BAYNARD LTD AND ANOTHER v. SECRETARY FOR JUSTICE AND OTHERS

HCA 4073/2002

[2019] HKCFI 852

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 4073 OF 2002

____________

(the 2^nd and 3^rd defendants representing themselves

and all owners of Tuen Mun Town Lot 238 other than

the plaintiffs and Commercial Ace Limited)

____________

_______________

JUDGMENT

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A. Introduction

1.  The 1^stplaintiff (“Baynard”) is the developer (“the Developer”) of the Hong Kong Gold Coast development (“the Development”), situated on Tuen Mun Town Lot No 238 (“the Lot”).  The Lot was granted by the Government to Baynard by New Grant No 2607 dated 23 May 1983 (“the New Grant”).  The Lot was subsequently partitioned into different sections.  By two modification letters executed in 1996 and 1997, the Government agreed to vary the terms of the New Grant in relation to some of the sections by increasing the gross floor areas for residential development which the Developer may build thereon.  Pursuant to the additional rights given under the modification letters, the Developer intended to build threemore residential blocks on those sections.  However, the plan was met with strong objections from individual owners of units in the residential blocks built on other sections in the Development.  They complained that they had not been notified or consulted before the execution of the modification letters.  They complained that, if the Developer’s plan is implemented, it would result in the loss of sea view, the loss of a playground as well as otherproblems caused by an increase of population in the Development.  Hence, there is a dispute among the Developer, the Government (represented by the 1^stdefendant (“SJ”)), and the Individual Owners (represented by the 2^nddefendant (“Ma”) and the 3^rddefendant pursuant to the decision of Deputy Judge L Chan (as he then was) made on 24 September 2010).  For the present purpose, the Individual Owners are taken to include all co-owners of the Lot other than the plaintiffs and Commercial Ace Ltd.  The 3^rddefendant, however, had not taken part in these proceedings.

2.  For reasons that I need not go into, the dispute among the parties is now narrowed down to two ultimate issues: first, whether the modification letters are legally valid; and second, if so, whether the Developer is entitled to amend the Master Plans in relation to the Development without the consent of the Individual Owners.

3.  For the purpose of resolving these issues, by a Summons dated 11 August 2017, SJ applied for an order that the following issues be determined under Order 14A of the Rules of the High Court (Cap 4A):

(a)   Whether, by the time of the 1996 Modification Letter and the 1997 Modification Letter (“the Modification Letters”), separate Government leases were deemed to have been issued in respect of the sections in which the Individual Owners are interested (ie Sections A1, A2 and B1), such that the Individual Owners held legal estates different from the legal estates of the sections affected by the Modification Letters (ie Sections A3, B2 and B4).  (“Issue 1”)

b)   Whether SC 7(e) of the New Grant had been severed such thatany amendment to the Master Plans in relation to Sections A3, B2 and B4 does not require the certificate in writing or the consent or the authority of the Individual Owners.  (“Issue 2”)  

(c)   Whether the Individual Owners fall within the meaning of “Purchaser” in SC 7(e) and 22 of the New Grant.  (“Issue 3”)

d)   Whether, by Section III clauses 1(d), (e) and 3 of the Deed of Mutual Covenant dated 17 August 1990, the Individual Owners have conferred on Baynard the authority to consent, on their behalf, to the Modification Letters, and any amendment of the Master Plans following thereon, or are otherwise precluded from objecting to the Modification Letters or any amendment of the Master Plans following thereon.  (“Issue 4”)  

(e)   Whether there is any “derogation from grant” by the Government by reason of the Modification Letters.  (“Issue 5”)    

(f)   Whether the Individual Owners may properly object to the Modification Letters under the terms of the New Grant on the basis that the additional GFA or the potential GFA could or should have been allocated to the Lot as a whole and should enure to the benefit of, among others, the Individual Owners.  (“Issue 6”)

g)   Whether the Modification Letters are valid and effective in the sense that the Individual Owners are not entitled to object under the terms of the New Grant.  (“Issue 7”)

4.  I am satisfied that the determination of the issues in the Order 14A Summons will resolve these proceedings conclusively.

5.  Baynard and the 2^nd plaintiff, which is its associated company,have advanced two alternative positions in their pleadings.  They have now elected to ask the Court to uphold the validity of the Modification Letters, and the Developer’s right to amend the Master Plans without the consent of the Individual Owners.  This position is in line with the stance of the Government.  In contrast, the Individual Owners, represented by Ma,maintain that the Modification Letters are invalid, and that the Developer is not entitled to amend the Master Plans without their consent.

6.  Baynard and the Government need not succeed on all seven issues in the Order 14A Summons.  The interplay between the seven issues will become clear when I analyse the individual issues below.

B.   Background

7.  As mentioned, the Lot was granted by the Government to Baynard by the New Grant.  The New Grant contained certain General Conditions (“GC”) and Special Conditions (“SC”).  What is in issue is clause 7 of the SC (“SC 7”).

8.  SC 7(a) required the grantee, within six months from the date of the grant, to submit, for the approval of the Director of Lands (“the Director”), Master Plans detailing its final proposals for the development of the Lot.  The Master Plans had to include, amongst other things, detailed reference to the positions and nature of the buildings proposed, the landscaping proposals for the Lot, and the maximum gross floor area (“GFA”) of each type of building or buildings erected or to be erected.  SC 7(b) required the grantee to submit, again for the approval of the Director, Landscape Plans prepared by a qualified landscape architect. 

9.  Both SC7(a) and (b) required the Master Plans and Landscape Plans to be signed by both the Director and the “Purchaser”; and a signed copy had to be deposited at the District Lands Office, Tuen Mun (“DLO”).

10.  Importantly for the present purpose, SC 7(e) states:

“ Except with the prior written consent of the Director, no amendment, alteration or variation will be made to the Master Plans or the Landscape Plans once they have been so depositedin manner hereinbefore mentioned in sub-clauses (a) and (b) ofthis Special Condition provided always that in the case of minoralterations such consent will not be unreasonably withheld. No amendment alteration or variation of the Master Plans or the Landscape Plans shall be valid or binding on the Government or Purchaser unless the same shall have been recorded on the Master Plans or the Landscape Plans deposited in the District Land Office, Tuen Mun and certified in writing thereon by the Director and the Purchaser provided that minor alterations shall be valid and binding on the Government and the Purchaser as soon as they have been approved by the Director. For the purpose of this Special Condition, the opinion of the Director asto what constitutes a ‘minor alteration’ shall be final and binding on the Purchaser.”

11.  One of the issues is the meaning of the word “Purchaser” in SC 7(e).  It should be noted that the expression “Purchaser” is stated in GC 9 to: 

“ … include the person entering and executing this Agreement and where the context so admits or requires his executors, administrators and assigns and in the case of a corporation its successors and assigns”.

12.  SC 8(a) requires the grantee to develop and maintain the Lot in accordance with the Conditions, Master Plans, and Landscape Plans. 

13.  SC 9 provides that the Lot should not be developed or redeveloped except in accordance with the Master Plans and Landscape Plans.  It also fixes the density of the residential development by reference to the permitted GFA and site coverage.

14.  By SC 21, the grantee was obliged to submit, to the Registrar General for his written approval, a Deed of Mutual Covenant and Management Agreement in respect of the Lot (“DMC”), which is to be entered into between the grantee and its assignees or underlessees.  By SC 22, the grantee was obliged to maintain the Lot, its buildings, and structures:

“ The Purchaser to the intent that this obligation shall be binding upon him personally during the whole of the term of the lease hereby agreed to be granted as well as on his successors and assigns, shall … well and sufficiently manage, repair, uphold, support, maintain, pave, purge, scour, cleanse, empty, amend and keep the Lot and all buildings and structures erected or to be erected thereon … in, by and with all and all manner of needful and necessary reparations, cleansings and amendments whatsoever the whole to be done to the satisfaction of the Director.”

15.  By SC 23(a)(iv), all assignments or other disposals were required to be made subject to and with the benefit of the DMC.

16.  In early 1988, the Master Plans were approved by the Director and deposited in the DLO in accordance with SC 7(a).

17.  By a deed poll dated 19 July 1988, the Lot was “carved out” into Sections A1, A2, and the Remaining Portion.

18.  Baynard then revised the Master Plans (which were approved by the DLO and deposited in June 1991) and proceeded to develop the Lot into an integrated development known as the “Hong Kong Gold Coast”(ie the Development).

19.  On 29 November 1989, the DMC was approved by the Registrar General in accordance with SC 21. 

20.  On 17 August 1990, the DMC was executed by Baynard and the first assignee.

21.  Importantly for the present purpose, Section III, clause 1 of the DMC (at sub-clauses 1(d) and 1(e)) provides that Baynard, as long as it remains the beneficial owner of any share in the Development, shall have the right to exercise certain rights:

“ [Baynard] shall for as long as it remains the beneficial owner of any Share have the right at any time or times and from time to time as it shall deem fit to do all or any of the following acts or deeds and to exercise all or any of the following rights:

…

(d) The right to change, amend, vary, add to or alter the Master Plans, the Landscape Plans the carpark layout plan referred to in the Conditions (if any) and the marina layout plan referred to in the Conditions (if any) existing at the date hereof without the concurrence or approval of any Estate Owner or Phase Owner or any of the parties hereto but nothing herein shall absolve [Baynard] from the requirements of obtaining the prior written consent of the Director or other Government Authorities pursuant to the Conditions and no such change or addition shall give to the Estate Owners or Phase Owners any right of action against [Baynard] PROVIDED THAT any such change, amendment, variation, addition or alteration shall not interfere with a Phase Owner's right to hold, use, occupy and enjoy his Unit or Car Park or unreasonably impede or restrict the access to and from any such Unit or Car Park.

(e)   The right to apply to, negotiate and agree with the Government to amend, vary or modify the Conditions (including the plans annexed thereto) in such manner as [Baynard] may deem fit without the concurrence or approval of any Estate Owner and to execute any documents in the name of [Baynard] in connection therewith without the necessity of joining in any other Estate Owner PROVIDED THAT the exercise of this right shall not interfere with a Phase Owner’s right to hold, use, occupy and enjoy his Unit or Car Park or unreasonably impede or restrict the access to or from any such Unit or Car Park.” 

22.  Section III, clause 3 provides further that:

“ The Estate Owners hereby jointly and severally and irrevocably APPOINT the First Owner as their attorney and grant unto the First Owner the full right power and authority to do all acts deeds matters and things and to execute and sign seal and as their act and deed deliver such deed or deeds and to sign such documents or instruments as may be necessary for the exerciseof or incidental to the First Owner’s rights mentioned in Clause 1 of this Section III.”

23.  Thereafter, the Remaining Portion was further divided into different sections by way of Deed Polls, including Sections A3 – A4, B1 – B6, C1 – C5 and D.  The net result was that, by the end of November 2002, the Lot had been carved out into the following sections:

(1) Section A1	(2) Section A2	(3) Section A3	(4) Section A4
(5) Section B1	(6) Section B2	(7) Section B3	(8) Section B4
(9) Section C1	(10) Section C2	(11) Section C3	(12) Section C4
(13) Section C5	(14) Section D	(15) Remaining Portion

24.  Between 1990 and 1994, the Government issued to Baynard certificates of compliance in respect of Section A1, A2, B1, B2, B3, C2 and C3.

25.  By March 1995, six phases of the Development comprising a hotel, a commercial development and thirty residential blocks had been completed.

26.  In detail, the respective Sections were developed as follows:

Section	Type of unit	Present ownership
A1	Residential Towers (Blocks 1 – 3)	Mixed
A2	Residential Towers (Blocks 4 and 5)	Mixed
A3	Hotel	The 2nd plaintiff (“Golden Organise”)
B1	Residential Towers (Blocks 6 – 11)	Mixed
B2	Residential Towers (Blocks 12, 15 – 18)	Baynard
B3	Residential Towers (Blocks 19 – 21)	Baynard
B4	Low-Rise Residential Towers (Blocks 22, 23, 25 – 33)	Baynard
C1	Sewage Treatment Plant	Baynard
C2	Commercial Centre	Commercial Ace Limited
C3	Yacht Club	Baynard
C4	Boat Repair Compound	Baynard
C5	Open Space	Baynard
D	Marina	Baynard

27.  Since the aforesaid development, some of the flats in the residential blocks in Sections A1, A2, and B1 had been sold off.  However, Baynard still retained some units and is the owner of certain undivided shares allocated to Sections A1, A2, and B1.

28.  Further:

(a)   Baynard remains the owner of the whole of Sections B2, B3, B4, C1, C3, C4, C5, D, and the Remaining Portion of the Lot; and

b)   Golden Organise has since 22 September 1997 become the owner of the whole of Section A3 as will be explained below.  

29.  Notwithstanding the carving out of the Lot into various sections,there remains only one approved DMC which applies to all of the units in the Development (ie the DMC).

30.  Under the New Grant, Baynard had the right to build a total of not more than 200,000 square metres in GFA on the areas of the Lot allocated for residential and hotel development.  On 24 January 1995, Baynard applied to the Government to modify the New Grant so as to permit an additional area of residential development to be built on the Lot. 

31.  By a modification letter dated 29 October 1996 (“the 1996 Modification Letter”), in consideration of the payment to the Government of a premium of HK$400,710,000 and an administrative fee of HK$120,000, Baynard was granted the right to develop an additional 27,670 square metres in GFA for residential development on Sections B2 and B4. 

32.  The 1996 Modification Letter expressly required Baynard to comply in all respects with the conditions contained in the New Grant, and such building(s) had to be completed and made fit for occupation within three years. 

33.  On 25 February 1997, another modification letter (“the 1997 Modification Letter”) was issued to Baynard which permitted an additional 2,852 square metres in GFA for hotel development on Section A3, in consideration of the payment to the Government of a premium of HK$32,630,000 and an administrative fee of HK$130,000.

34.  Subsequently, on 22 September 1997, Section A3 (ie the section intended for hotel development) was assigned by Baynard to Golden Organise.

35.  Premised on the 1996 Modification Letter, it was proposed by Baynard that three additional high-rise blocks of flats would be built on Sections B2 and B4.

36.  Baynard through its Authorized Person then made the building plan submissions to the Buildings Department, who referred the building plan submissions to the DLO for approval to build the three additional high- rise blocks.  Two of the blocks were to be built along the southern shore of the marina in Section B4 between the high-rise blocks in Section B1 andthe villas in Section B4; and one of the blocks was to be built in Section B2 between the high-rise blocks in Section B2 and those in Section B3.

37.  The said building plan submissions were checked and considered acceptable by the DLO as stated in its letter of 5 January 1998, subject to the conditions, inter alia, that:

(a)   four additional car parking spaces were required to be provided for the reprovision of the existing car parking spaces; and

b)   the Master Plans be amended to incorporate Baynard’s submissions.

38.  The Developer accepts that, in order to give effect to the Modification Letters, major variations and amendments to the existing approved Master Plans and Landscape Plans would be required.

39.  In or about October 1997, Baynard erected protective hoarding on certain parts of Sections B2 and B4 in anticipation of construction pursuant to the 1996 Modification Letter.  Baynard also engaged various consultants and contractors for the development works.

40.  However, vigorous opposition began from protesters who were Individual Owners from Blocks 1 to 11 of Phases 1A, 1B and 2A (which were erected on Sections A1, A2, and B1).  The protestors alleged they would be adversely affected by the proposed further development.  In November 1997, some of these Individual Owners formed the “Hong Kong Gold Coast Owners’ Rights Association” (“the Owners’ Rights Association”).

41.  In an effort to accommodate the concerns of the Individual Owners, Baynard tried to lobby and negotiate for an alternative plan whichwould have relocated the three additional blocks of flats to Section C of the Lot.  This alternative plan was endorsed by Ma (as chairman of the Owners’ Rights Association) in January 1998.  However, this alternative plan ultimately fell through because of the refusal of the Town Planning Board in March 1999 to grant planning permission.

42.  Baynard also sought to obtain from the Government a refund of the premium and administrative fee which Baynard had paid in respect of the 1996 Modification Letter, on the basis that performance thereof was rendered impossible by the Individual Owners’ opposition.  However,this was not accepted by the Government.

43.  On 26 October 2002, this action was commenced by Baynardagainst the Government.  On 24 September 2010, Ma and the 3^rd defendant joined in this action in a representative capacity, representing themselves and the Individual Owners.

44.  On 11 August 2017, SJ took out the present summons.  It is extraordinary and unsatisfactory that it has taken such a long time for the parties to make a serious attempt to dispose of the issues in these proceedings summarily and conclusively.

45.  I shall now turn to the issues.

C.   Issue 1

46.  Section 14(1) of the Conveyancing and Property Ordinance (Cap 219) (“the CPO”) provides that:

“ Where a person has a right to a Government lease of any land upon compliance with any conditions precedent, then, upon compliance with those conditions—

(a) the equitable interest under that right shall become a legal estate in that land if held under a Government lease issued in accordance with that right; and

(b)   for the purposes of section 42 and any other law, such a Government lease shall be deemed to have been issued upon compliance with those conditions.”

47.  Section 14(1) of the CPO applies only if there is a compliance with the conditions precedent.  To facilitate the proof of such compliance,section 14(3) of the CPO provides that:

“ Where under an agreement for a Government lease entered intoon or after 1 January 1970, a person has a right to a Government lease upon compliance with any conditions precedent, he shall be deemed, for the purposes of this section, to have complied with those conditions—

(a) upon the issue by the Government of a certificate that those conditions have been complied with and the registration of that certificate in the Land Registry under the Land Registration Ordinance (Cap. 128); or

(b) upon the endorsement by the Government on the Government lease of a note to the effect that those conditions have been complied with and the registration of a copy of that endorsement in the Land Registry under the Land Registration Ordinance (Cap. 128);

(c)   upon the entry on the register kept in the Land Registry under the Land Registration Ordinance (Cap. 128) relatingto the land of a note to the effect that those conditions have been complied with.”

48.  Most important for the present purpose, to deal with the situation where the land in question has been partitioned, section 14(5) of the CPO provides that:

“ Where a person has a right to a Government lease of any land and that land is partitioned by assignment or otherwise by deed,this section shall apply to each part of that land constituted by that partition, as it applies to the whole of that land, as if there were a right to a Government lease of such part.”

49.  In Butterworths Hong Kong Conveyancing and Property Law Handbook (4^th ed, 2015), the author explains at [14.25], p 135 that:

“ It is not unusual, particularly with a large development and subject to any restriction on alienation and partition in the Government lease, for a site that is held under a single Government grant to be partitioned into sections which can then be developed in different phrases. This subsection enables the developer to apply for a certificate of compliance to effect a conversion in respect of each section, upon the compliance with all the conditions precedent in the Government grant which relate to that section. The developer would otherwise have to complete the whole development before he could be said to have complied with all the conditions in the Government grant. Where this provision applies, separate Government lease will be deemed to have been issued in respect of each section.”

50.  There is no dispute that the Lot has been partitioned into various sections as stated above.  There is also no dispute that certificates of compliance have been issued in respect of Sections A1, A2, B1, B2, B3,C2 and C3.  In respect of the other sections, Mr Dawes (acting for the plaintiffs) submit that in the absence of evidence to the contrary (and none has been adduced), it can be reasonably assumed that there has also been factual compliance of the conditions precedent applicable to those sections.  Mr Chua (representing Ma), while accepting that separate Government leases are deemed to have been issued for Sections A1, A2, B1, B2, B3, C2and C3, takes the view that, in the absence of any certificate of complianceor positive evidence that the conditions precedent have been complied with, no Government lease can be deemed to have been issued in respect of those sections.

51.  For the present purpose, the above disagreement is immaterial because, in respect of Sections A1, A2 and B1 on which the units of the Individual Owners are situated, there is no dispute that separate Governmentleases are deemed to have been granted.  The critical legal consequence is that the Individual Owners only hold legal estates in Sections A1, A2 and B1; and they have ceased to hold any interest whatever in the other sections on the Lot.

52.  It is clear that both the 1996 Modification Letter and the 1997Modification Letter do not concern any land in which the Individual Owners of Sections A1, A2 and B1 have any interest whatsoever:

(a)   The 1996 Modification Letter is entitled “Sections B2 and B4 of Tuen Mun Town Lot 238, Tuen Mun”, and provides that the Government approved a modification of the New Grant “in so far as it affects Sections B2 and B4 but nor further or otherwise”.

b)   The 1997 Modification Letter is entitled “Sections A3 of Tuen Mun Town Lot 238, Tuen Mun”, and provides that the Government approved a modification of the New Grant “in so far as it affects Section A3 but nor further or otherwise”.

53.  A modification letter is, in law, a variation agreement.  Section 14A(1) of the CPO provides that:

“ Any modification in writing by the Government of the covenants,terms or conditions of a Government lease shall have the same effect as if made by deed.”

In Butterworths Hong Kong Conveyancing and Property Law Handbook (4^th ed, 2015), the author explains at [14A.03], p 136 that:

“This section provides an exception to the general rule that a deed can only [be] varied by another deed (see s 4 above). It was added because modifications to the terms of Conditions of Sale were normally made by the British–Hong Kong Government (on behalf of the British Crown) by letter, not by deed. It is now still the practice of the HKSAR Government to modify Conditions by letters under hand.”

54.  The 1996 and 1997 Modification Letters do not seek to vary the separate Government Leases deemed to have been granted in respect ofSections A1, A2 and B1 at all.  The Individual Owners, holding interests inSections A1, A2 and B1 only, do not have any privity of estate or privity ofcontract in relation to Sections B2, B4 and A3, and the Government leasesconcerning those sections.  The Individual Owners of Sections A1, A2 and B1 are not necessary parties to the variations agreements as evidenced by the Modification Letters.  In law, they do not have any standing to oppose the Modification Letters.

55.  Hence, the answer to Issue 1 is Yes.

D.   Issue 3

56.  Issues 2 and 3 are inter-related.  I have decided to deal with Issue 3 first.  Both issues concern whether the consent of the Individual Owners is necessary for any amendment to the Master Plans.  It should benoted that these two issues are not related to the validity of the Modification Letters.  The relevance of these two issues is that, as explained above, in order for Baynard to enjoy the benefits conferred by the Modification Letters, the Master Plans must first be amended.  As between Issues 2 and3, Issue 3 is more fundamental because, if the Individual Owners do not fallwithin the meaning of “Purchaser” in SC 7(e), Issue 2 will become academic.  How Issue 3 should be resolved will not be affected by the fact that the Lot has been partitioned into different sections.  On the other hand, Issue 2 deals with the consequence of the partition.

57.  Baynard and SJ submit that, the word “Purchaser” in SC 7(e) should be confined to mean the Developer ie Baynard itself (or its assignee, if any, which plays the same role as developer).  In contrast, Ma submits that the word “Purchaser” in SC 7(e) includes the Individual Owners.

58.  The principles concerning construction of Government lease are not in dispute; they are the same as those concerning construction of contract in general.  In Building Authority v Appeal Tribunal (Buildings) (ENM Holdings Ltd) (2018) 21 HKCFAR 194 at 209 – 210, Tang PJ and Lord Collins of Mapesbury NPJ held that:

“ 53. SC31 has to be construed in the proper context, with regard to the purpose of the contractual term and the backgroundthat is objectively or reasonably known to the parties at the time of the agreement. The overriding objective is to give effect to what a reasonable person would have understood the parties to mean. See Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279, 296; Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351, [15]; Secretary for Justice v Joseph Lo Kin Ching (2015) 18 HKCFAR 169, [29]; Yung Chi Keung v Protection of Wages on Insolvency Board (2016) 19 HKCFAR 469, [22]; Wood v Capital Insurance Services Ltd [2017] AC 1173, [8]–[15].

54.   The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear: L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235, 251. But on the other hand, the Court must be alive to the possibility that one side may have agreed to something which with the benefit of hindsight may not haveserved his interest: Arnold v Britton [2015] AC 1619, [20], [77];Wood v Capita Insurance Services Ltd [2017] AC 1173, [11].”

59.  According to GC 9, the word “Purchaser” includes not only the person entering and executing the New Grant, but “where the context so admits or requires” his assigns.  Baynard is the person entering and executing the New Grant.  There is no dispute that the Individual Owners were assigns of Baynard.  The real issue is whether the context admits or requires their inclusion.

60.  Here, the most relevant context is SC 7 viewed as a whole.  The word “Purchaser” is also used in SC 7(a) which provides that “the Purchaser shall … submit … for the approval of the Director Master Plans ‌… detailing the Purchaser’s proposals for the development of the lot”, “The Master Plans shall be signed by the Director and the Purchaser …”, “The Purchaser … shall provide with the Master Plans and at his own expense a model to an appropriate scale which shows the Lot and the Other Areas as envisaged upon completion.”  And the word “Purchaser” is also used in SC 7(b) which provides that “The Purchaser shall … submit … for the approval in writing of the Director detailed plans and proposals for the landscaping of the Lot and the Other Areas … prepared by a qualified Landscape Architect ….”  It is clear that these are things intended to be done by the Developer.

61.  Mr Chua rightly accepts that, as submitted by both Mr Dawes and Mr Yu (appearing for SJ), the word “Purchaser” in SC 7(a) and (b) must refer to the Developer. This is important because, as held by Lord Roskill in Tor Line AB v Alltrans Ltd [1984] 1 WLR 48 at 55E–F:

“ … It is of course a proper canon of construction that the same words or the same phrases should where possible be given the same meaning in the same clause but that canon must always yield to particular contexts.”

62.  Hence, one would expect that the word “Purchaser” in SC 7(e) should bear the same meaning as that in SC 7(a) and (b) unless the particular context requires otherwise.  It is therefore important to discern the purpose of SC 7(e).  In my view:

(a)   SC 7(e) concerns how the Master Plans or the Landscape Plans may be amended.

b)   First, it draws a distinction between a “minor alteration” and any other alteration. Whether an alteration is a “minor alteration” is to be decided by the Director.

(c)   For any alteration other than a “minor alteration”, it must have the prior written consent of the Director.  For a “minor alteration”, it must still have the prior written consent of the Director but such consent shall not be unreasonably withheld.

d)   Pausing here, what is envisaged is that if the Developer intends to amend the Master Plans or the Landscape Plans, it must submit the proposed amendment to the Director for approval.  It is clearly not contemplated that any Individual Owner would submit any proposed amendment for the Director’s approval.

(e)   For a “minor alteration”, it will be valid and binding as soon as it has been approved by the Director.  There is no other formal requirement.

(f)   However, for any alteration other than a “minor alteration”, in order for it to be valid and binding, it is insufficient to have the written prior consent of the Director.  There are additional formal requirements: first, the alteration must be recorded on the Master Plans or the Landscape Plans deposited in the DLO; and second, it must be certified in writing thereon by the Director and the Purchaser.  Such formal requirements ought to be complied with as soon as the alteration has been approved by the Director.

g)   The purpose of these formal requirements is twofold: first, thiswill be the evidence as between the Developer and the Directorthat the amendment recorded on the plans was proposed by theDeveloper and had been approved by the Director; second, theyare to ensure that any person who inspects the Master Plans orthe Landscape Plans will be able to see what amendments havebeen made and be reassured that the amendments as proposed by the Developer had been duly approved by the Director.  In effect, it is like parties to a written contract are required to initial amendments marked on the document.  It is clear that the persons who need to certify the approved amendment in writing must be the Director and the Developer.  Bearing in mind the large number of Individual Owners, it is unthinkable that each and every one of them is required to certify the approved amendment in writing.

h)   Any suggestion that each and every one of the Individual Owners is required to certify the approved amendment in writing will lead to an absurd consequence.  It would imply that, notwithstanding that an amendment proposed by the Developer has been approved by the Director, it will be invalid and not binding so long as one single Individual Ownerfails or refuses to certify the amendment in writing on the plans on whatever grounds.

63.  Mr Chua submits that, for any proposed major alteration to be made after completion, consent of the Individual Owners is required.  He emphasizes the importance of completion.  I am unable to accept his submission:

(a)   Mr Chua seeks to draw a distinction between any proposed major alteration to be made before, and after, completion.  But such a distinction is ambiguous, and cannot be justified by a proper reading of SC 7.

b)   The word “completion” appears once in SC 7(a): the Purchaser shall provide with the Master Plans and at his own expense a model to an appropriate scale which shows the Lot and the Other Areas as envisaged upon completion.  It merely requiresthe Developer to provide a visual aid to enable people to see the result of implementation of the Master Plans.  It has nothing to do with the validity of any amendment to the Master Plans.

(c)   The word “completion” in SC 7(a) refers to the completion of the development of the whole Lot.  However, Mr Chua uses the word in a different sense; he refers to the completion of the construction of the blocks of buildings where the Individual Owners’ units are situated.  The word “completion” in such sense is not used at all in SC 7.

d)   SC 7(e) does not, by itself, impose any time limit on when an application for amendment to the Master Plans or Landscape Plans may be made; or any different criteria for approval depending on when such an application is made.  The plain and natural meaning is that such an application may be made atany time, in particular, it can be before any actual constructionwork has begun, or when some but not all construction workson the Lot have been completed (as when the Lot is developed in different stages).

(e)   Indeed, the SC contemplates that the Lot may be developed indifferent stages, and that the Developer may assign its interests in those parts on the Lot in respect of which the development has been completed before the completion of the development of the other parts.  SC 23(a)(i) forbids the developer to do so:

“ until the Purchaser has put up and received the Director’s approvalfor a scheme (hereinafter referred to as ‘the Scheme’) of carving out the Lot into sections and of continuing management of the entire development on the Lot;”

(f)   Mr Chua submits that the interests of the Individual Owners (who have acquired interests in their individual units after andupon completion of the blocks of the buildings where they are located) would be affected by an amendment to the Master Plans.  This may well be true in a general and layman’s sense.  However, it does not follow that they should have, or, more importantly, in fact have, the legal right to oppose any proposed amendment to the Master Plans (even if it involves a major alteration).  The Individual Owners are also bound by the SC.  They must be taken to be aware of the possibility that, pursuantto SC 23(a)(i), the Lot may be developed in stages; and hence, the surrounding circumstances in the Lot may change after they acquire or move into their individual units.

g)   Furthermore, even assuming that it is reasonable and desirableto give the Individual Owners the right to oppose any proposedamendment to the Master Plans, it is trite that the court cannot re-write the contract by inserting such a condition into SC 7.

64.  For the above reasons, my answer to Issue 3 is No.

E.   Issue 2

65.  As I have answered Issue 3 in the negative, Issue 2 has become academic.  Nevertheless, I shall deal with it for the sake of completeness. 

66.  This issue will depend on whether, in respect of the separate Government leases deemed to have been granted in respect of Sections A1,A2 and B1, they contain a provision identical to SC 7(e); and if so, how it should be construed.

67.  I should begin with section 42(1) of the CPO which provides that:

“ Any instrument entered into or taking effect after an agreementfor the Government lease of the land affected by the instrument but before the issue of the Government lease of that land shall have the same force and effect in relation to that land after the issue of that Government lease as it had immediately before that issue.”

68.  The purpose of this statutory provision is to preserve the effect of covenants held under a condition of grant following the issue or the deemed issue of Government lease.  Hence, in principle, the conversion ofthe equitable interest into a legal estate by virtue of the “deemed” issuance of a Government lease would not affect the covenants in the New Grant.

69.  As mentioned, separate Government leases are deemed to have been granted in respect of Sections A1, A2 and B1.  The question is whether these separate Government leases contain the same conditions as in the New Grant, in particular, SC 7.  In my view, it is clear that each of these separate Government lease must contain a provision identical to SC 7.

70.  In the light of my answer to Issue 3, in respect of the SC 7 in each and every separate Government lease (which shall be identical), it would bear the same meaning, in particular, the word “Purchaser” shall mean the Developer.

71.  But what if I am wrong in that the word “Purchaser” should include the Individual Owners?  Baynard and SJ submit that, in such scenario, because of the principle of severance, any amendments to the Master Plans in relation to Sections A3, B2 and B4 would not require the certificate in writing or the consent or the authority of the Individual Owners.  In contrast, Ma submits that there is no severance.

72.  It is necessary to explain what the principle of severance is about because the word “severance” is capable of causing confusion.  Mr Chua stresses that there is only one set of Master Plans for the whole Lot, which cannot be severed.  This is not what severance is about.

73.  In this context, it is a term used to describe the consequence when an original tenant assigns only part of the property comprised in the lease.  The common law is able to sever the obligations contained in the original contract of tenancy and apportion them between the several parts of the property comprised in the tenancy (Smith v Jafton Properties Ltd [2012]Ch 519 at 527E, §19).  In Smith v Jafton Properties Ltd at p 528, §21, Lewison LJ cited the following judgment of Cherry LCJ in Dooner v Odlum [1914] 2 IR 411 at 425:

“ The law is, I think, well settled that where a lessee of demised premises assigns portion of these premises to a stranger, the assignee is liable to the lessor upon the covenants contained in the lease only in so far as those covenants affect the lands in his possession; and, as regards rent, only for an apportioned part of the rent properly chargeable in respect of the lands actually vested in him.”

At p 530C–E, §28, Lewison LJ, after reviewing the authorities extensively, held that:

“ In my judgment the cases thus far establish the following propositions at common law.

(i) The assignee’s liability to pay the rent and perform the obligations of the lessee depend on privity of estate alone.

(ii) If the assignee is the assignee of part only of the leased property then the rent and other obligations for which he is liableare those referable to the part of the leased property assigned to him.

(iii) He is not liable for the rent or other obligations referable to the part of the leased property that has not been assigned to him.

(iv) The rationale for these propositions is that the assignee only has privity of estate as regards the part of the leased property of which he is the assignee. He has no privity of estate as regards that part of the leased property that has not been assigned to him;

(v)   The landlord may enter any part of the leased land and distrain for the rent for the whole.  But the remedy of distress has nothing to do with privity of estate, save to the extent that a relation of landlord and tenant must exist.”

74.  The principle of severance is about the severance of the tenant’s obligations; and their apportionment between the different parts of the land. At p 533, §39, Lewison LJ concluded as follows:

“ Accordingly, I conclude that at common law an assignment of part of the leased property by which the lease property is physically severed has the effect that the holder of each severedpart has privity of estate with the landlord only as respects thatsevered part. In short, he is the tenant of that severed part only.”

75.  However, it does not follow that there are two contracts of tenancy.  At p 534, §41, Lewison LJ held that:

“ This is not to cast doubt on the result in Lester v Ridd[1990] 2 QB 430. As I have said, the statutory question before the court was whether there were two contracts of tenancy. The decision that there was only one contract was, on the facts of that case, entirely correct. But of the two different routes to that conclusion I prefer that chosen by Slade LJ to that chosen by Dillon LJ. Whether the severance of the legal estate results in two separate tenancies is not a question that arises in the present case; and is one on which I express no opinion. I rather suspect that the common law would have regarded the question as irrelevant, although it may be of significance in interpreting statutory provisions. In such cases the answer to that question will depend on the context in which it is asked.”

76.  This common law principle must be considered in the light of section 14(5) of the CPO.  There is no doubt that separate Government leases are deemed to have been granted in respect of Sections A1, A2 and B1.  The common law principle stresses that, upon a partition by the original tenant assigning part of the leased property, the assignee only has privity of estate with the landlord as regard that part of the leased property, and hence, he is only liable for the rent or other obligations referable to that part.  Section 14(5) reinforces that upon a partition of the Lot, the tenants (or co-tenants) of any individual section of land created as a result of the partition, would only have privity of estate, and also privity of contract, with the Government in respect of that particular individual section of land.

77.  With this in mind, we may return to the question how the provisions in the Government lease should be construed and applied. Take the Government lease deemed to have been granted in respect of Section A1 as an example.  It follows from the common law principle that the rights and obligation in the Government lease should apply to the co-owners of section A1 only insofar they are referable to Section A1.  This is because the co-owners of Section A1 have privity of estate with the Government in respect to Section A1 only.

78.  How then should this principle be applied to SC 7(e) in the separate Government leases for Sections A1, A2 and B1?  As mentioned, SC 7(e) provides that an amendment, alteration or variation of the Master Plans shall be valid on the Government or Purchaser unless the same have been, inter alia, certified in writing thereon by the Director and the Purchaser.  The question is whether the phrase “amendment, alteration or variation of the Master Plans” in SC 7(e) in the separate Government leases for Sections A1, A2 and B1 should be construed to mean any amendment, alteration or variation of the Master Plans:

(a)   irrespective of in which section in the Lot such amendment, alteration or variation is involved; or, alternatively;

b)   only in respect of an amendment, alteration or variation of theMaster Plans involving, or referring to, Sections A1, A2 or B1 respectively.

79.  Again, take the Government lease deemed to have been granted in respect of Section A1 as an example.  The Individual Owners holding units in that section only have legal interests in Section A1, but no interest whatsoever in the other sections in the Lot; and they have no privity of estate with the Government in relation to any other sections in the Lot.  In the absence of any such interests, and privity of estate, I fail to see why an amendment, alteration or variation of the Master Plans not involving, or referable to, Section A1 should require the consent or approval of the co-owners of Section A1 at all.  Hence, even if the word “Purchaser” in SC 7(e) should be construed to include all co-owners of Section A1 (which in my view is not the correct construction), they need not certify inwriting (and hence, their consent or approval be obtained) any amendment to the Master Plans or Landscape Plans unless the amendment concerns Section A1.

80.  The proposed amendments to the Master Plans intended to be made by Baynard concern Sections B2, B4 and A3 only.  It follows from what I said above that they do not require the certificate in writing or the consent of the Individual Owners.

81.  Accordingly, the answer to Issue 2 is Yes (in obiter).

F.   Issue 4

82.  In view of my answers to Issues 1, 2 and 3, it is unnecessary for Baynard and SJ to succeed on Issue 4. Section III, clause 1 of the DMC (sub-clauses 1(d) and 1(e)) and clause 3 thereof will become relevant if and only if the consent of the Individual Owners of Sections A1, A2 and B1 is necessary for the 1996 and 1997 Modification Letters, and any proposed amendment to the Master Plans or Landscape Plans in connectionwith those Modification Letters.  For reasons stated above, I take the view that no such consent is necessary. Nevertheless, once again, in case I am wrong on Issues 1, 2 and 3, and for the sake of completeness, I shall consider Issue 4.

83.  Mr Yu submits that Issue 4 is a matter between Baynard and the Individual Owners.  I believe it may impact on the position of the Government because, if consent of the Individual Owners of Sections A1, A2 and B1 is necessary for the 1996 and 1997 Modification Letters, or anyproposed amendment to the Master Plans or Landscape Plans in connection with those Modification Letters, the question whether Baynard has the actual/apparent authority to agree to the Modification Letters and submit any proposed amendments to the Plans for and on behalf of the Individual Owners will depend on the proper construction and application of the relevant provisions in the DMC.

84.  The DMC applies to all sections in the Lot.  Putting aside the proviso for the time being, the meaning of sub-clauses 1(d) and 1(e), Section III, clause 1 of the DMC is reasonably clear.  They give Baynard the right to amend the Master Plans or the Landscape Plans, and to agree with the Government to amend the terms and conditions in the Government lease, without the concurrence or approval of the Individual Owners.

85.  In Mr Chua’s written skeleton submission, he sought to rely on the Interfoto principle to challenge the validity of the above provisions in the DMC.  In short, under the Interfoto principle, if a contracting party seeks to enforce an unusual or particularly onerous clause, he must show that it had been brought fairly and reasonably to the attention of the other party.  In DBS Bank (Hong Kong) Ltd v San-Hot HK Industrial Co Ltd & Anor [2013] 4 HKC 1 at 162 [231], Deputy Judge Pow SC took the viewthat he cannot see how this principle could apply to a contracting party whohad signed and executed documents he knew to have contained contractual terms as to do so would infringe the Court of Final Appeal’s decision in Ming Shiu Chung.  Deputy Judge Marlene Ng (as she then was) agreed with what Deputy Judge Pow SC said in DBS Bank (Hong Kong) Ltd v SitPan Jit HCA 382/2009 (2 April 2015, unreported), [382] – [391].  I agreewith them.  It is essential to draw and keep a clear distinction between twovery different issues: first, whether a particular term has been incorporated into a contract; and second, whether a particular term, which has been incorporated into a contract, is legally valid.  The Interfoto principle should be reserved for the first issue.  It is unnecessary for me to decide whether there are any exceptional circumstances in which such principle may be invoked to deal with the second issue.  No authority has been cited by Mr Chua to support that such principle has been applied to invalidate a provision in a DMC, let alone provisions similar to those in issue in this case.  Mr Chua did not pursue this point in his oral submissions.

86.  In law, the Individual Owners are parties to the DMC.  Although they have not signed the DMC personally (save and except the first assignee), they are bound by each and every covenant in the document because of section 41(3) of the CPO which provides that:

“ Notwithstanding any rule of law or equity but subject to subsection (5), a covenant shall run with the land and, in addition to being enforceable between the parties, shall be enforceable against the occupier of the land and the covenantor and his successors in title and persons deriving title under or through him or them by the covenantee and his successors in title and persons deriving title under or through him or them.”

87.  The real issue is how the relevant clauses in the DMC should be construed.  Ma CJ held in Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351 at 361, §15:

“ We have been referred to the very well-known statement of principle regarding the construction of contracts contained in the speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society, to which can be added the judgment also of Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd. What emerges from these cases—‌and other authorities on contractual interpretation—is the overall importance of context when construing contractual terms. Thestatements of principle in Investors Compensation Scheme andin Jumbo King refer time and again to the relevant background against which the relevant contract and contractual terms must be viewed. It is in my view not particularly helpful in most cases to refer to the ‘ordinary and natural meaning’ of words because, as very often experience tells us, there can be much debate over exactly what is the ordinary or natural meaning of words. The surer guide to interpretation is context. Here, I would just add that in the area of statutory and constitutional interpretation, it is context that is key; context is the starting point (together with purpose) rather than looking at what may be the natural and ordinary meaning of words.”

88.  Before one considers the wording of the clauses in issue, it is necessary to put the matter in context:

(a)   In Recital (2) of the DMC, it is stated that Baynard had carved out the Lot into three sections ie Section A1, Section A2 and the Remaining Portion.

b)   More importantly, in Recital (4), it is stated that:

“ The Remaining Portion of the Lot has been or is intended to be carved out into four individual sections. These Sections together with Section A2 of the Lot are being or intended to be developed Section by Section in accordance with the Scheme (as hereinafter defined) and the Master Plans (as hereinafter defined) into Phase (as hereinafter defined) of the Estate (as hereinafter defined).”

(c)   Under Section I, clause 1, “Master Plans”:

“ shall mean the plans for the development of the Lot duly approved by the Director … and deposited in the District Land Office, Tuen Mun in accordance with Special Condition (7)(a) of the Conditions and any amendments thereto from time to time duly approved by the Director.”

d)   And “Phase”:

“ shall mean the buildings, messuages and erections to be erectedon any individual section of the Lot carived out or to be carved out in accordance with the Scheme and together forming one phase of the Estate.”

(e)   And “Scheme”:

“ shall mean the scheme of carving out of the Lot into sections and of continuing management of the entire development of theLot submitted by the First Owner to the Director and approved by the Director in accordance with Special Condition (23)(a)(i)of the Conditions.”

(f)   And “Estate”:

“ shall mean the entire development of the Lot and now known or intended to be known as ‘HONG KONG GOLD COAST’ comprising residential blocks, a hotel and a yacht club and commercial complex each together with ancillary works and facilities and including such other buildings, structures, facilities and other constructions as are specified and shown on the Masters Plans and which are now intended to consist of six Phases and all alterations or additions thereto or replacements thereof as well as the building foundations and the Common Areas and Facilities and the Retained Areas.”

g)   Further, the definition of “Conditions” shall “include any subsequent extension or modifications to or renewals thereof”.

89.  Accordingly, the Individual Owners, who are bound by the DMC, must be taken to know that the Development would be developed indifferent phases in accordance with the Master Plans, which may be amended;and that the conditions in the New Grant are susceptible to modifications. The questions are, as among the co-owners of the Lot including Baynard,who has the right to amend the Master Plans or the conditions in the New Grant; and in what circumstances, such person may exercise such right and how.  The purpose of Section III, clauses 1(d) and (e) and 3 is to answer these questions.

90.  I turn to the wording of Section III, clauses 1(d) and (e).  Mr Chua submits that the phrase “without the concurrence or approval of any Estate Owner or Phase Owner or any of the parties hereto” in these clauses implies that the Individual Owners must be notified of and consulted on any proposed amendment to the Master Plans, or modification of the New Grant.  His point is that the relevant clauses do not say “without the notice or consultation of any Estate Owner …”.  I am unable to accept his submission:

(a)   Such submission is tantamount to rewriting the clause by adding the words “on condition that they have been notified and consulted” after “without the concurrence or approval of any Estate Owner or Phase Owner or any of the parties hereto” in Section III, clauses 1(d) and (e).

b)   Such a condition is ambiguous, unworkable in practice and will defeat the purpose of the said clauses.  How and when should the Individual Owners be notified?  Does it mean thatthe said clauses cannot be invoked even if one single IndividualOwner cannot be contacted?  How should the consultation be done?  What is the purpose of the consultation?  Most importantly, it is clear that the clauses are intended to mean that the agreement of the Individual Owners is unnecessary.  If Baynard can ignore the opinions of the Individual Owners, what is the point of the consultation?  Mr Chua has not been unable to provide any satisfactory answer to these important practical questions.

91.  Mr Chua refers to Section III, clause 3, and stresses that Baynard is acting as an agent for all the other co-owners.  He has not gone as far as submitting that Baynard owes any fiduciary duty to the other co-owners in this respect.  In any event, even assuming that there is any fiduciary relationship, as stated by Mason J in Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 97 (cited by Tang PJ in Poon Ka Man Jason v Cheng Wai Tao (2016) 19 HKCFAR 144 at 155, §15):

“ That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to theterms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in a way as to alter the operation which the contract was intended to have according to its true construction.”

I do not think Section III, clause 3, can take Mr Chua’s argument in this respect any further.  The purpose of this clause is simply to facilitate Baynard’s exercise of the various additional rights given under Section III, clause 1, by conferring express authority on Baynard to do so insofar as necessary.

92.  The remaining issue is whether the proviso to Section III, clauses 1(d) and (e) applies.  It provides that any such change, etc, (under clause 1(d)) or the exercise of the right (under clause 1(e)) shall not, firstly, interfere with an individual owner’s right to hold, use, occupy and enjoy his Unit or Car Park, or, secondly, unreasonably impede or restrict the access to or from any such Unit or Car Park.

93.  It is necessary to construe the meaning of “an individual owner’s right to hold, use, occupy his Unit” first.  The parties have referred me to numerous authorities concerning the construction of variousindividual words.  For example, in Southwark LBC v Mills [2001] 1 AC 1 at 10E, Lord Hoffmann held that the word “enjoy” in the context of a covenant for quiet enjoyment cannot be construed literally, it refers to the exercise and use of the right and having the full benefit of it, rather than to deriving pleasure from it; in Beedles v Guinness Northern Counties Ltd [2011] HLR 31, §17, Moses LJ held that the use of the words “enjoy” and “enjoyment” in section 24C of the Disability Discrimination Act 1995conveys the meaning that the tenant should be able to use those premises in“an ordinary lawful way”.  These precedents highlight that the construction of the word “enjoy” depends very much on its context; and very often, it does not carry its literal meaning.

94.  On the other hand, Mr Chau refers me to authorities suggestingthat an interference with pleasurable and reasonable enjoyment constitutesan annoyance (Tod-Heatly v Benham (1888) 40 Ch D 80 at 94); and that the erection of a house obstructing the view of a river amounted to an annoyance (Davies v Dennis & Ors [2009] EWCA Civ 1081).  I believe his point is that the word annoyance is wider than the concept of nuisance under the common law.  I am afraid that these precedents are of little relevance or assistance.  The relevant clauses in the DMC do not use the word “annoyance”.  It should be noted that clause 10 in Section V uses expressly the phrase “nuisance or annoyance”; and clause 18 in the same section refers expressly to “interfere with the rights, comforts and convenience”.  It is necessary to bear in mind that these words and phrases used in other clauses in the DMC could have been, but are not, used in the proviso in Section III, clauses 1(d) and (e).

95.  I take the view that the phrase “right to hold, use, occupy and enjoy his Unit” must be construed and understood as a whole.  First, it refers to a right: it must mean a legal right properly-so-called in contradistinction to any practical pleasure, benefit or otherwise which does not qualify as a legal right.  Second, the legal right as described must be a reference to the contractual right conferred on the Individual Owners, by Section II, clause 2, to have the “full and exclusive right and privilege to hold, use, occupy and enjoy to the exclusion” of other co-owners his particular unit.  This is indeed the hallmark of the right of co-owners in multi-storey buildings.  As explained by Li CJ in Kung Ming Tak Tong Co Ltd v Park Solid Enterprises Ltd (2008) 11 HKCFAR 403 at 416C–F, §19, the starting point is that, as co-owners of undivided shares in the same piece of land, they are entitled each to the use and possession of the whole building built on the land.  In order that they can use their own individual units exclusively, the co-owners invariably execute a deed of mutual covenant to regulate by contract their rights inter se regarding the exclusive use and occupation of the units allotted to their respective parcels of undivided shares, etc.  He observed in pp 416G – 417A, §20:

“ Over the years, the form of the DMC has increasingly become standardised. By the DMC in the present case each owner is granted ‘the exclusive use occupation and enjoyment and the rents and profits’ of his unit and the right ‘without reference to the other owners and without the necessity of making them parties thereto to sell mortgage or otherwise dispose of his part of the Building and his share in the premises … and to let or demise his part of the Building to any tenant or lessee’. For all practical purposes, therefore, the owner of undivided shares to which a unit has been allotted is able, by virtue of the DMC,to exercise rights in relation to the property as if he was its absolute owner.”

96.  The phrase “exclusive right to hold, use, occupy and enjoy” orsubstantially similar phrase is commonly used in deeds of mutual covenant to describe the contractual right enjoyed by individual owners over his own unit in a multi-storey building.  Indeed, such phrase is also used in statutes; section 2 of the Building Management Ordinance (Cap 344) defines “common parts” as, firstly:

“ the whole of a building, except such parts as have been specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner; …”

97.  Putting aside minor variations in the wording, such phrase is aconvenient label to describe the exclusive right of an individual owner overhis unit, which for all practical purposes, is as good as exclusive possession. It is impossible in law to give exclusive possession of the individual unit to the individual owner because this would destroy the unity of possession which is essential in co-ownership of land.

98.  It is also necessary to note Section II, clause 3 which provides that:

“ Each Estate Owner shall hold his Share and the full and exclusive right and privilege to hold, use, occupy and enjoy hisUnit or Car Park subject to and with the benefit of the easements,rights, privileges, obligations, covenants, terms and conditions set out in this Deed and any relevant Sub-Deed.”

The easements, rights and privileges are set out in Section IV.  The important point is that the right to hold, use, occupy and enjoy the individual unit is to be distinguished from, and does not include, any contractual easements, rights and privileges given to the Individual Owners under the DMC. It is only about the exclusive right over an individual owner’s own unit.

99.  I also take the view that to construe the phrase “right to hold, use, occupy and enjoy his Unit” in the restrictive manner mentioned above is supported by the following considerations:

(a)   For the proviso to be workable in practice, one must be able to tell from the terms of a proposed amendment to the Master Plans or Landscape Plans, or the terms of a proposed amendment to the Government lease, whether it is engaged.  Whether the proviso is engaged is a matter to be decided on paper.

b)   Any such proposed amendment is very likely, if not bound, to cause some change to the surroundings.  The actual and practical impact of any such change on the Individual Owners may and will be different depending on the location of their individual units, their subjective perception and other factors.  Any such actual and practical impact cannot, in any event, be ascertained accurately when there is only a proposed amendment. The proviso should be construed in a way that does not require any estimate or guesstimate on any such actual and practical impact, which can be difficult if not impossible.

100.  I turn to the application of Section III, clause 1(e) to the facts of this case first.  The question is whether the exercise of the right by Baynard to agree with the Government to enter into the Modification Letters shall interfere with the Individual Owners’ exclusive right over their individual units.  One needs to focus on the consequence of the exercise of such right by Baynard.  As a result of Baynard’s exercise of such right, the Modification Letters were concluded.  Under the Modification Letters, Baynard acquired the right to build more GFA on Sections B2 and B4 as well as Section A3.  I fail to see how the acquisition of such additional right, per se, shall interfere with the Individual Owners’ exclusive right over their individual units in Sections A1, A2 and B1.  Whether, how and when Baynard would make use of such additional right is another matter.

101.  I turn to the application of Section III, clause 1(d) to the facts of this case.  The question is whether the proposed amendments to the Master Plans shall interfere with the Individual Owners’ exclusive right over their individual units. Pursuant to the additional right given by the 1996 Modification Letter, Baynard intended to amend the Master Plans in order to build three more residential blocks on Sections B2 and B4.  Mr Chau submits that this would interfere with the Individual Owners’ right in at least three ways:

(a)   First, by obstructing the sea view that would otherwise be enjoyed from a significant number of Individual Owners Units — a key feature of the Development;

b)   Second, by completely removing a playground next to Block 7(“the Playground”) and congesting other recreational facilities; and

(c)   Third, by restricting the Individual Owners’ access to and from their Units and/or Car Parks.

102.  As to the first complaint about the loss of sea view, it must be rejected for the following reasons:

(a)   First, in practice, the sea view enjoyed by the Individual Owners (if any) are bound to be different depending on the location of their individual units.  I cannot see how they can collectively make a complaint in this respect.

b)   Second, the Individual Owners do not have any legal right to enjoy sea view from their units.  In Hunter v Canary Wharf Ltd [1997] AC 655 at 709A–B, Lord Hoffmann reiterated the general principle as follows:

“ The general principle is that at common law anyone may build whatever he likes upon his land. If the effect is to interfere with the light, air or view of his neighbour, that is his misfortune. The owner’s right to build can be restrained only by covenant orthe acquisition (by grant or prescription) of an easement of lightor air for the benefit of windows or apertures on adjoining land.”

There is no, and cannot be any, serious suggestion that there is any quasi-easement of sea view conferred by the DMC or in the Wheeldon v Burrows sense (as discussed in Kung Ming Tak Tong Co Ltd v Park Solid Enterprises Ltd (2008) 11 HKCFAR 403 at 423F – 427H, §§41 – 51).  Further, to enjoysea view is not one of the “easements, rights, privileges” given to the Individual Owners under Section II, clause 3.

(c)   Third, although I accept that Baynard had relied on the close proximity of the Development with the sea, and the sea view, in promoting the sales of the individual units, it had made it clear that no representation in this respect in whatever form in the promotional materials would have legal or contractual force.  For instance, in the sales brochure of Phase 2 of the Development, it was stated that:

“ The attention of intending purchasers and intended parties is drawn to the following:

All plans and specifications of the Property and the entire development are subject to alterations without prior notice and subject also to the final plans approved by the Building and Lands Department and/or any other Government Departments and Authorities concerned. The developer reserves all right of development in respect of the adjoining sites subject to the plans approved and development rights granted by the relevant Government Departments and Authorities.”

Further, again, as an example, in the sale and purchase agreement of the unit relating to Ma dated 12 July 1993, therewas no provision concerning sea view and clause 32 provided that:

“ This Agreement sets out the full agreement between the parties hereto and supersedes all prior engagements arrangements agreements and contracts whether oral or in writing whatsoever between the parties hereto. No other warranties or representations have been made or given by the vendor to the purchaser relating to the Premises and if any warranty or representation has been made or given the same is hereby withdrawn or waived.”

d)   Fourth, and in any event, any loss (partial or complete) of enjoyment of sea view cannot impact on the exclusive right of the Individual Owners over their individual units.

103.  Second, as to complaint about the intended removal of the Playground, it must be rejected for the following reasons:

(a)   The Individual Owners submit that the Playground is one of the “Estate Common Areas and Facilities”.  Section I, clause 1 defines “Estate Common Areas and Facilities” as:

“ those parts and such facilities of the Estate not otherwise … assigned to or for the exclusive use of any one or more Estate Owners including but not limited to … playgrounds ….”

b)   Baynard is one of the Estate Owners.  Under Section II, clause 1, Baynard shall:

“ have the sole and exclusive right and privilege to hold, use, occupy and enjoy to the exclusion of the First Assignee the whole of Section A1 Section A2 and the Remaining Portion of the Lot and the Estate … save and except the said premises assigned to the First Assignee ….”

(c)   The Playground is located within Section B4, which is carved out from the Remaining Portion of the Lot.  As Baynard is entitled to the exclusive use of Section B4, the Playground in Section B4 is not one of the “Estate Common Areas and Facilities”.

d)   Having said that, under Section III, clause 1(c)(i), Baynard is given an additional right:

“ To designate and declare by deed for such period or periods as it shall deem fit any area or part or parts of the Lot or the Estate or any Phase the sole and exclusive right to hold, use, occupy and enjoy which … is then beneficially owned by [Baynard]‌… to be additional Estate Common Areas and Facilities … whereupon with effect from such designation and declaration and during such period or periods of designation or declaration such additional Estate Common Areas and Facilities … shall form part of the Estate Common Areas and Facilities ….”

(e)   Baynard had exercised such right by designating and declaring the Playground as an additional Estate Common Areas and Facilities by a deed dated 3 March 1995 which it signed with Sino Estates Management Ltd.  Clauses 1 and 6 of the deed provide that it may be terminated by Baynard by giving one month’s notice in writing to the manager.

(f)   The Individual Owners’ right to use the Playground is a right or privilege given to them incidental to their exclusive right over their individual units pursuant to Section II, clause 3.  To be more specific, under Section IV, Part A, clause 1(a), they are given the right to use the Estate Common Areas and Facilities.  However, such right or privilege must be subject to the conditions set out in the DMC, in particular, the right of Baynard as expressly stated in Section IV, Part A, clause 1(a).

g)   Under the said provisions in the DMC and the said deed, Baynard is entitled to allow the Individual Owners to use the Playground only for as long as it wishes subject to the condition that it must give one month’s written notice to revoke such right.  Hence, the intended removal of the Playground is legally permissible so long as the notice requirement is complied with.

h)   In the circumstances, it must be wrong to say that the removal of the Playground will infringe any right enjoyed by the Individual Owners.

(i)   In any event, removal of the Playground will not impact on theexclusive right of the Individual Owners over their individual units.

104.  Third, as to the complaint about access to the Individual Owners’ Units and Car Parks, it must also be rejected for the following reasons:

(a)   The proviso provides that the exercise of the additional right by Baynard under those clauses shall not:

“ unreasonably impede or restrict the access to and from any such Unit or Car Park.”

b)   First, none of the Individual Owners owns any Cark Park (as defined in the DMC).  Baynard owns all of them.  Hence, there cannot be any restriction of access to any Individual Owner’s Car Park.

(c)   Second, and in any event, the complaint in this respect is basedon the concern that there will be an increase in population in the Development if three more residential blocks are built.  This may result in, for example, a higher risk of traffic congestions. However, I take a firm view that such general and non-specific concerns cannot constitute an unreasonable impediment or restriction to the Individual Owners’ access to their Units or Car Parks (that they are using though not owned by them).

105.  For the above reasons, the answer to Issue 4 is Yes (in obiter).

G.   Issue 5

106.  The Individual Owners complain that the Government has committed a derogation from grant by issuing the Modification Letters.

107.  The relevant legal principles are not in dispute.  In Kung Ming Tak Tong Co Ltd v Park Solid Enterprises Ltd (2008) 11 HKCFAR 403 at 430D–F, §61, Li CJ held that:

“ The rule that a man may not derogate from his grant is a general principle of law. As noted above, it has been described as a maxim which merely encapsulates in a legal maxim a rule of common honesty. As Bowen LJ put it in Birmingham, Dudley& District Banking Co v Ross: ‘… a grantor having given a thing with one hand is not to take away the means of enjoyment it withthe other.’ This approach was endorsed by Lord Denning MR in Molton Builders Ltd v City of Westminster London Borough Council & Another, where he said:

… if one man agrees to confer a particular benefit on another, he must not do anything which substantially deprives the other of the enjoyment of that benefit: because that would be to take away with one had what is given with the other.”

108.  At 431A–F, §63, Li CJ held that:

“ In Platt v London Underground Ltd, Neuberger J summarises the case-law and helpfully indicates how the non-derogation doctrine is to be applied:

3. [The exercise of determining the extent of the implied obligation not to derogate from grant] involves identifying what obligations, if any, on the part of the grantor can fairly be regarded as necessarily implicit having regard to the particular purpose of the transaction when considered in the light of the circumstances subsisting at the time the transaction was entered into: per Sir Donald Nicholls VC in Johnson & Son Ltd v Holland (1988) 1 EGLR 264 at p.267.

…

6. When considering a claim based on derogation from grant, one has to take into account not only the terms of the lease, but also the surrounding circumstances at the date of the grant as known to the parties: see Chartered Trust Plc v Davies (1997) 2 EGLR 83 at p.87C, per Henry LJ.

7.   One test which is often helpful to apply where the act complained of is the landlord’s act or omission on adjoining land is whether the act or omission has caused the demised premises to become unfit or substantially less fit than the purpose for which they were let: see Browne v Flower (1911)1 Ch 219 at p.225, as per Parker J, and also Aldin v Latimer Clark Muirhead & Co (1894) 2 Ch 437…”

109.  In Rank Profit Industries Ltd v Secretary for Justice [2009] 1 HKLRD 194 at 206, §24, Tang VP (as he then was) held that:

“ The principle of non-derogation from grant also embodies a rule of common honesty, but Mr Neoh accepted and I agree that whilst the concept of common honesty might help to identify what obligations, if any, on the part of the grantor can fairly be regarded as necessarily implicit, in ascertaining what is necessarily implicit, one must be guided by the test which regulates the implication of contractual terms, namely, necessity.”

110.  In Rank Profit Industries Ltd v Secretary for Justice FAMV 8/2009 (25 June 2009, unreported), §12, Ribeiro PJ held that:

“ The application of that general principle to particular facts, as we there noted, 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 accountthe particular purpose of the transaction when considered in the light of the circumstances subsisting at the time it was entered into. Only then can one determine whether the grantor’s conduct constitutes a derogation from grant in violation of the implicit obligation identified.”

In §15, he held that:

“ … The Court of Appeal rightly stressed that the obligation saidto be necessarily implicit has to be one which both parties mustnecessarily be taken to have accepted as part of the transaction.”

111.  A crucial point to note is that, in ascertaining what is necessarilyimplicit, one must be guided by the test which regulates the implication of contractual terms, namely, necessity.  The important principle that a term will be implied into a contract if and only if it satisfies the test of necessityhas been reaffirmed by recent authorities in the United Kingdom and Hong Kong.

112.  In Devani v Wells [2019] 2 WLR 617 at 627H – 628C, §28, Lord Kitchin JSC (with whom Lord Wilson, Lord Carnwath and Lord Sumption agreed) held that:

“ In Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742, the Supreme Court made it clear that there has been no dilution of the conditions which have to be satisfied before a term will be implied and the fact that it may be reasonable to imply a term is not sufficient. Lord Neuberger of Abbotsbury PSC, with whom Lord Sumption and Lord Hodge JJSC agreed without qualification, explained (at paras 26–31) that (i) construing the words the parties have used in their contract and (ii) implying terms into the contract, involve determining the scope and meaning of the contract; but construing the words used and implying additional words are different processes governed by different rules. In most cases,it is only after the process of construing the express words of an agreement is complete that the issue of whether a term is to be implied falls to be considered. Importantly, for present purposes, Lord Neuberger PSC also made clear, at paras 23–24, that a term will only be implied where it is necessary to give the contract business efficacy or it would be so obvious that ‘it goes without saying’.”

113.  In Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd [2019] HKCA 261, the Court of Appeal held in §32 that it agreed with the comments of Lord Neuberger in Marks & Spencer plc v BNP Paribas Securities ServicesTrust Co (Jersey) Ltd [2016] AC 742 at [21]; it further cited the decision of Privy Council in Nazir Ali v Petroleum Company of Trinidad and Tobago [2017] UKPC 2 where Lord Hughes (with whom Lord Neuberger, Lord Clarke and Lord Carnwath agreed) summarized the law at [7]:

“ … It is enough to reiterate that the process of implying a term into the contract must not become the re-writing of the contractin a way which the court believes to be reasonable, or which thecourt prefers to the agreement which the parties have negotiated. A term is to be implied only if it is necessary to make the contractwork, and this it may be if (i) it is so obvious that it goes without saying (and the parties, although they did not, ex hypothesi, apply their minds to the point, would have rounded on the notional officious bystander to say, and with one voice, ‘Oh, of course’) and/or (ii) it is necessary to give the contract business efficacy. Usually the outcome of either approach will be the same. The concept of necessity must not be watered down. Necessity is not established by showing that the contract would be improved by the addition. The fairness or equity of a suggested implied term is an essential but not a sufficient pre-condition for inclusion. And if there is an express term in the contract which is inconsistent with the proposed implied term, the latter cannot, by definition, meet these tests, since the parties have demonstrated that it is not their agreement.”

114.  Returning to the facts of this case, Mr Chua submits that it is necessarily implicit in the relevant Government leases (to which the Government and the Individual Owners) are parties that any alterations which are not minor to the New Grant, the Master Plans and Landscape Plans for further development require the consent of the Individual Owners; or alternatively any such alterations which interfere with the Individual Owners’ use of their units or car parks would require their consent.  He submits that a major feature of a significant number of residential units in the Development is their sea-views; and it is implicit that any alteration which would adversely impact on the Individual Owners’ enjoyment of seaview from their units would require their consent.  He further submits that, by the Modification Letters which were concluded without the Individual Owners’ consent, the Government has rendered the Individual Owners’ unitsand their enjoyment substantially less fit for the purpose for which they weregranted.  I am unable to accept these submissions for the following reasons.

115.  First, as mentioned, the Modification Letters merely give additional rights to Baynard to build more GFA on Sections A3, B2 and B4. They do not require Baynard to build anything at all, let alone to build anything which might impact on the sea view enjoyed by some of the Individual Owners from their units.  I am unable to see how it can be said that the execution of the Modification Letters, per se, has rendered the Individual Owners’ units less fit for their residential purpose.

116.  Second and more importantly, it is clear that the term that the Individual Owners seek to imply into the Government leases cannot satisfy the test of necessity:

(a)   As explained above, I take the view that, upon a proper construction of SC 7(e), the Developer may amend the Master Plans and Landscape Plans in whatever way it sees fit and irrespective of what alterations are intended to be made without the consent of the Individual Owners.

b)   In effect, the Individual Owners are seeking to imply a term into the relevant Government leases, which is inconsistent with, and directly contradictory to, an express term therein.  It is trite that a term to be implied must not contradict any express term of the contract (BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 52 ALJR 20 at p 26 cited by Ribeiro PJ in Kensland Realty Ltd v Whale View Investment Ltd & Anor (2001) 4 HKCFAR 381 at 401G–I, §59).

(c)   In this context, it is correct that one of the main purposes of the relevant Government Leases is to enable the Individual Owners to use their individual units for residential purpose.  However, to have sea view from their units cannot be regarded as a necessary or essential element of such purpose.  Indeed,the Government did not decide on how the residential developments should be built (and whether, and if so, which units would enjoy sea view); the decision was made by Baynard in designing the Master Plans and Landscape Plans.  The role of the Government was merely to approve those plans.  The complaint that the Government has rendered the Individual Owners’ units substantially less fit for the purpose the relevant Government leases was granted is misconceived.  

117.  Third, a matter which merely interferes with convenience, amenity, or privacy, is not a breach of the implied covenant not to derogate from the grant unless the interference is of such a serious nature as to frustrate the use of the premises for the purpose for which they are demised(Kelly v Battershell [1949] 2 All ER 830 at 836E–H).  In Browne v Flower [1911] 1 Ch 219 at 227, Parker J held that:

“ A landowner may sell a piece of land for the purpose of building a house which when built may derive a great part of its value from advantages of prospect or privacy. It would, I think, be impossible to hold that because of this the vendor was precluded from laying out the land retained by him as a building estate, though in so doing he might destroy the views from the purchaser’s house, interfere with his privacy, render the premises noisy, and to a great extent interfere with the comfortable enjoyment and diminish the value of the property sold by him. It is quite reasonable for a purchaser to assume that a vendor who sells land for a particular purpose will not do anything to prevent its being used for that purpose, but it would be utterly unreasonable to assume that the vendor was undertaking restrictive obligations which would prevent his using land retained by him for any lawful purpose whatsoever merely because his so being might affect the amenities of the property he had sold. After all, a purchaser can always bargain for those rights which he deems indispensable to his comfort.”

Applying these principles to this case, at most, the complaints of the Individual Owners, in particular, the loss of sea view, would interfere with their convenience or amenity.  They are plainly not serious enough so as to frustrate the use of their individual units for residential purpose.

118.  For the above reasons, the answer to Issue 5 is No.

H.   Issue 6

119.  The Individual Owners submit that the additional GFA or the potential GFA given by the Modification Letters could and should have been allocated to the Lot as a whole and should enure to the benefit of, among others, the Individual Owners.  In his Skeleton Submissions, Mr Chua submitted that:

(a)   The amount of additional GFA to be allocated should be calculated based on the specific site upon which Baynard seeks to carry out further development and which is owned or controlled by Baynard; or

b)   Alternatively, if the amount of additional GFA to be allocatedis to be calculated based on the Lot as a whole, before granting such allocation, the consent or consultation of the Individual Owners in the Lot should be obtained.

120.  The Modification Letters are clear.  As mentioned, the 1996 Modification Letter concerns Sections B2 and B4 only, whereas the 1997 Modification Letter concerns A3 only.  In essence, the Individual Owners seek to impose on both the Government and Baynard a legal obligation to allocate additional GFA in a particular way if and when they intended to vary the relevant Government leases.  The burden is on the Individual Owners to identify the legal basis to impose such a legal obligation on the Government and Baynard.

121.  First, insofar as the position of the Government is concerned, Mr Chua refers to various provisions in the Town Planning Ordinance (Cap 131) and some authorities concerning the Ordinance.  I fail to see the relevance of the Ordinance at all in the present context.  As a matter of fact, as stated by a letter of the Planning Department dated 16 May 2000, for reasons that I need not go into, no permission from the Town Planning Board is required for the addition of three additional residential blocks from a statutory point of view.

122.  Second and more importantly, it is crucial not to mix, confuse or conflate different roles played by different Government departments in relation to matters concerning the development of the Lot.  In the present context, we are solely concerned with the Government’s role as thelandlord or grantor of the relevant Government leases.  In this respect, theGovernment’s rights are, generally speaking, identical to those of a privatelandlord.  This is a private law matter; and it will be wrong to allow publiclaw considerations to slip in.  In Director of Lands v Yin Shuen Enterprises Ltd & Anor (2003) 6 HKCFAR 1 at 14, §19, Lord Millett NPJ reaffirmed that:

“ … in deciding whether to grant or withhold its consent to a modification of the terms of a lease, the Government does not exercise a public law function but acts in private capacity as landlord: see Hang Wah Chong Investment Co Ltd v A-G [1981] HKLR 336 (PC). It thus has an absolute right if it chooses to demand a premium, however large, for granting a modification of the terms of the lease, or to withhold its consentaltogether, however unreasonably: see Lord Tredegar v Harwood [1929] AC 72.”

123.  As mentioned, the Government leases in respect of Sections A1, A2 and B1 where the units of the Individual Owners are located are separate and distinct from the Government leases in respect of the other sections in the Lot.  It is clear that the Government was entitled to decide to agree to the modifications of the Government leases regarding Sections B2 and B4 under the 1996 Modification Letter, and the Government lease regarding Section A3 under the 1997 Modification Letter, in the way it saw fit.  The Government was merely exercising its contractual right as a landlord.

124.  I note that, in a letter dated 14 June 2000, the Director of Lands on behalf of the Lands Department commented on the three additional blocks intended to be built on Sections B2 and B4 as follows:

“ The relevant modification letter restricts the additional Gross Floor Area for residential development to portions of Sections B(2) and B(4) of TMTL 238 as shown on the plan attached to the modification letter. These are the two areas that you are concerned about. In planning terms, the Additional Gross Floor Area would be looked at in relation to the lot as a whole and this was the approach adopted by the developer in his justification for the modification to allow this additional GFA.”

Mr Chua submits that, Baynard had utilized the site area of the whole Lot to persuade the Government to grant it the right to build more GFA.  He argues, therefore, Baynard should allocate the additional GFA to the Lot as a whole.  I am unable to follow his argument.  As a matter of negotiation, it was open to Baynard to rely on any matter it saw fit to persuade the Government to agree to the modification of the Government leases regarding Sections B2, B4 and A3; and it was open to the Government to decide whether to accept Baynard’s request for modification on whatever grounds it saw fit.  The Government has explained that its approach was necessary in order to assess whether or not the additional GFA breached the normal guidelines for the plot ratio development density of other lots with the same zoning in the area.  The letter merely stated what considerations the Government had taken into account in agreeing to the Modification Letters.  I fail to see how it can be utilized to create a legal obligation on the Government and Baynard on allocation of GFA as suggested by the Individual Owners.

125.  In addition, insofar it is suggested that restrictions concerning the allocation of additional GFA as proposed by the Individual Owners should be implied into the relevant Government leases, it is clear that the test of necessity cannot be satisfied.

126.  For these reasons, the answer to Issue 6 is No.

I.   Issue 7

127.  Issue 7 is the ultimate question; it is not a free-standing issue.  In view of my answers to Issues 1 to 6, my answer to Issue 7 must be Yes.

J.   Conclusion and order

128.  For the above reasons, I answer all Issues in favour of Baynard and SJ.  A summary of my answers are as follows:

  Issue   Answer

1   Yes

2   Yes

3   No

4   Yes

5   No

6   No

7   Yes

129.  As explained, what is crucial is that they succeed on Issues 1, 3, 5 and 6.  Their success on these four issues is sufficient to result in a favourable answer to the ultimate question ie Issue 7.  They do not need to succeed on Issues 2 and 4.  Hence, although I have concluded that they also succeed on those two issues, my conclusions on them are obiter.

130.  As I indicated at the end of the hearing, I would invite parties to submit, within 14 days, an agreed draft of the precise declarations that they propose should be made to reflect my decision on the Issues; or, in default of agreement, each party may offer me a separate draft, accompanied by a short supporting submission (not longer than 5 pages).

131.  It is critical to ensure that the declarations that I shall make candispose of the issues in these proceedings finally and conclusively, but will not create any unintended consequences leading to new potential disputes. The declarations will, of course, be binding on all parties to these legal proceedings.  To assist parties to agree on a draft order, the declarations that I am minded to make are along the following line:

(a)   The 1996 and 1997 Modification Letters are legally valid; and

b)   Under SC 7(e), Baynard is not obliged to seek the consent of the Individual Owners in submitting any proposed amendment to the Master Plans or the Landscape Plans for the Director’s approval; and any such amendment approved by the Director and recorded on those plans need not be certified in writing by the Individual Owners.

132.  As to costs:

(a)   As between Baynard and SJ, Mr Dawes accept that Baynard shall pay SJ’s costs of these proceedings to be taxed if not agreed.  This must be right in the light of its late acceptance of the Government’s stance in entirety.

b)   As between SJ and the Individual Owners represented by Ma, there shall be no order as to costs.  I understand that the Individual Owners were in fact funded by Baynard for the purpose of these legal proceedings.