SUPREME HONOUR DEVELOPMENT LTD v. LAMAYA LTD AND ANOTHER

----------

----------------------

J U D G M E N T

---------------------

Sir Derek Cons, V.P. delivered the judgment of the court:

1. Lamaya Ltd ("the defendant") is the registered holder of, inter alia, 30 equal undivided 3,388th parts or shares in the remaining portion of s. A, Marine Lot 368, i.e. 19-20 Connaught Road Central. In that respect the defendant is the successor in title of Farouche Ltd to whom the shares were first assigned in 1984 (when the site was re-developed and the new building thereon given the name of Fung House):

"TOGETHER with the exclusive right to hold use occupy and enjoy ALL THOSE ROOFS above the Twenty-Second Floor of the said building ... And Together also with all rights rights of way (if any) and all other rights privileges easements and appurtenances thereto belonging or appertaining or therewith at any time use (sic) held occupied or enjoyed AND particularly with the absolute right and liberty of the Purchaser (a) ... (b) to give wherever (sic) name for the building and change the name of the said building at any time without reference to the Vendor or any owner or other person having an interest in the said premises and the said building ..."

An intervening assignment is in similar terms.

2. Immediately after the assignment to Farouche Ltd, and assignments to three other companies totalling a further 280 shares, the company which had until then owned the entire building and may at this stage be conveniently called the original owner entered into a Deed of Mutual Covenant with Farouche Ltd and the other three companies. By clause 1(b) of the deed:

"(Farouche Ltd) hereby expressly reserves and the (original owner and the other three companies) hereby acknowledge and grant unto (Farouche Ltd) or its assignees the absolute right and liberty to give whatever name (Farouche Ltd) or its assignees shall think fit for the Building and to change such name at any time without reference to (the original owner or the three companies) or any owner or other person having an interest in the Building and (Farouche Ltd) or its assignees shall not be liable to any owner or any person having an interest in the Building for any damages, claims, costs or expenses resulting therefrom or in connection therewith."

3. The intervening assignment and the assignment to the defendant itself were both made "subject to and with the benefit of" that Deed of Mutual Covenant.

4. Supreme Honour Development Ltd ("the plaintiff") is the successor in title to 2,978 of the shares originally retained by the original owner. The assignment to the plaintiff from an intervening title holder, and the assignment to that party from the original owner, were likewise made subject to and with the benefit of the same deed.

5. The plaintiff's shares give it the right to the exclusive occupation of the basement and 17 floors of the building. Seapower Consortium Ltd, by reason of its beneficial ownership of the defendant's shares and those originally granted to the other three companies, has the right to exclusive occupation of the three top floors and the roof. The shares which give a right to occupation of the remaining floor are held by a company which has taken no part in the litigation that ensued when, in April 1989, Seapower Consortium Ltd attempted, in purported exercise of the defendant's right, to change the name of the building to Seapower Centre. After an initial flurry of ex parte injunctions, and later seven days of submission by counsel, Mr. Brian Suttill sitting as a deputy judge of the High Court found in favour of the plaintiff, granting a declaration that the defendant was not entitled to change the name of the building or otherwise give it any name which it thought fit. From that decision the defendant now appeals, seeking instead a declaration that it is entitled to call the building "Seapower Centre" or any other name it thinks fit and to other rights necessary for the practical implementation of the former.

6. It is conceded by Mr. Tang, who now appears but not below for the defendant, that the right to name a building is not an interest in land capable of passing directly by the assignment. He relies instead on the provisions of the Deed of Mutual Covenant which enable the defendant, in his contention, to enforce the right against the plaintiff either by virtue of s. 41 of the Conveyancing and Property Ordinance (Cap. 219) or as a direct contractual obligation which the plaintiff assumed when it accepted the assignment of its own shares "subject to and with the benefit of" the Deed of Mutual Covenant.

7. It may be that, with regard to the s. 41 approach, the covenant was created by the original assignment rather than the Deed of Mutual Covenant, but this would make no difference to the application of the Ordinance.

8. The relevant sections of s. 41 are as follows:

"(1) This section applies to an express covenant and a covenant implied by or under this Ordinance or any other law.

(2) This section applies to any covenant, whether positive or restrictive in effect -

(a) which relates to the land of the covenantor;

(b) the burden of which is expressed or intended to run with the land of the covenantor; and

(c) which is expressed and intended to benefit the land of the covenantee and his successors in title or persons deriving title to that land under or through him or them.

(3) 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 occupiers 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 though him or them."

9. It is Mr. Tang's contention that by these provisions the legislature has abrogated, or to borrow the      phrase of Mr. Chang, who has appeared throughout for the plaintiff, exorcised from our law, the requirement of both common law and equity that to be enforceable a covenant has "to touch and concern" the land of the covenantee, i.e. in the present instance, the defendant's right to exclusive possession of the rooftop above the 22nd floor: see the definition of land, para. (b) in s. 2 of the Ordinance.

10. We are invited to accept the submission having regard to the history of the legislation. In 1956 there was enacted the Law of Property (Enforcement of Covenants) Ordinance to provide, as the preamble sets out, "for the enforcement of covenants and agreements relating to buildings divided into separately occupied premises". Section 3(1) (a) is in these words:

" 3. (1) Any covenant or agreement relating to the use, maintenance, repair, insurance, payment of outgoings or management of any building divided into two or more flats or any of the flats forming part thereof or any other part of such building or the appurtenances thereto, or relating to the support, demolition or re-building thereof or to any of such matters shall, notwithstanding any rule of law or equity to the contrary, in addition to being enforceable between the parties thereto, be enforceable also against the owner for the time being of any part of such building or premises or of any share or interest therein, so far as the same shall relate thereto or be intended to be performed or observed by such owner at the suit of the owner for the time being of each and every other part of such building or premises or of any share or interest therein:

Provided that -

(a) no person shall be entitled by reason of the foregoing provisions of this subjection to enforce any such covenant or agreement unless either the benefit thereof has been annexed to some part of such building or premises of which or of an interest in which he is the owner or it is proved that the owner thereof for the time being was intended to have the benefit of such covenant or agreement;"

A flat is in substance defined as premises of which an owner is entitled to exclusive occupation.

11. The Conveyancing and Property Ordinance was passed in 1984. It is a comprehensive ordinance, said in argument to be the equivalent of the English 1925 Legislation. It repealed the Law of Property (Enforcement of Covenants) Ordinance, replacing s. 3(1) (a), so far as it did, with a s. 41(1) which provided only:

"Notwithstanding any rule of law or equity, a covenant shall not be unenforceable for the reason only -

(a) that the covenant requires the covenantor, his successors in title or persons deriving title under him or them to expend money or is otherwise positive in nature; or

(b) that the covenant is between owners of the same land; or

(c) where the covenant is registered in the Land Office under the Land Registration Ordinance, that the successors in title to the covenantor or persons deriving title under him or them had no notice of the covenant."

12. This subsection has been categorised by Mr. Tang as both inadequate and inept. It was itself replaced in 1988 by the provisions we have set out earlier.

13. The submission, as we understand it, is that the legislature having once thrown out the technicalities of the common law and equity, at least so far as concurrent interests in property were concerned, would not have intended to re-introduce them in legislation which was basically a codification of the existing law.

14. It is open to question whether the legislation did in 1956 throw out the old technicalities so far as they required a covenant to touch and concern the land of the covenantee. The specific requirements introduced thereby would all seem to fall within the classic test formulated by Bayley, J. in Congleton Corporation v. Pattison (1808) 10 East 130:

"the covenant must either affect the land as regards mode of occupation, or it must be such as per se, and not merely from collateral circumstances, affects the value of the land."

15. Be that as it may it would also have to be accepted that by deliberately not re-enacting s. 3 in 1984 the legislature threw that out as well. However speculation of this kind is not apposite to the construction of statutes. The intention of the legislature must be sought in the words that have actually been used.

16. We have heard much argument as to the meaning to be attributed to the word "relates" in s. 41(2) (a). There is force in the argument that it is a modern form of the old-fashioned "touch and concern", as was observed by Brightman, L.J. in Federated Homes Ltd and Mill Lodge Ltd [1980] 1 WLR 595 at 604F, a decision which was likely to have been known to the draftsman of the Conveyancing and Property Ordinance, for the addition of "unless the contrary intention is expressed" to s. 39 of the Ordinance, which is to some extent a copy of s. 78 of the Law of Property Act with which his lordship was dealing, suggests an attempt to meet the criticisms that were subsequently levelled at the decision in that case: see Gray, Elements of Land Law at p. 712. The same phrase is used in s. 40 of the Conveyancing and Property Ordinance (as it is in s. 79 of the Law of Property Act) and it is a common canon of construction that words and phrases are to be given the same meaning throughout the whole of the statute unless there is good reason to find otherwise.

17. In the event we do not find it necessary to express concluded opinion on the point, for ultimately it seems to us that the crucial paragraph is not (a) but (c), which requires the covenant to be:

"... expressed and intended to benefit the land of the covenantee ...".

We are unable to read that paragraph as requiring merely an intention that the benefit of the covenant should run with the land, as is provided with regard to the burden of the covenant in the preceding paragraph. It refers not to the benefit of the covenant, but to the benefit of the land; and expression and intention are cumulative, not alternative. These considerations lead inevitably to the conclusion that the covenant, if not actually required to touch and concern the land in the sense of the old phrase must nevertheless benefit the land itself, which is a concept we find difficult to distinguish from the former. But even if it be some lesser standard we are not persuaded, despite Mr. Tang's able argument, that it has been reached in the present instance. We cannot accept that the right to name the building as a whole in any way benefits the exclusive occupation of any particular floor or the roof above it. The commercial value is intrinsic in the right itself and would remain the same whether the person holding it had the right to any occupation at all.

18. Mr. Tang supports his alternative approach via pure contract with three possibilities of an underlying legal analysis. The first is that:

"... it is an implied term of the Deed of Mutual Covenant that the parties thereto make a continuing offer to any subsequent assignee to enter into a contract with that assignee on the terms of the Deed of Covenant, with the purchaser's rights and duties under the DMC being identical to those of the original party from whom his title is derived."

Then, by accepting an assignment, the assignee accepts the continuing offer.

Alternatively the Deed of Mutual Covenant contains:

"... an implied grant of authority to each co-owner to agree on behalf of all of them a novation of the DMC with the person to whom he sold his interest, under which the purchaser would step into the shoes of the assignor."

Finally:

"... where parties to some relationship all intend that it should be governed by a particular set of terms, the law will give contractual force to that intention, even if the formation of the contract cannot satisfactorily be analysed in terms of offer and acceptance."

19. For the first of the three possibilities Mr. Tang relies on authorities relating to unincorporated associations and the well known case of Clarke v. Dunraven [1897] AC 59 where individual entrants to a yacht race were held to be contractually bound to each other to observe the racing rules; for the second possibility he relies upon New Zealand Shipping v. Satterthwaite [1975] AC 154.

20. We accept that the original parties intended that the benefits and the burden of the Deed of Mutual Covenant should bind their successors in title. This is apparent, not only as Mr. Tang suggests, from the provisions in the preamble that each party "shall where the context so admits include the successors and assigns", but also from clause 27(a) which expressly provides:

"The covenants and provisions of this Deed shall be binding on the parties hereto and their respective executors, administrators, successors in title and assigns and the benefit and burden thereof shall be annexed to the undivided shares held by them and to each and every part of the Building held therewith. The Law of Property (Enforcement of Covenants) Ordinance and any statutory amendments, modifications or re-enactment thereof for the time being in force shall apply to these presents."

21. But it is not easy to reconcile the words of this clause with a purely contractual intention of any kind. More particularly we can find nothing in the circumstances of the assignment to the plaintiff which would indicate that it was then intending to enter into contractual obligations over and above the enforceable covenants contained in the Deed of Mutual Covenant. We would respectfully agree with the observations of Dillon, J. in Lyus v. Prowsa Developments Ltd [1982] 1 WLR 1044 at 1051:

"By contrast, there are many cases in which land is expressly conveyed subject to possible incumbrances when there is no thought at all of conferring any fresh rights on third parties who may be entitled to the benefit of the incumbrances. The land is expressed to be sold subject to incumbrances to satisfy the vendor's duty to disclose all possible incumbrances known to him, and to protect the vendor against any possible claim by the purchaser ... So, for instance, land may be contracted to be sold and may be expressed to be conveyed subject to the restrictive covenants contained in a conveyance some 60 or 90 years old. No one would suggest that by accepting such a form of contract or conveyance a purchaser is assuming a new liability in favour of third parties to observe the covenants if there was for any reason before the contract or conveyance no one who could make out a title as against the purchaser to the benefit of the covenants."

Those observations are quoted with approval by the English Court of Appeal in Ashburn Anstalt v. Arnold and Another [1989] 1 Chancery 1 at 25, the court adding for itself:

"The words 'subject to' will, of course, impose notice. But notice is not enough to impose on somebody an obligation to give effect to a contract into which he did not enter."

22. For these reasons, in our view, the contractual approach fails likewise and the appeal must be dismissed.

23. In handing down this judgment we make an order nisi that the respondent shall have its costs.