MASS TRANSIT RAILWAY CORPORATION v. HOPEWELL CONSTRUCTION COMPANY LIMITED

1986 No. A4345

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. Introductory

2. The Plaintiff ("MTR") is a statutory corporation established for the purpose of constructing and operating Hong Kong's underground Railway. The Defendant ("Hopewell") is a large Hong Kong construction company. It undertook some of the Railway construction and associated works. In this action MTR claims two large sums of money which it says Hopewell promised to reimburse as the rent and rates MTR had to pay Government for land it secured for Hopewell's use as work areas in the construction process.

3. For its principal railway depot MTR was granted some 45 acres of land at Kowloon Bay. To raise funds it was decided to construct a concrete podium above the depot and upon that to perch a very large residential and commercial development. Indeed, the residential part itself consisted of some 23, 11 and 26 storey blocks which between them contained some 5,000 apartments. For the residential development MTR entered into a joint venture development agreement dated 10th September 1972 with Telford Development Limited ("Telford"), under which Telford was to construct and sell the residential units, with the profits being shared between it and MTR roughly in equal proportions. Telford itself was a Joint venture between Hopewell Holdings, Hopewell's parent company and Hang Lung Development Limited another Hong Tong company, each holding 50% of the shares. Not surprisingly, Telford employed Hopewell as the main contractor for the residential development.

4. As to the commercial development, this, too, MTR had initially decided to carry out through the joint venture with Telford but in the event decided to do so on its own. The commercial development which involved shops, cinemas, schools, a swimming pool and so on involved several contracts which came to be known from their numbers as the 700 series. And some of these contracts were awarded to Hopewell, by tender or by negotiation.

5. As may be imagined, the whole development including the depot below, was a very large and unusual one, even unique as Mr. Raymond Frost, the Plaintiff's first witness claimed. He was one of MTR's senior engineers who more than any other can be regarded as the Plaintiff's Co-ordinating Engineer or Project Manager of the development. The podium or roof of the depot was to consist of a large concrete slab of some 25 acres. Above that were to be transfer plates consisting of 2 to 3 metre thick concrete slabs designed to transfer the load from the residential development to the concrete slab; some of the transfer plates were supported by columns. To build the entire podium to very high loading levels would have been enormously expensive. Accordingly it was to be built to loading limits anticipated to be appropriate by Freeman Fox & Partners, MTR's Consulting Engineers upon the data then available. Loading limits in particular areas were shown by drawings, and individual contractors were by their contracts and associated drawings provided phased use of those areas. Because the podium was above ground level, of a limited size and subject to loading restrictions, works and work areas for contractors were very limited. It must be explained that works areas include not only work areas i.e. areas used for building work, but also for associated purposes like storage of materials, canteens, and so on. The somewhat loose and interchangable use of the two expressions in the evidence is reflected in this judgment, but is of no consequence.

6. The contracts for the building of the podium were known from their numbers as the 600 series. Immediately above the podium or concrete slab there were to be the commercial development, walkways and the supporting columns of the residential development. These were the subject of contracts that came to be known as the 700 series from their numbers. The residential development itself was carried out in three phases, each comprising a number of the residential blocks.

7. The Claims and Defence

8. At this point it is helpful to consider the nature of MTR's claim and Hopewell's defence in greater detail. As to those associated with the residential development, it is claimed by MTR that by a letter dated 8th September 1977 Hopewell requested MTR to obtain works areas for the former to use for storage, for a concrete batching plant and for fabrication of trusses to carry out the contract it had with Telford; that it entered into negotiations with Government to obtain such works areas for Hopewell at ground level, and that by an agreement made between it and Hopewell it was agreed that MTR would obtain such work areas from the Hong Kong Government for Hopewell and that Hopewell would reimburse it for all costs and charges which it had to pay to the Government as and when MTR was charged by the Government. The agreement, it says, was made partly in writing, partly orally and partly by conduct. The written part, it says, was specified in letters between September 1977 and January 1979; the oral part was made in discussions between specified representatives of the two parties in late 1977 and in 1978; and the conduct consisted in Hopewell entering into, occupying and using the areas in question as a works area with knowledge of the purpose for which it was obtained, of MTR's negotiations with the Government as to the payment for the land, and that the land would be and was obtained and made available to Hopewell on the basis that Hopewell would reimburse MTR for all the charges made by the Government. These charges, MTR says, inclusive of rental and rates amount to some $1,644,917. It adds that Hopewell denies liability and has refused to pay them.

9. As to its claim in respect of the commercial development MTR claims that by an agreement about January 1979 between MTR and Hopewell, it was agreed that MTR would obtain further works areas from the Government for Hopewell's use for construction of the commercial development and that Hopewell would reimburse MTR for all costs and charges which MTR had to pay the Government as and when charted for them. Again it is claimed by MTR that the agreement was partly in writing, partly orally and partly by conduct. In writing in so far as it was contained in a letter from MTR to Hopewell dated 26th January 1979; orally in so far as it was made in discussion between specified officers about January 1979; and by conduct of a nature similar to that already referred to. In this respect MTR claims an amount of $1,696,090.

10. In the alternative MTR claims ("the alternative claim") that by an agreement ("the alternative agreement") partly in writing and partly by conduct between MTR and Hopewell, Hopewell agreed to enter and occupy 80,000 sq. ft of the land in question and pay MTR at the rate of $3 per sq. ft per annum plus such rates as were charged by Government and when so charged. MTR claims that in so far as the alternative agreement was in writing it was contained in letters dated 1st May 1978 from Hopewell to MTR and 18th July 1978 from MTR to Hopewell; and in so far as it was by conduct, by Hopewell using the land. Under the alternative agreement MTR claims $898,081.

11. Subject to certain admissions which I shall examine later, the Defendant denies the claims. In substance, though not necessarily in relation to all three claims, it pleads the following defences:

Hopewell also contends that the 3 agreements are illegal and cannot be enforced.

12. The Facts

13. To return to the facts, the third phase, phase 3, of the residential development is of limited relevance to this action as it was awarded to Shui On, a contractor not concerned with this action. It became clear that Telford was going to give the phase 1 contract to Hopewell as early as 1977 or perhaps even earlier, although the formal execution of the contract itself, which was regarded as a housekeeping exercise, was not attended to until 1978. That Hopewell was likewise to be the main contractor for phase 2 of the residential development became clear sometime in 1978. Three series 700 conmmercial contracts were given to Hopewell by negotiation that took place between 1977 and October 1978, and a fourth by tender in June 1978.

14. Meanwhile the completion of the concrete slab was running late, as much as 16 months late. The only works areas (for direct construction and indirect storage, fabrication etc.) provided for in the 700 series contract were on the concrete slab. As I have said, they were to be provided upon a phased basis, with contractors moving in and out. In consequence of the delayed completion of the podium, at least some of the works areas were non-existent at the commencement of their scheduled requirement periods. It was suggested on MTR's behalf that that did not matter because those periods were similarly delayed e.g. a residential block did not have to be built until the slab, the supporting columns and the relevant transfer plate had been built. While that was probably so in sore degree, I have no hesitation in rejecting the suggestion as a general proposition, particularly in regard to indirect works areas, having regard to the size of the development and indeed of individual contract works, the huge amounts of material involved and their bulk, the difficulty of securing space particularly in proximity to the work site, and the timing factor in procuring material from overseas on time and not too long before. Clearly some works areas possibly even additional works areas, particularly for storage, were required at the scheduled times despite the delay. And while direct areas might not have altogether been required on schedule, in my view, the delay did aggravate Hopewell's needs for works areas.

15. To proceed with the facts, in early 1977 consideration was given by Telford, MTR and Hopewell to the matter of works areas for the residential development. On 18th August 1977 MTR suggested to Telford that some land controlled by the Police Force might be available. Telford asked Hopewell to pursue the Matter. The land turned out not to be available and in September 1977 Mr. Elliot, then Hopewell's Project Director for the Kowloon Bay Development wrote in Hopewell's name to Mr. Frost of MTR with a copy to Telford seeking assistance in obtaining works areas totalling 10,000 sq. m. to meet Hopewell's immediate requirements i.e. for a concrete hatching plant (2,000 sq. m.) storage area (6,000 sq. m.) and truss fabrication area (2,000 sq.m.). It is not necessary to detail here the considerable mass of correspondence and of evidence of meetings and other action that ensued. Hopewell does not admit that MTR negotiated with the Government to procure the use of the land that was ultimately made available to Hopewell, and in respect of which charges for reimbursement is now claimed. But the matter was not seriously disputed by Hopewell and I will waste no time upon it. In my finding the evidence clearly establishes such negotiations.

16. A suitable site west of Wai Yip Street and adjoining the depot site was identified. Hopewell which was to use the site, took an active part in the process and accented the suitability of the site. On 28th November 1977 Mr. Brough, one of MTR's engineers who was dealing with the matter, wrote to Mr. Elliot:

"It is anticipated that no major objections will be made and that you will be able to enter the area prior to the formal agreement being drawn up. It is understood that the charge for the land will be of the order of HKS6.00 per sq. ft per annum with a surcharge of HK$6.00 per sq. ft per annum for all structures erected. Will you please confirm that this is acceptable to you before the formal application is made on 5th December 1977. "

Mr. Elliot replied on 1st December 1977:

"Regarding the rent for this works area, we feel that as so many restrictions are imposed on the working deck, we have no alternative but to take this works area. We cannot agree that Hopewell Construction should be held responsible for this rent which amounts to $1.9 million over a period of three (3) years. However, we propose that negotiations are carried out with the Land Acquisition Coordination Committee and the question of payment should be solved between MTRC and Telford. "

At the same time Mr. Elliot wrote to Telford to a similar effect adding:

"This works area is only required due to the very severe restrictions imposed on working conditions on the depot roof. This works area is necessary for the fabrication of very large steel sections for the transfer plate support system and also for the storage of material. Therefore, we feel this charge of $6.00 per sq. ft. per annum which amounts to $1.9 million over a period of three (3) years must be borne by MTRC, but on no account can Hopewell Construction be liable for this charge as the need for this land is completely outside our control. "

Telford's reaction was concern to limit the works area obtained by Hopewell to the minimum, as it turned out, because it was likely to have to pay for them. It sought to defer the question of payment and asked Hopewell for details and a layout. Hopewell took sometime to deal with this and in the meantime Mr. Frost following discussions wrote to Hopewell on 25th January 1978:

"...While the Corporation will use its good offices to obtain the area of land for you, the observance of the possible lease conditions, or any waivers granted, together with all payments connected with the land, will ultimately be your responsibility."

Hopewell did not protest or dissent; nor did it agree.

17. The Government was to take a very long time, until the end of 1980, to prepare the tenancy agreement. Meanwhile on 27th February 1978 Mr. Elliot wrote to the MTR:

"Telford Gardens - Kowloon Bay Development. Works Areas - West of Wai Yip Street.

Meanwhile Telford was still trying to get Hopewell to specify a minimal works area. At a meeting of the Telford Gardens' Co-ordinating Committee on 16th March 1978 Mr. Ho of Telford denied he had agreed to a works area of 10,000 sq. m. or a rate of $6 per sq. ft. The MTR representatives noted that the land was for Hopwell's heavy construction loads (such as a concrete mixing plant) which could not be carried on the depot roof. MTR advised that unless Telford agreed to the costs and size of the land before 30th March, MTR would withdraw the request from Government.

18. On 21st March 1978 Mr. Elliot informed Telford that the works area Hopewell required ranged between 50,000 and 80,000 sq. ft. Telford responded by asking for a proposed layout justifying the area and pointing out that the rental would be HK$6.00/sq. ft. per annum and an additional HKS6.00/ sq. ft. for areas that were covered, and that it was important that the absolute minimum area for use should be acquired. The layout arrived a couple of days later. Telford suggested some changes adding "If you agree, please proceed to process the acquisition through MTRC".

19. By this time MTR was beginning to tire of the charges not being accepted. On 7th April 1978 Mr. Brough wrote to Telford:

On 10th April 1978 Mr. Elliot wrote to a different section of MTR telling it that Hopewell was advised by Telford to proceed with the acquisition of the works area through MTR. Then on 27th April 1978 Mr. Elliot pointed out to Telford that the need for works areas had become most urgent. On the following day Telford furnished Hopewell with a letter confirming that Telford was prepared to pay for the "rentals for the works area of 50,000 sq. ft." It confirmed this to MTR referring to MTR's undertaking to use its best endeavours to secure the lowest possible rental from Government. Mr. Elliot replied to Telford on 1st May 1978 noting their undertaking to pay for 50,000 sq. ft. and pointing out that Hopewell might need an area slightly in excess of this figure. He proposed that there should be an increase in the works area requirement and that Telford undertake to pay for the extra requirement. But without awaiting a reply he wrote at the same time to MTR asking MTR to:

"please proceed with the acquisition of approximately 80,000 sq. ft. for the works area at the west of Wai Yip Street. We undertake to pay the rent for this area at HK$3.00 (Hong Kong Dollars Three) per sq. ft. per annum. As this area is now required urgently your cooperation in this matter will be appreciated".

On the 18th July 1978 in writing to Mr. Elliot on another aspect of the Kowloon Bay Development, Mr. Brough told Mr. Elliot that in due course there would be forwarded to him Government's terms and conditions which he surmised would be similar to those in STTKX568, an earlier short terra tenancy under which works areas were secured for previous contractors. He added that he noted from Mr. Elliot's letter that he had undertaken to pay the rental for Hopewell's work area. And that if the Government levied a charge for rates MTR would forward the invoice in due course. It is to be observed that Mr. Brough did not mention the matter of the rental rate.

20. In the meantime Hopewell had raised the matter of its additional requirements for ground level works areas in respect of the commercial development contracts direct with MTR. This was discussed between Hopewell and MTR on 29th August 1978. MTR indicated that an area adjoining the residential works areas was available adding that existing fences must remain to provide a visible division between the various contract works areas. Apportionment of rent was left over for subsequent discussions. Works area requirements for the contract for finishes etc., were raised at a later meeting in October 1978.

21. Two of the major contractors who constructed the podium were Paul Y and Mitsui. The residential works areas given to Hopewell adjoined the work sites of those contractors which were the subject of short term tenancy KX568, granted by the Government at a rental of $3 per sq. ft. per annum. It was proposed by MTR that the works areas for Hopewell be secured at the same concessionary rate by extending STTKX568. Unfortunately Government's consideration of MTR's request was very protracted. In January 1979, the officials concerned proposed charging a commercial rental which was then seen as unlikely to be much less than $200 per sq. ft., vastly in excess of the $6 per sq. ft. and an additional $6 for covered areas less 1/3 discount that was by then being charged to MTR for railway areas. MTR made strong representations and there were discussions and correspondence. Ultimately Mr. Norman Thomson, the Chairman of the MTR, had to resort to a direct approach to the Director of Public works who intervened to allow a rate of $6 plus $6 for covered areas. There were also difficulties about precisely what areas were required, which areas had been occupied by Hopewell and its sub-contractors and which areas were to be granted. At one point Government was about to evict Hopewell and its contractors from the works areas, and but for MTR's intervention might well have done so.

22. Finally on 17th March 1980 the Government prepared a new STT agreement No. KX727 and sent it to Telford for execution along with debit notes for the outstanding arrears of rent. On 28th March 1980 Telford sent back the agreement and debit notes pointing out that it was Hopewell that had made the first approach to MTR for the works area and that tin addition 700 series contract works areas were involved.

23. The Government then sent the tenancy agreement to Hopewell, with the debit notes. Hopewell likewise refused to accept them and returned them to the Government. Ultimately it was MTR that executed the tenancy agreement STTKX727 in November 1980 and later paid the arrears and the rates when demanded by the Government. Their agreement was for a reduced area as the Government had by then taken back part of the total area involved for other purposes. Debit notes were sent to Telford and Hopewell by MTR for the rent and rates. Practical completion of the residential development was on 18th May 1981. On 9th July 1982 Mr. Thomson as Chairman of MTR made a written offer to Telford to withdraw the MTR claim for reimbursement. That is a matter which will have to be examined in detail as it is one of the defences relied upon by Hopewell.

24. The oral evidence

25. The bulk of the foregoing facts is derived from the documentary evidence. The oral evidence came from 5 witnesses. The plaintiff’s first witness, Mr. Frost, I did not find of much assistance on the specific issues in dispute. That perhaps is not surprising as he was concerned in a general supervisory capacity and not particularly involved in details, although he signed some of the important letters and attendee no less important meetings. Besides his memory was affected by the nine years or so that have passed since the material time. Specifically as to whether Mr. Elliot agreed to the demands that Hopewell pay, he was only able to say Mr. Elliot "would have done so in a resigned manner. "

26. The plaintiff's second witness, Mr. Brough was rather more closely involved. But he pointed to the documentary evidence rather than any oral acceptance by Hopewell. I was not wholly convinced by all that part of his evidence which sought to explain away the documentary evidence unfavourable to MTR.

27. The plaintiff's third witness Mr. Lonsdale was concerned with the later stages of the disputed matters, having been first involved with the Telford Gardens development in July 1980. His evidence, too, is of little assistance.

28. For Hopewell, the 1st witness was Mr. Norman Thompson, MTR's ex-Chairman. He made it plain that after the 10 years or so that have elapsed, he could not remember the specific matters upon which evidence was required and in which he was involved.

29. Mr. Elliot, Hopewell's other witness, was, of all the witnesses, perhaps the most closely involved in the matters in dispute throughout and is the only one still directly concerned. But even his memory has been affected, as he admitted in some respects. In addition his evidence in certain other respects raised doubts as to its reliability. He seemed somewhat overly committed to Hopewell's cause and rather too inclined to see matters from Hopewell's perspective. I do not think his evidence in several disputed matters can be regarded as objective or reliable.

30. Generally the oral evidence was not without value in putting the documentary evidence and the events into perspective. But for resolving the issues and disputed matters, the documentary evidence is clearly to be preferred.

31. The Residential Works Area Claim.

32. I turn then to the first issue which is whether there was an agreement of the nature pleaded in relation to works areas for the residential development. It is common ground that there was no specific offer or acceptance made in writing or orally. MTR's claim, it will be recalled, is that their agreement was made partly in writing, partly orally and partly by conduct, more specifically, as it turned out, that acceptance was by Hopewell's conduct in entering into occupation and thereafter using the works area. To start with I observe that there was no legal obligation that I can see upon MTR to provide Hopewell with works areas at around level. The joint development agreement provides only for works areas on the podium. On Hopewell's behalf it was attempted to prove that it was a custom in Hong Kong for employers and developers to grant works areas to their contractors free of charge, not a custom in the legal sense as relevant to the construction of the joint development agreement, but in the context of the expectation and belief of the parties and their likely conduct in that light. Given the conflicting evidence, I find myself unable to accept the existence of any such custom or even a practice to any sufficient degree that would be of assistance.

33. To proceed I have no doubt that Hopewell were perfectly well a ca are of MTR's many communications that Hopwell should pay the Government's charges for the work areas, and indeed aware of that even before entering into occupation. But that is not to say that Hopewell necessarily believed that MTR would insist upon payment or that MTR could not be persuaded to provide work areas free of charge. Hopewell, on the evidence, probably knew that works areas were provided to other contractors by MTR free of charge. Some of these works areas actually adjoined Hopewell's work areas. That they may have been provided free because they were for railway development as opposed to associated development, might not necessarily have been known or appreciated or even accepted by Hopewell. In addition there had been delays in the work that had to be completed before Hopewell could start which aggravated its works area requirements.

34. Hopewell was no doubt anxious to have the additional works areas it sought. As to whether they were necessary and essential or merely convenient, I do not propose to express any opinion. But lack of works areas in proximity to the depot would plainly have caused problems to Hopewell. Nonetheless, Mr. Elliot refused to accept responsibility for payment of rental for works areas from the outset orally at a meeting in November 1977 and in writing by his letter of 1st December 1977. Indeed he never did accept liability, except to a limited extent for the 80,000 sq. ft. at $3 per sq. ft. in his letter of 1st May 1978. To that I shall return in another context. At times Hopewell simply declined to respond to the numerous communications from MTR that Hopewell would have to pay. In ordinary circumstances it might have been possible to infer an agreement from an offer by one party to provide the use of land at a price followed by occupation and use by the other. But what we have here on Hopewell's part I can only describe as resolute, sustained non-acceptance of a positive nature. And on MTR's part, no doubt because of the unacceptable consequences that could result, there was an equally clear and consistent unwillingness to insist upon an undertaking to pay. The situation simply cried out for a confrontation and refusal to proceed with the procurement of the land, if MTR was really serious about Hopewell having to pay. Instead it was Hopewell that was the more positive in its non-acceptance of liability. Far from providing the basis upon-which the residential agreement can be inferred, the evidence points to no such agreement having been made.

35. But the difficulty in accepting MTR's claim does not end there. It is also not entirely clear precisely what offer it is contended was or could have been accepted by Hopewell's action in entering, occupying and using the works area, or indeed what offer of Hopewell was accepted by MTR allowing entry.

36. It seems to me that, as it did in respect of completion of the railway, MTR attached great importance to completion of the residential (and commercial) development which would provide a very significant income. Against that, the importance of the relatively minor amount of the works area rental and rates involved paled into insignificance. That I believe was the reason MTR simply did not insist upon acceptance of liability which it was in a position to do. The consequence in delay and disruption of the development would have been disproportionate. On the other side of the coin, Hopewell probably believed it was entitled to work areas free of charge, or alternatively and more likely, that it had a good chance of getting such areas free of charge. It therefore kept pressing for the works area which it needed and having got it simply continued to use it without paying or accepting liability. If that, and as Mr. Frost believed, the complaints about delays, loading restrictions and so on, were simply a ploy by Hopewell, it was a ploy that MTR could easily have put an end to, but chose to allow to continue.

37. It should be no surprise therefore that in my judgment MTR has failed to establish the residential agreement pleaded. Indeed it seems to me, as I have indicated, that on the probabilities no such agreement was actually made. MTR's claim in respect of residential works areas accordingly fails.

38. The Commercial Works Areas Claim

39. I turn then to MTR's claim for reimbursement of the charges for the commercial works areas. The background to this and Hopewell's defence is very similar to that of the residential claim, indeed it is common to a great extent. The claim can therefore be dealt with quite shortly.

40. In 1978 Hopewell sought ground level works areas from MTR. On 26th January 1979 MTR wrote to Hopewell on the matter saying that it could not provide free of charge work areas outside the podium. It added that it would, however, try and obtain the land from the Government at concessionary rates and that whatever charges were levied by the Government on MTR would be passed to Hopewell.   Hopewell was also told orally that it would have to pay for the work areas. But again there was no specific written or oral acceptance by Hopewell that MTR can point to.

41. And again there was the same pattern of consistent refusal to undertake or accept liability to pay. Indeed in my view Mr. Elliot's categorical refusal to accept liability to pay in 1977, although made in the context of the residential works area, clearly embodied Hopewell's stance upon all off-site works areas concerned in respect of the Kowloon Bay Development. Although the relevant facts in that respect are not exactly the same, Mr. Elliot, in my view similarly believed that he was entitled to or stood a good chance of getting the commercial works areas with out Hopewell paying for them. And, likewise, MTR was unwilling to insist upon an undertaking from Hopewell to pay.

42. For the like reasons as those I rely upon in relation to the residential claim, in my view there was probably no agreement reached that Hopewell would pay for the commercial works area. Certainly MTR has not discharged the onus upon it to prove such an agreement. Accordingly MTR's claim in respect of the commercial work area must also fail.

43. The Alternative Claim

44. I proceed now to the alternative claim.

This rests on Hopewell's letter of 1st May 1978 asking MTR to acquire approximately 80,000 sq. ft. and undertaking to pay rent at the rate of $3 per sq. ft. per annum. From the timing of that letter and the other evidence relating to it, the probability is that it related to the residential development. Mr. Barma for MTR submits that the claim is admitted by paragraph 15 of Hopewell's Re-Amended Defence. The relevant pleadings are first of all paragraphs 15 and 16 of MTR's Statement of Claim which are in the following terms:

They were responded to by paragraph: 15 of the Defence in the following way:

"15.    It is denied that the Defendant agreed to pay the Plaintiffs for rates on the land occupied by it but save as aforesaid, paragraph 15 of the Statement of Claim is admitted. The Defendant avers that the said agreement was exclusively referable to the works areas required in respect of the works to be carried out by the Defendant for Telford and that payment in respect thereof was confined to rental at a rate of $3 per sq. ft. per annum and did not include rates ...."

45. Upon its plain meaning, paragraph 15 of the defence is a clear admission of the agreement pleaded in paragraphs 15 and 16 of the statement of claim, except as to the agreement to pay rates which is denied, and that the agreement related exclusively to the residential development and was confined to payment of rent at HK$3 per sq. ft. per annum which is expressly averred by the defendant.

46. As to the former, MTR has not been able to point to any offer or agreement by Hopewell to pay rates. And as to the latter on all the evidence, the probability is that the agreement did relate only to the residential development; furthermore Hopewell's undertaking was clearly to pay the rent at HK$3 per sq. ft. per annum.

47. However there was no denial of the Plaintiff's averment that payment by Hopewell was to be made only when the MTR made payment to the Government. That averment is accordingly admitted. It follows that MTR is entitled to judgment at the rate of a$3 per. sq. ft. per annum of the residential work area it procured for Hopewell and which Hopewell occupied and used. I should add that had Hopewell wished to do so, it had ample time to amend its Re-Amended Defence; the pleading point was indicated early enough at the hearing.

48. Nonetheless I propose also to consider the claim independently of the foregoing conclusion, in case it is held to be wrong. Hopewell's letter of 1st May 1978 (asking for acquisition and undertaking to pay) was received by MTR on 3rd May 1978. In my finding, Hopewell was already in occupation of the residential works area by 2nd May 1978 at the latest, since by then it had been made to temporarily stop work on the site. For Hopewell it is submitted that therefore it was in occupation prior to receipt of the offer in the letter which could not have been accepted by antecedent entry occupation and use. Entry was clearly antecedent and does not avail MTR. But occupation-and use continued and was permitted to continue beyond 3rd May 1978, indeed in relative terms it had then barely begun. In all the circumstances I think Hopewell's continued occupation does evidence the agreement. More than that MTR relies also upon the following passage in its letter of 18th July 1978 to Hopewell to which reference has already been made:

"We will forward to you in due course, the Government's terms and conditions which we surmise will be similar to those in S.T.T. Agreement KX568 but with a different end date. We note from your letter of 1st May 1978 that you have undertaken to pay the rental for your works area. If the Government levy a charge for rates we will forward the invoice in due course. "

In my view that constitutes an acceptance of the offer in Hopewell's letter of 1st May 1978. It was of course followed by Hopewell's continued occupation. It is true that the rate of rental undertaken to be paid is not referred to in MTR's letter, but it can only be that stipulated i.e. $3 per sq. ft. per annum. And as to the statement that if Government levies a charge for rates the invoice would be forwarded in due course, I do not think that derogates from acceptance of Hopewell's offer. Alternatively, if MTR'S letter of the 18th July 1978 was in the nature of a counter offer, it was accepted by Hopewell's continuing occupation and use of the work area. Far from any refusal to pay in this particular context, Mr. Elliot had expressly conveyed his undertaking in writing to do so in his letter of 1st May 1978. And on 19th December 1980, he wrote to MTR in terms that affirmed his willingness to pay for the residential works area (though not for the commercial work area). Finally he testified that he would have been willing to undertake payment if Telford agreed to reimburse Hopewell. Telford had done so for up to 50.00f sq. ft., and Mr. Elliot believed it would go up to 80,000 sq. ft. In my judgment, therefore, there was an agreement between MTR and Hopewell under which Hopewell agreed to pay MTR at the rate of $3 per sq. ft. per annum for up to 50,000 sq. ft. of work area.

49. In the ordinary way, where one party asks another to acquire land for its use it may be a fair implication that it would pay the rates on the land. No such implied term is pleaded. MTR relies upon occupation as acceptance of its insistence upon payment of rent and rates. But against the background of its consistent non-acceptance of liability to pay anything, its undertaking to pay only in respect of rent and its belief that it was likely to obtain the land without itself having to pay for it, I am unable to infer from its conduct in occupying and using the land any acceptance by Hopewell of the demands that it pay the rates.

50. Having regard to the circumstances in which the letters of 1st May and 19th July 1978 were written and particularly their timing, I accept, as I have indicated, that Hopewell's contention that those 2 letters and the agreement relate to residential works areas.

51. I turn then to consider Hopewell's several defences.

52. Agency

53. For Hopewell it is contended that Hopewell was acting as Telford's agent; MTR disputes that. It is clear from its correspondence that Telford denies that Hopewell was its agent. As far as Hopewell's own letters are concerned, their tenor if anything, suggests that Hopewell was acting on its own behalf. In not one single item of the voluminous documentary evidence and correspondence is Hopewell stated to be or has it represented itself to be Telford's agent. Perhaps the nearest Telford got to that was its authorisation of 1st April 1978 to Hopewell to process the acquisition through MTR if Hopewell agreed to Telford's suggestion on layout, and its letter of 26th April 1978 to the effect that it was prepared to pay the rental if any for a works area of 50,000 sq. ft. However, those are entirely consistent with an independent contractor/employer relationship, particularly in view of Mr. Elliot's evidence that the Telford/Hopewell construction agreement was on a cost-plus basis under which Telford would ultimately pay the work area costs. The numerous references to Telford and the correspondence on the works areas addressed to Telford by both MTR and Hopewell are, in my view, almost wholly explained by the employer/contractor relationship and the different senses in which "Telford" and "Telford Gardens" was used. Furthermore there is some evidence that suggests that Telford was acting on behalf of Hopewell to procure works areas, rather than the other way round. In my finding not only does Hopewell's own evidence fail to establish or indicate any relevant agency, but the evidence as a whole establishes an overwhelming probability that it was Telford's independent building contractor and not its agent in the context of MTR's alternative claim. In my finding, therefore, Hopewell was not acting as Telford's agent in procuring the works area.

54. The Telford Settlement

55. Hopewell pleads that MTR's settlement through its Chairman Mr. Norman Thompson with Telford also releases Hopewell from any liability it may have had to pay for the residential works areas. But on Hopewell's behalf the basis of that plea and the submissions in support was very properly confined to agency. With my rejection of Hopewell's contention that it was acting as Telford's agent, any reliance upon the Telford settlement must fail. I should add, in any case, that I am far from satisfied on the probabilities that the settlement was intended to embrace any liability of Hopewell. The correspondence does not show that and Mr. Thompson was understandably unable after this length of time to say whether that is what He intended or agreed. Mr. Elliot's evidence of what he was told or understood as Telford's directors' understanding of the settlement is irrelevant and of dubious probative value. That the settlement was effected by reference to the debit note originally addressed to Hopewell, does not in my view take the matter any further; that seems to me to have simply been a convenient way by which reference was made to the claim against Telford then being settled. Nor do I think that the subsequent assessment by individual MTR officers that the claim against Hopewell Was unlikely to succeed, and their failure to send any debit note for successive periods of two years and four years, or even the write-off by MTR, which was purely internal, take the matter any further.

56. Attestation In Writing

57. Hopewell pleads that MTR is debarred from alleging the alternative agreement because it is an agreement amounting to a disposition of hand which is not attested by sufficient memorandum in writing under section 3(1) of the Conveyancing and Property Ordinance Cap. 219 (alternatively because the alternative agreement amounts to a guarantee for rent also not attested to in writing under section 14 of the Law Amendment and Reform (Consolidation) Ordinance Cap. 23). The latter alternative was not relied upon by MTR; nor has the alternative agreement emerged as a guarantee, accordingly the latter point need not be considered.

58. Mr. Barma first of all takes a pleading point. He says the defence does not plead that that there was a disposition of land. He relies upon paragraph 18/2/21 at page 282 of the 1988 Annual Practice and In re Gonin (1979)1 Ch 16. The former merely says that section 40 of the Law of Property Act 1925, whence section 31 of Cap. 219 is derived, must be specifically pleaded; and in the latter it was held that there was discretion to allow an amendment to plead section 40 at the trial. I find nothing in Those authorities to warrant the defendant's pleading being held to be insufficient. It is apparent in the circumstances that what the defendant pleads is that the alternative agreement is an agreement for an interest inland. Although that averment was not specifically made, I do not accept that that would have prevented the plaintiff from obtaining any particulars to which it would otherwise have beers entitled, that being the contention on MTR's behalf.

59. To proceed then to the defence plea, it boils down to whether the use of the land procured for Hopewell is an interest in land. This, by the definition in section 2 of Cap. 219 is included in "land". As I have already observed, section 31 is derived from section 40 of the Law of Property Act 1925, but it differs from section 40 in not reproducing the expression "disposition of land or interest in hand". In Cap. 219 "interest in land" does not appear in section 31 but is imported by the definition of "land" in section 2 i.e. 'land' includes ... any... interest ... in ... land." Although it is a definition which extends the ordinary meaning of land theoretically beyond interests in land, I do not accept that it displaces or renders unsafe the English authorities on section 40, as contended on Hopewell's behalf.

60. Proceedings to those authorities, it is clear that the question whether the grantee has exclusive possession is of first importance in distinguishing between leases and licences (Woodfall, Landlord and Tenant para. 1 - 0017 page 8) also that a mere contractual licence is not, without more, an interest in land binding on a purchaser even with notice and therefore the mere fact that land is expressed to be conveyed 'subject to' a contract does not necessarily imply that the grantee is to be under an obligation, not otherwise existing, to give effect to the provisions of the contract. (Ashburn Anstalt v Arnold (1988) 2 All ER 147; 148, 149; also see Woodfall para. 1 - 0017 page 8/1).

61. Turning to the facts, the alternative agreement was simply to provide Hopewell with a works area of up to 80,000 sq. ft. with reimbursement to MTR at the rate of $3 per sq.ft. per annum. No particular parcel of land was identified or agreed; an area was simply to be carved out of the land west of Wai Yip Street. No period for which the land would be made available was agreed.

62. It is urged on Hopewell's behalf that Hopewell's occupation was in fact exclusive. But it is clear that it is the intention of the parties that is decisive not what may happen to follow (Woodfall para. 1 - 0017 page 8/1; Antoniades v Villiers and another (1988) 2 All ER 309; 317). The nature of the agreement, its purpose, the surrounding circumstances and the absence of any provision to that effect, suggests to me that exclusive occupation was not intended. It is not without significance that when Wong Fu, one of the nominated sub-contractors sought a works area from Hopewell, Hopewell, far from suggesting that it was to have exclusive occupation, cast around for some time to see how it could accommodate Wong Fu. But even if exclusive occupation had been intended, that would not today be decisive (Wodfall 4 para. 1 - 0017 page 8/1) and I think the nature of the agreement and its circumstances negative a tenancy. It is not disputed that the agreement is not an agreement for a tenancy for there was neither a parcel nor a period agreed. On the other hand, it is contended for Hopewell that there was a tenancy at will. The nature of a tenancy at will and the circumstances in which one arises is described in Woodfall para. 1 - 0647/48 at pages 262/63, and page 366 of the 14th Edition of Cheshire and Burn's Modern Law of Real Property. The alternative agreement does not envisage a tenancy so that there is no question of any tenancy being held over, being negotiated for, that has failed or is void or anticipation of which has resulted in possession being obtained. These situations apart, the courts have restricted the scope of implied tenancies at will. They are now disinclined to infer such a tenancy from an exclusive possession of Premises for an indefinite period. (Cheshire and Burn's p.366).

63. In my judgment therefore, the alternative agreement provided for a licence and not a tenancy at will. A licence, it is not disputed, is not an interest in land. It follows therefore that section 3(1) of Cap. 219 does not debar MTR from alleging the agreement.

64. Illegality

65. Hopewell did not Plead this Point. however, upon the authorities there cited, I accept as the law the following statment at para. 1192 page 647 of the 25th Edition of Chitty on Contracts:

                "Pleading of Illegality.

66. As to the last sentence in the foregoing passage, the extremely short report of Mercantile Credit Company Limited v. Hamblin (1964) 1 WLR 423 which is the authority cited in support, shows that John Stephenson J. refused the defendant leave to plead illegality and found for the defendant on other grounds. On appeal (1965) 2 QB 242; 276, Pearson L.J. observed that the point had not been pleaded so that the plaintiff had not had sufficient opportunity of adducing evidence in relation to it. On the ostensible figures the transaction could have met the requirements of the statute it was said to breach. He refused to consider the question of whether the agreement was illegal as the point had not been pleaded. He observed that in his judgment it would not be right for the court of appeal to give any decision on the point. While, therefore, I would respectfully agree that it may well be counsel's duty to prevent the court from enforcing illegal transactions, it seems to me that the principles upon which the court should act are those set out in paragraph 1192 of Chitty on Contracts, which I have already stated.

67. The illegality relied upon is said to arise from Clause 2(g) of short term tenancy agreement No. KX727, under which the tenant agrees not to assign mortgage charge demise underlet part with the possession or otherwise dispose of the said premises or any part thereof or any interest therein or enter into any agreement so to do. The agreement, it is said, would result in MTR, the tenant, parting with possession of the land. However, clearly there is no illegality on the face of the alternative agreement. But it is also contended on behalf of Hopewell that all the relevant circumstances are before the court. That cannot be accepted. Had the point been pleaded, MTR may well have called evidence from the Crown upon the restriction in the agreement and what the consequences of breach were. Accordingly, in my judgment, Hopewell should not be allowed to rely upon those unpleaded allegations.

68. I shall nevertheless consider very briefly the nature of Hopewell's plea of illegality. What is suggested, as I have indicated, is that the agreement to allow Hopewell to occupy and use the land would be a breach of the restriction in tenancy agreement KX727, and prior to the 29th September 1978, the date of the agreement, in breach of a restriction that it was known would apply. All the cases of illegality in the authorities to which I have been referred, relate to breach of statutory provisions or involve moral turpitude. Neither is involved here. Furthermore, an assignment in breach of a covenant or condition not to assign or underlet is not void but is subject to the landlord's right to forfeit the lease. (Halsbury Laws of England Volume 27 page 282 paragraph 363). Also, it should be noted, the Crown granted the lease for the express purpose of use as “a works area for the construction of" the Railway and the Kowloon Bay Depot. It well knew that the land was so used by contractors and accepted rent therefore. In my view, Hopewell's point is clearly without merits.

69. Limitation

70. It is common ground that the relevant limitation period under the Limitation Ordinance (Cap. 347) is 6 years. The issue turns upon the date Hopewell should have paid the MTR i.e. when MTR made payment to the Government, on 1st December 1980 as contended for by MTR, or, prior to 28th July 1980 as contended for by Hopewell. As I already held, Hopewell is bound by its pleadings in para. 15 of its Re-amended Defence, in which it admitted almost all the averments in paragraph 15 of Hopewell's Statement of Claim, including the averment that Hopewell was to make payment to MTR only when MTR made payment to the Government. In my finding payment was made on 1st December 1980 at the rate of $6 per square foot per annum and an additional $6 per square foot per annum for covered areas. Payment by Hopewell was therefore not due until after that date. MTR's writ was filed on 28th July 1986 i.e. within 6 years. It follows that the alternative claim is not time barred.

71. Quite apart from that admission in the pleadings, in the context of all the other evidence and circumstances, I am satisfied that the general understanding and the specific alternative agreement always was to reimburse MTR. Reimbursement could not have been due until after payment was made by MTR to the Government. Upon that basis, too, the alternative claim is not time barred. Accordingly I reject Hopewell's plea of limitation.

72. Conclusions

73. For the foregoing reasons, MTR is entitled to be reimbursed in an amount calculated at the rate of $3 per square foot of the area that Hopewell occupied as a residential works area, up to 80,000 square feet. The evidence in my finding clearly establishes that Hopewell initially occupied as a residential works area an area known as Area 2 and that it progressively extended its occupation beyond. However there is no satisfactory evidence as to the rate or date of extension, nor of the precise or minimum additional areas occupied, nor of the extent to which they were occupied as residential works areas and not commercial works areas. Although, therefore, it is overwhelmingly probably that Hopewell did occupy some additional residential works areas, MTR has failed to establish how much and for how long. On the evidence in my finding Area 2 was 6139 square metres. Although Hopewell was in occupation of Area 2 before 13th May 1978, the Government only charged rent from that late. Then on 1st December 1980 the Government took back part of Area 2. The onus is upon MTR to establish the extent of the area which Hopewell continued to occupy. Without indulging in speculation, only 4156 square metres can be accepted as clearly having remained in Hopewell's occupation from 1st December 1980. Hopewell totally vacated the area in January or February 1982, but the Government only charged rent up to the end of December 1981. Accordingly, the amount to be reimbursed to MTR, which, of course, itself paid considerably more is, adopting Mr. Barma's calculation, as follows:

6139 m² (Area) × $32.292 (ie. @ $3 p.s.f.) ×   933/365 (13th May 1978 to 30th November 1980)= $506,735.52.

4156 m² × $32.292 × 396/365 (1st December 1980 to 31st December 1981) = $145,603.83.

Total $652,339.35.

Subject to any correction of that mathematical calculation, there will be judgment for the MTR in that amount. I will now hear counsel upon interest and costs.