RE NINE DRAGONS INVESTMENT LTD

HEADNOTE

Practice and procedure - Landlord and Tenant (Consolidation) Ordinance - proper parties to an application under s. 53(7A)(a)(i).

Where a landlord has recovered possession of premises on the ground that he intends to rebuild, as a result of an order made by the Tribunal which reflects terms agreed upon by the parties, and those terms include an undertaking given by the landlord, the former tenants should be served with notice of an application under s. 53(7A)(a)(i) seeking the authority of the Tribunal to assign the premises if relief from the undertaking is also sought, so that they are given an opportunity to be heard on the latter relief.

IN THE COURT OF APPEAL

BETWEEN

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JUDGMENT

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Fuad, J. A.:

1. When a landlord has obtained possession of premises in respect of which a tenancy had been "continued" under s. 52(1) of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7, ("the Ordinance") on the ground that he intends to rebuild the premises (s. 53(2)(c)), he is prohibited by s. 53(7)(a)(ii) from assigning, transferring or parting with possession of the premises for 24 months, unless he obtains the authority of the Lands Tribunal so to do in accordance with s. 53(7A)(a)(i). This is an appeal from a decision, dated 13 June this year, of His Honour Judge Leong, sitting as a Presiding Officer in the Lands Tribunal, refusing to grant such authority to Nine Dragons Investment Limited ("the Company").

2. This is the history of the matter. New World Nominees Limited, which is a wholly-owned subsidiary of New World Development Co. Ltd., bought certain property ("the Property") in Chatham Road South, Kowloon in June 1983 for $29m.. The Property comprised two 4-storey post-war tenement buildings. There was one flat on each floor, making eight flats in all. By a vesting instrument, dated 19 August 1983, the Property was assigned to the Company, another wholly-owned subsidiary of New World Development Co. Ltd..

3. The Company intended to re-develop the Property by demolishing the existing buildings and putting up, in their place, a single building consisting of 19 storeys, comprising shops and domestic units. The plans were approved by the Building Authority in September 1983.

4. To be able to carry out the re-development, the Company filed six applications in the Lands Tribunal to recover possession of that part of the Property which was leased, under s. 53(2)(c) of the Ordinance.

5. Before the applications for possession were heard, the Company reached a compromise with all the tenants involved, and on 6 February 1984, the terms of the compromise were sent to the Tribunal under r.27 of the Lands Tribunal Rules. Six orders incorporating these terms were made on 14 February. For convenience I will refer to them as Consent Orders. They were in common form and the Company paid out $840,000 in compensation to the tenants, about six times the rateable value. Each Consent Order contained the following undertaking:

"(8)     The Applicant undertakes to the Tribunal to complete the new building in accordance with the approved plans submitted herewith within a period of 40 months from the date of delivery of vacant possession of the suit premises.".

6. On 7 May 1985 the Company applied to the Tribunal under s. 53(7A)(a)(i) of the Ordinance for authority to assign the Property to a Mr. CHEW Kim-chye "and/or" to the United Assets Company Ltd. and for release from the undertakings given.

7. In the application, the Company stated that they had fully intended (and had the resources) to proceed with the re-development as part of the property development activities of the New World group of companies. Very soon after they had obtained possession of the old buildings, they had demolished them and had begun the foundation works. Sheet-piling work on the site had begun when the Company had been approached to sell the Property. The Company had made a business decision to sell the site.

8. The application continued by stating that by an agreement dated 1 December 1984, the Company had agreed to sell the Property to Mr. CHEW Kim-chye for the price of $35m.. A copy of that agreement was annexed. Under the agreement, the purchaser had agreed to reimburse the Company for the expenses of sheet-piling to the extent of $638,000.00, Completion of the sale and purchase was due to take place on 15 February 1985.

9. It was then said that the Company had overlooked the existence of the Consent Orders, due to the following factors:

10. It was also said that the Solicitors responsible for drawing up the agreement were different from those who had acted for the Company in the possession cases, and were therefore unaware of the Consent Orders.

11. The application went on to say that Mr. Chew had subsequently nominated the United Assets Company Limited to take up the assignment of the Property. It was only shortly before 15 February 1985, (the date scheduled for the completion of the sale and purchase of the Property) that "someone awoke to the fact of the existence of the Consent Orders". As a result, the parties had entered into a supplemental agreement dated 15 February 1985, to postpone the date of completion until 14 June (subject to extension at the option of the purchaser) to enable the Company to seek the authority of the Tribunal.

12. The Company then stated that the purchaser proposed to build a hotel on the site and various plans and correspondence with the Building Authority were annexed. It was pointed out that the sale of the property at $35m. would in fact result in a loss of $3,560,000 to the Appellant, when everything had been taken into account.

13. An affirmation by Mr. LEUNG Chi-kin, manager of the Company, dated 7 June 1985 confirmed the truth of the statements of fact I have reviewed above. He also stated that the hotel plans had now been approved by the Building Authority, and that he had been advised that in view of the wording of s. 53A of the Ordinance (as he so believed) that "it was not unlikely that the Tribunal would also have been prepared to approve the settlements put forward on the basis of the present scheme of re-development in all the circum-stances". Mr. Leung exhibited a report from Messrs. Jones Lang Wootton on the merits of the new scheme.

14. The affirmation concluded by emphasising that the consent orders "had simply been overlooked" during the sale in question. Had the fact been realised before the sale, it would be have been "unthinkable" for the Company not to have sought the authorisation of the Tribunal before signing the December 1984 agreement. As matters stood, if the Tribunal did not grant the authorisation sought, they were liable to suffer serious loss in view of various clauses in the agreements.

15. In a second affirmation dated 12 June 1985, Mr. Leung stated that the relevant Outline Zoning Plans, extant at the time of the Consent Orders were made, allowed "Hotel" as one of the permitted uses.

16. As regards the element of "public interest" he said that any profit made would not go to the Company. He also wished to submit that "the major benefit to the public will be increased revenue, increased employment and alleviation of the demand for hotels". The fact that the developer would also make a profit was by itself not a reason for saying that the element of "public interest" would be defeated.

17. Mr. Leung ended this affirmation by stating that the Company was willing "to provide an undertaking to procure that United Assets Company Limited will complete the building in accordance with the building plans approved on 22 May 1985". He had been informed, and believed, that United Assets were willing to give an undertaking to the Tribunal to complete the building within a specified time, and that their architect was confident that the building could be completed within 36 months, if not less.

18. The relevant part of s. 53(7A)(a)(i) of the Ordinance is in these terms:

19. The learned Presiding Officer in his Reasons for Decision outlined all the relevant facts, and as regards the averment that the Consent Orders had been "overlooked", he drew attention to s. 53(2)(c) of the Ordinance (which states that the Applicant shall be presumed, until the Company is proved, to have knowledge of the existence of the order, the ground on which the order for possession was made etc.) and commented that the Company could hardly be heard to say that they were unaware of the existence of the Consent Orders before entering into the agreement, and added:

"I do not think that the Tribunal should assist the Applicant by exercising the discretion to grant the authorisation to enable them to mitigate the loss which they have, through their own negligence, brought upon themselves.".

20. After reviewing the contentions advanced on behalf of the Company, the Presiding Officer noted that the Company itself had never contemplated rebuilding the Property as an hotel. When the Tribunal had approved the Consent Orders, it had been satisfied that the restrictions set out in s. 53A(1)(a) had been overcome. The Tribunal could not have been satisfied that this was so by what a subsequent purchaser of the premises might do with the Property. He said:

"The authorisation sought by the applicant to assign the premises is only to enable them to shed themselves of the land and a rebuilding scheme which they decided in their business interest to be no longer of any benefit to retain and to proceed with. In the special circumstances of the present case, I do not think I would be exercising my discretion fairly and reasonably if I grant the authorisation sought. The Tribunal should not be made an instrument to enable property developers to pursue their business interest in the property market.".

21. As regards the undertakings (to complete the rebuilding within 40 months) while this was not a require-ment of the law, they had been given to show that the Company was bona fide in its intention to rebuild - and the law [s. 53A (a)(b)] required the Tribunal to stipulate that the Applicant should complete the new building within a specific period of time. Such undertakings were part of the terms of settlement which had been made Orders of the Court. The Company was a subsidiary company of a large developer and there was no indication they would not be financially capable of carrying out the rebuilding scheme. For these reasons he saw no valid reason why the Company should be released from the undertakings.

22. In view of the fact that the Company gave the undertakings to which I have referred (from which they sought to be relieved) I entertain no doubt that the tenants who consented to the orders for possession being made against them, had a right to be heard before the Tribunal on whether it was just to grant the Company the indulgence it sought in relation to the undertakings, and should have been served with notice of the application.

23. However, we did not decide this preliminary point raised by my Lord the Vice-President, and heard the appeal out on its merits. Having heard these merits, in my judgment we should decide the appeal, to save time and money, and not remit the application to the Tribunal for the tenants to be served with notice. I say this because it is possible to determine the appeal as if the tenants had been served, and had made no submissions to the Tribunal.

24. It must first be remarked that s. 53(7A)(a)(i) gives the Tribunal an unfettered discretion. Although this discretion must, of course, be exercised judicially, there are no matters spelled out by the Legislature to which the Tribunal shall have regard. Nor are there any settled principles as to the manner in which that discretion must be exercised. The discretion is of the Tribunal. We have no original discretion of our own to exercise, unless we conclude that the Tribunal's decision must be set aside. The principles. upon which the Court of Appeal acts on appeals of this sort are well known, and need not be re-stated.

25. With the utmost respect to the arguments addressed to us on behalf of the Company, I do not find that the Presiding Officer wrongly exercised his discretion. He did not act under a mistake of law; nor did he disregard any settled principle. He did not misapprehend the facts. He did not take into account irrelevant factors or fail to have regard to any relevant matters. In my judgment, what the Presiding Officer had to do was to take all the circumstances into account, bearing in mind the purposes of Part II of the Ordinance, and then decide what the interests of justice dictated. This is what he did.

26. I would dismiss this appeal.

Sir Alan Huggins, V.-P.:

27. I, also, would dismiss the appeal.

Cons, J. A.:

28. I agree with my Lords that the appeal should be dismissed on its merits, and with the observations my Lord Fuad, J. A. has made about the bringing of ex-parte applications where undertakings are part of the agreed terms.