agricultural land which was being compulsorily resumed sought compensation on the basis of being allowed the value of unauthorised erection which had been on the land for a considerable period of time. Blair Kerr Acting C.J had this to say at p. 355

" This Court is not bound by decisions of the English Court of Appeal or by decisions of any English court inferior to the Court of Appeal. Furthermore, it has frequently been said in this Court that when a case decided in some other jurisdiction in some other part of the world is cited, a Hong Kong court should carefully consider the circumstances and conditions prevailing in that other jurisdiction at the time when the case was decided and should compare those with the circumstances and conditions prevailing in Hong Kong today.

This applies with particular force to the proceeding now before us. We have had cited to us old English cases decided under circumstances very different from those prevailing in Hong Kong during the last 20 years or so; and in my view this Court should scrutinise those decisions with the greatest care."

And then at p. 357

" But, even if we assume that at some date subsequent to 1949 the claimant's breach of covenant, and the breaches of covenant on the part of, perhaps, hundred or thousands of others, became notorious so that knowlege of those breaches might reasonably be imputed to the Director of Public Works and his subordinate (the Superintendent of Crown Lands and Surveys) does it necessarily follow that we should say that there has been waiver of the covenant?

Having regard to the conditions prevailing here in 1949 and subsequent years, one can well imagine what an outcry there would have been if the Crown had attempted to exercise its powers of forfeiture and re-entry under the lease. There would have been ample justification for allegations of hardship. It was during this period that the Resettlement Department was born! So far as I am aware, there is no counterpart of that Department in England. Be that as it may, even if Government had wished to avail itself of its rights of forfeiture and re-entry (which, clearly, it did not) what a herculean task it would have been to have checked every breach of covenant and to have exercised powers of forfeiture and re-entry in every case! And to what purpose?

Looking at the matter in this way, can we say there has been waiver of the breach of covenant? For myself, I would not be prepared to go as far as that. Knowledge of the breach, perhaps. But not waiver in the legal sense."

24. I consider this to be a sensible approach as to whether there has been waiver of the restrictive covenant. The fact that the Crown has not seen fit to enforce this covenant against other owners of the Lot is insufficient reason to hold that there has been a waiver of the covenant and that it is unenforceable.

25. For the reasons I have given I decline to make the Declaration which is sought. I will hear the parties on costs.