GAIMAN LTD. v. THE SECRETARY FOR JUSTICE

1997, No.MP3119

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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The Application

1. I have before me an Originating Summons dated 22nd September 1997 issued on behalf of the Plaintiff herein, which on 10th June 1996 purchased Inland Lot No.6070, otherwise known as No.30, Po Shan Road, a property which was and is held under Conditions of Sale dated 4th November 1940. By the Originating Summons the Plaintiff asks for Orders against the Defendant herein, the Secretary for Justice, in the following terms :-

(a) A declaration that Special Condition (2) of the Conditions of Sale dated 4th November 1940 for Inland Lot No.6070 (No.30 Po Shan Road) has been modified to permit the erection thereon of three flats.

(b) A consequential declaration that the Plaintiff as the present registered owner of the said Lot is entitled to erect thereon three flats.

The History of the Property

2. No.30, Po Shan Road is a fine old house standing at the upper end of Po Shan Road. The Lot upon which the house stands is held under Conditions of Sale dated 4th November 1940, Special Condition (2) of which is of particular significance. It reads as follows :-

"The Purchaser will not be allowed to erect any building on the lot except one detached or two semi-detached residences of European type."

3. An Occupation Permit appears to have been issued on 4th July 1950 for one European type house - which, I understand, is the structure remaining in existence today - and thereafter nothing of significance to the present case occurred until 1950. At which point the present story effectively begins.

4. On 27th November 1950, the architect's firm of Messrs Leigh and Orange wrote to the Registrar General asking if, in the event of the purchase of the property by British Cigarette Company Limited or British American Tobacco Limited, permission could be given to convert the house into three flats. The letter in question referred to the terms of Special Condition (2) of the Conditions of Sale and continued :-

" The house completed on the lot is a single house of three storeys and as our clients are extremely hard pressed for accommodation and require separate accommodation for three families they are desirous in the event of their purchasing it to convert it into three flats.

As they have sanction from their London office to purchase at a certain figure and the deal requires to be completed speedily but they do not wish to purchase without the permission to convert asked for herein, as otherwise the property is not suitable, we would be most grateful if you could advise us of the decision as quickly as possible."

5. This prompted the Registrar General to seek approval from the Colonial Secretary on 28th November 1950, and the Colonial Secretary responded thereto on 4th December 1950 in the following terms :-

"Registrar General

Amendment of Special Condition (2) in conditions of sale 4157 in respect of I.L. 6070 to enable conversion of the building into 3 flats approved by command subject to the approval of the plan by the Building Authority."

6. Thereafter this decision was communicated to Messrs Leigh and Orange by the Registrar General by letter dated 11th December 1950 :-

"Gentlemen,

Inland Lot No. 6070
Po Shan Road

Referring to your letter of the 27th November 1950, I am now directed to inform you that in the event of the purchase of this property by the British Cigarette Co., Ltd. or British American Tobacco Co., there will be no objection to the conversion of the house into three flats and that Special Condition (2) of the Agreement and Conditions of Sale No. 4157 under which the property is held will be deemed to be modified accordingly.

It is of course to be understood that the plans for the alterations will be subject in all respects to the approval of the Chief Building Surveyor, Public Works Department."

7. The result of all this was that the modification in question was endorsed on the copy of the Conditions of Sale in the Land Registry by means of the following handwritten annotation in the margin abutting Special Condition (2) :-

"Spec. Cond. (2) modified to permit conversion into 3 flats. See copy letter 11/12/50 att'd & Sect. 31/3094/48."

8. Consequent upon this permission, the property was assigned to British American Tobacco Company (China) Limited on 23rd December 1950, the required conversion works went ahead, and the Building Authority issued an Occupation Permit on 4th May 1951; the latter document appears in standard form and refers to "three European type flats at No.30 Po Shan Road on I.L.6070" as complying in all respects with the Building Ordinance and being suitable for occupation "for domestic purposes".

9. I am told that after this conversion had occurred the Lot changed hands on three occasions, in September 1953, July 1954 and May 1955 respectively, although for present purposes the details do not seem to me to much matter. What does matter, however, is the purchase by the current Plaintiff, whom I apprehend is a developer, by Assignment on 10th June 1996. And that after such purchase, to quote from the affidavit in support of the application :-

"15. In August 1996, building plans were submitted on behalf of the Plaintiff for the redevelopment of the Lot by the construction of an apartment block consisting of 3 flats."

10. I think it fair to observe that this simple paragraph does not serve immediately to convey the reality of the 19 storey apartment block which I understand is proposed, with each of the flats therein being of five storeys each. However, as Sir John Swaine S.C. observed, what may or may not constitute a 'flat' may well be a debate "for another day"; for the purposes of this application, both Sir John for the Plaintiff and Mr Merry, who appears on behalf of the Secretary of Justice, were united in their view that the Court's task upon this application solely involved the narrow issue of construction of the amendment to the Special Conditions of Sale. Accordingly, it is to this issue that I now turn.

The Issue for Decision

11. In a nutshell, the issue for determination is encompassed by the first declaration sought in these proceedings, namely, whether the modification of Special Condition (2) of the Conditions of Sale was in substance and effect a modification which served to permit the erection of three new flats upon this site.

12. Sir John Swaine S.C., in an attractive and wide-ranging argument, submitted that the modification in question did indeed permit the subsequent erection of three new flats. He stressed the significance of the modification in the Land Registry, and drew the attention of the Court to the absence of a covenant to repair and maintain and deliver up at the end of term, thus enabling the owner to rebuild. What was in fact intended and approved, he asserted, was the modification of the building restriction to enable three flats to be built from time to time, and the correct analytical approach, and the correspondingly correct legal conclusion, was that the Government had permitted the erection of three flats via the means, in this particular context, of converting the existing building. As a matter of logic, said Sir John, there would obviously come a point when conversion as such could be so extensive as, in effect, to amount to the erection of a new building; but that if there was a small gap that required to be bridged, between the concepts of conversion and erection, this could easily be effected by the implication of a term permitting rebuilding as three flats as an obvious inference from the agreement : the officious bystander would have no doubt, said Sir John, that both parties would have agreed to such a term had such been mooted, and in this connection he placed reliance on the well known observations of Mackinnon L.J. in Shirlaw v. Southern Foundries (1939) 2 KB 206 at 227.

13. Mr Merry, on behalf of the Secretary for Justice, disagreed. Whilst he accepted that modification of a restrictive covenant could occur in a relatively informal manner, there was no doubt that the relaxation of such restrictions should be "jealously construed". BAT was in the position of a supplicant, and the Government had received nothing in return for the relaxation. At the time of the correspondence leading to the modification the parties were contemplating the conversion of an existing building which then stood at that site and clearly, submitted Mr Merry, the modification was solely for that existing building, which had been erected in accordance with Special Condition (2) as one residence, and not for some future building; moreover there was a clear and obvious distinction between conversion and erection. In short, this was "a specific request for a specific modification which was specifically granted" in the particular circumstances prevailing in 1950, and as reflected in the correspondence of that time, and in fact part of that very correspondence (the letter of 11th December 1950 addressed to Messrs Leigh and Orange) was specified in the handwritten modification, which itself did not refer to the subject of the conversion, thereby necessitating reference to the letter itself, which apparently also was attached to the file in the Land Registry.

14. The particular context of the request for, and the grant of, the modification was important, submitted Mr Merry; the analytical nub of the argument was the permission to modify the existing house, so that there could not be demolition of that structure and the erection of a whole new building consisting of three flats. And as to the argument as to an implied term, the function of an implied term was simply to fill in necessary and obvious gaps and not to extend the substantive agreement, so that if, in the situation prevailing in 1950, the officious bystander had been asked whether BAT could tear down the existing structure and create a purpose-built block of flats, the answer predictably would have been in the negative.

Decision

15. Both Counsel are, I think, agreed that the approach the Court should take in considering this matter is to ascertain and give effect to the intention of the parties. As Litton J.A. succinctly put it in Real Honest Investment Ltd v. A-G [1997] 2 HKC 182 at 193B-C :-

"It is as well to bear this point in mind : the restrictive covenant is enshrined in a deed granting an interest in land for a long term. One would expect, in normal circumstances, that any modification of the covenants to be likewise effected by deed. The matter is, ultimately, one of the intention to be imputed to the parties ....." (emphasis added)

16. Accordingly, in considering the issue for determination, I have taken into account the relevant correspondence and the contemporaneous events as revealed in the evidence before the Court, and I have viewed these matters against the cogent submissions advanced on each side. The issue is a pure question of construction, and the answer, it seems to me, permits solely of a black or white response - there is, I think, no room for compromise.

17. Accordingly, after some reflection, I have come to the conclusion that the effect of the modification to Special Condition (2) does not permit of the erection on the site of three new flats, of whatever dimension; the nature of the building that can be so erected is dealt with by the Special Condition itself. And in so construing the modification of that Condition, I have had difficulty in making the transition urged upon me by Sir John Swaine S.C. so as to move from the concept of "conversion" within the wording of the modification to that of "erection" as sought in this application, whilst invocation of the services of the officious bystander does not, in my judgment, rescue the situation by means of the necessary implication of a contractual term. Indeed, if I may respectfully say so, it seems to me more likely, as indeed Mr Merry suggested, that the response of this celebrated notional observer when confronted with the Plaintiff's argument would have been not "but of course", but "of course not".

18. Be that as it may. Whilst I have not found this a straightforward matter, in the circumstances I regret that I am unable to accede to the Plaintiff's application, and I decline to make the declarations sought. The Originating Summons of 22nd September 1997 is dismissed. It necessarily follows, I think, that such dismissal should be with costs to the Defendant, to be taxed if not agreed, and I make an order nisi in these terms with regard to costs.

19. It remains only to thank both Counsel for their crisp and cogent arguments.