RANK PROFIT INDUSTRIES LTD v. SECRETARY FOR JUSTICE

FAMV No. 8 of 2009

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

 MISCELLANEOUS PROCEEDINGS NO. 8 OF 2009 (Civil)

(ON APPLICATION FOR LEAVE TO APPEAL FROM
CACV No. 125 of 2007)

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Appeal Committee: Mr Justice Bokhary PJ, Mr Justice Chan PJ and Mr Justice Ribeiro PJ

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 D E T E R M I N A T I O N

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Mr Justice Ribeiro PJ:

1.  On 18 June 2009, we dismissed this application for leave to appeal with costs and with reasons to be given later.  These are our reasons.

2.  The facts are fully set out in the judgments of Deputy High Court Judge Muttrie[1] and of the Court of Appeal[2].  They may be summarised briefly as follows.

3.  In 1998, the applicant (“Rank Profit”), which is a property developer, entered into Conditions of Grant with the government to acquire at a premium of $361 million a government lease for a 50 year term over an undeveloped piece of land in Kowloon Bay known as North Kowloon Inland Lot No 6268 (“the Lot”).   The agreement required Rank Profit to erect, construct and maintain a building on the Lot with a total gross floor area of not less than 38,300 sq m and not exceeding 63,672 sq m, such floor area to include a multi-storey car park for the parking of not less than 200 cars, not less than 100 goods vehicles of different sizes and not less than 20 motorcycles.  By a building covenant, the relevant construction was to be achieved by 30 June 2002.  Rank Profit was also required to operate the “Multi-Storey Car Park at all times”.

4.  When Rank Profit entered into that agreement, the Lot was in an area known as the Kowloon Bay Industrial Area (“KBIA”) covered by a draft Outline Zoning Plan which showed 40 lots zoned for industrial development only.  The Lot was one of six in the KBIA on which commercial development was permitted.  Rank Profit took this to be an indication (which it says the government shared) that those 40 lots would have little internal provision for car parking and that there would accordingly be a sufficient demand for public car parking facilities to make the car park required under the agreement economically viable.

5.  However, in January 2001, the Town Planning Board (“TPB”) rezoned the KBIA lots to “Other Specified Uses” annotated “Business”, thereby permitting commercial or office development on the lots previously zoned as Industrial only.  Rank Profit alleges that this was the result of the government’s adoption of a policy in favour of more commercial and less industrial space and of the proposals it made to the TPB for such re-zoning to take place.  In consequence of such re-zoning, the government agreed lease modifications with certain lessees in the KBIA permitting a change of user from industrial to commercial.

6.  The effect of this, according to Rank Profit, was that there would come into existence in the KBIA developments having their own parking facilities so that the demand for public car parking facilities on the Lot would be greatly reduced, destroying the economic viability of the multi-storey car park required by the grant.

7.  Rank Profit argues that the government’s conduct amounts to a derogation from its grant.  It stopped work on the development and, after some three years of negotiation, eventually agreed in 2005 to pay some $11.8 million as a premium for a building covenant extension and a further $771.78 million for lease modifications which deleted the requirement for a public car parking, leaving it free to develop a purely commercial development on the Lot. 

8.  Those modifications were agreed to after Rank Profit had in May 2004, issued the Writ in the present proceedings claiming damages from the government for the alleged derogation from grant.  In the course of the lease modification negotiations, the government had pressed Rank Profit to agree to discontinue these proceedings and to pay the government’s costs – a demand that forms the basis of Rank Profit’s application for leave to appeal in respect of proposed judicial review proceedings which was heard simultaneously with the present.[3]  Rank Profit refused to discontinue these proceedings.  The terms as to premium for the lease modification were then revised and eventually accepted by Rank Profit without prejudice to its continued pursuit of the present action for damages.

9.  The government succeeded in having the action struck out before Deputy High Court Judge Muttrie[4] as disclosing no reasonable cause of action.  The Court of Appeal[5] upheld his Lordship’s judgment.

10.  Mr Michael Driscoll QC[6] submitted on behalf of Rank Profit that leave to appeal ought to be granted on the basis that several highly arguable questions of the appropriate general and public importance arise concerning the scope of the doctrine of non-derogation from grant in a landlord and tenant context.  However, in our view, the case which Rank Profit seeks to advance encounters critical difficulties arising from the application of the well-known principles without requiring exploration of the interesting issues identified by Mr Driscoll.

11.  The Court considered the applicable principles in Kung Ming Tak Tong Co Ltd v Park Solid Enterprises Ltd.[7]  We recognized the rule that a man may not derogate from his grant as a general principle of law and noted that it has often been said to encapsulate a rule of common honesty whereby a grantor, having given a thing with one hand is not to take away the means of enjoying it with the other.

12.  The application of that general principle to particular facts, as we there noted,[8] requires identifying in the first place what obligations, if any, on the part of the grantor can fairly be regarded as necessarily implicit in the grant, taking into account the particular purpose of the transaction when considered in the light of the circumstances subsisting at the time it was entered into.[9]  Only then can one determine whether the grantor’s conduct constitutes a derogation from grant in violation of the implicit obligation identified. 

13.  Rank Profit’s written submissions complain about a number of acts on the government’s part.  However, in his oral submissions, Mr Driscoll accepted that the relevant act of alleged derogation consisted of the government granting lease modifications for a change of user to lots previously limited to industrial use within the KBIA.  It was a change of user to commercial use that entailed the reduction of demand for parking facilities on Rank Profit’s Lot so as to constitute the derogation complained of. 

14.  It follows that the concomitant obligation which is alleged to be necessarily implicit in the grant is an obligation on the part of the government not to agree to any such lease modifications during the term of the lease.  This is to postulate – as Mr Driscoll did not shrink from accepting – that it was necessarily implicit in the grant to Rank Profit of the Lot subject to the requirement of providing a multi-storey car park of stated dimensions that the government thereby undertook that the industrial user restriction then applicable to the 40 lots in the KBIA would remain frozen, incapable of being modified to commercial or some other user, for 50 years.

15.  In our view, that proposition, which is fundamental to Rank Profit’s case, is not reasonably arguable.  Given Hong Kong’s constantly changing land use needs and property market conditions, it is wholly implausible.  The Court of Appeal rightly stressed that the obligation said to be necessarily implicit has to be one which both parties must necessarily be taken to have accepted as part of the transaction.  We see no basis for taking the parties to have contracted on the footing that the government would sterilize for 50 years its entitlement as landlord to negotiate lease modifications, including changes to user, with the lessees of the 40 other lots as a necessary consequence of requiring the provision of public car parking facilities on Rank Profit’s Lot. 

16.  Rank Profit’s application falls at the first hurdle and leave to appeal therefore had to be refused.