FAVOURABLE ISSUE CO LTD v. SECRETARY FOR JUSTICE

CACV 254/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 254 OF 2012

(ON APPEAL FROM HCA NO. 3344 OF 2001)

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J U D G M E N T

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Hon Cheung JA :

Facts

1.  The plaintiff is the registered owner of a piece of land in Ting Kau, New Territories known as Lot No. 433 in DD 399 (‘the Land’).  It became the owner on 1 August 1985.  The former owner was Mrs Tang Chan Hea Wen (‘Mrs Tang’) who acquired the Land from the first owner on 19 November 1966.  The first owner, Mr Lui Wing Shui, acquired the Land on 3 February 1962.

2.  By June 1968, a house was built on the Land.  The Government issued an Occupation Permit on 7 June 1968 in respect of the house and a Letter of Compliance on 15 June 1968 stating that all the general and special conditions of the Grant had been complied with.

3.  Between 1967 and 1973, the Government had issued Garden Permit and Road Permit to Mrs Tang to use certain government land that surrounded the Land.

4.  On 2 May 1989 the Government (District Lands Office, Tsuen Wan District (‘DLO-TW’)) informed the plaintiff that there were breaches of the government lease and threatened the plaintiff with re-entry.  The breach was that the ‘built over’ area of the Land exceeded the maximum 30% under Special Condition 10 of the Grant.

5.  Special Condition 10 provides: ‘No part of any structure shall exceed a height of 25 feet above the mean formation level of the lot and the maximum area of the lot that may be built over shall not exceed 30% of the area of the lot’.

6.  By a letter dated 21 July 1989, the DLO-TW wrote to Mrs Tang stating there were breaches of the Garden Permit and Road Permit granted to her in respect of government land (the garden and road area) that surrounded the Land.  The breaches were the following :

1) An unauthorized domestic structure measuring about 26.5 meters which appeared to be an extension of the main building on the Land.

2) A concrete stairway partly constructed over the licensed area.

3) An unauthorized shelter measuring about 8.20 square meters, erected in the garden.

7.  As the breaches were not rectified despite the demand by the DLO-TW, the Garden Permit and the Road Permit were cancelled on 8 November 1989.

8.  The plaintiff and the DLO-TW then entered into negotiations.  The DLO-TW offered the plaintiff and the plaintiff accepted,

(a) A Temporary Waiver dated 4 December 1996 in respect of the breaches of the Grant.

(b) A Short-Term Tenancy dated 29 November 1996 in respect of the government land.

9.  The plaintiff paid all the fees under the Temporary Waiver until 10 June 1998, and all the fees under the Short Term Tenancy until 10 September 1998.

10.  The plaintiff then commenced the present action against the Secretary for Justice on behalf of Government on 26 July 2001 claiming that the Government had by the letter dated 15 June 1968 informed Mrs Tang that all the General and Special Conditions of the lease had been complied with.  As a result the Government had waived Special Condition 10 and it was wrong for the Government to rely on the threat of re-entry and impose the Temporary Waiver on the plaintiff (‘the waiver issue’).

11.  The plaintiff further alleged that the Garden Permit and Road Permit were wrongly cancelled and the plaintiff accepted the Short Term Tenancy as a result of a mistake that there were irregularities on the government land which entitled the Government to cancel the Garden Permit and the Road Permit (‘the breach of permits issue’).

The judgment below

12.  Deputy Judge Whitehead SC tried the action and found in favour of the plaintiff on the waiver issue.  The Judge granted a declaration that the Government has waived and is estopped from enforcing Special Condition 10 and he ordered a recission of the Temporary Waiver.  He also ordered the Government to repay the money paid under the Temporary Waiver. 

13.  The Judge, however, found against the plaintiff on the breach of permits issue.  He granted a declaration that in the event the plaintiff should fail to pay all outstanding rent and interest in relation to Short Term Tenancy No. 1191TW within 42 days from the date of the Order, the Government will be entitled to terminate the said Short Term Tenancy No. 1191TW and to take possession of the area under that Short Term Tenancy.

The appeals

14.  The defendant now appeals on the waiver issue and the plaintiff cross appeals on the breach of permits issue.

The waiver issue

15.  It is common ground that at the time when the DLO-TW threatened re-entry in 1989, it had lost its file on the Land.  The file was only recovered after the commencement of the proceedings.  The approved building plans and approved records for the building on the Land were not recovered.

16.  The evidence showed that in about mid 1968 Mrs Tang built a 2-storey residence on the Land (‘the House’).  The House as erected by her extended to 106.50 square meters which represented 48.9% of the Land.  This exceeded the 30% restriction under Special Condition 10.  This was, however, approved by the Government.  The events leading to the approval to have a built over area of 48.9% came about in this way :

1) Mr Lui, the first owner instructed a firm of architects, Guy WK Chan to prepare building plans in relation to a house on the Land.  On 26 May 1966 the Buildings Ordinance Office refused to approve the architect’s plans and advised the architect to refer the matter to the District Officer, Tsuen Wan (‘DO-TW’).

2) By a letter of 3June 1966 from the architect to DO-TW, the architect enquired whether the DO-TWhad objections to the following three points :

‘ (a) The stairhead exceeds 25 feet.

(b) The 1^st floor terrace and car port not to be included in the calculation of coverage.

(c) Filling slopes outside of the east and west boundaries and to the access right of way.’

3) The architect submitted plans dated 4 June 1966 to the DO-TW which included a calculation of site coverage.These plans did not meet with the DO-TW’s approval.

17.  The architect, by letter dated 28 June 1966, submitted amended plans to the DO-TW.  The letter stated that :

‘ Further to my letter of 3rd, June, 1966, I enclose herewith amended plans [showing]that the space under the car park is unexcavated and therefore not to be included in the calculations of coverage.’ (emphasis added)

18.  The amended plans showed, among other things, an area marked as ‘terrace’ on the first floor plan, a partially enclosed car port on the first floor plan and immediately below the car port with the word ‘unexcavated’.  The words ‘unexcavated portion’ also appeared on the ground floor plan and site formation plan.

19.  By a letter dated 7 July 1966 to the architect, the DO-TW stated :

‘ I refer to your letter dated 28^th June 1966 and confirm that on the basis of the amended plans now submitted numbered 5/6, 3/6 and 2/6 and dated 30^th June 1966, I do not object to :-

(i) The staircase enclosure exceeding a height of 25 feet above Lot mean formation level.

(ii) The first floor terrace and car port not being included in the calculation for coverage.

(iii) The illustrated cutting into the Crown Land outside the Lot boundaries.’  (emphasis added)

20.  The inspection carried out by the DLO-TW before it issued the warning letter of 2 May 1989 showed that :

1) The car port had been fully enclosed and turned into a bedroom.

2) The area below the car port which was supposed to be unexcavated, had been enclosed and turned into another bedroom.

3) The terrace on the first floor was enclosed, likewise for the area below it on the ground floor.

21.  The narrow point on the waiver issue is whether the Government had waived generally the requirement of Special Condition 10 or only partially waived it so that when it discovered the above situation in 1989, it could exercise its right of re-entry.

22.  In AG of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 (Privy Council), the Privy Council referred to the well-known principles set out in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; [1998] 1 All ER 98, HL(E) and held :

‘ 21. ..... There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?’

23.  In Real Honest Investment Ltd v AG[1997] 2 HKC 436 (Privy Council), the lease condition provided that the building to be erected may not exceed 35 feet in height.  In 1948, the Government gave approval to build a multi-storey building on the site which was over 80 feet.  In 1993, the owner wished to build a new building in place of the existing one.  The proposed new building would also exceed over 80 feet.  The developer argued that the Government had waived the height restriction in 1948.  The Privy Council affirmed the Court of Appeal’s judgment that this was not so.  Lord Clyde held at 440 that :

‘ It is to be noted that the letter [i.e. the 1948 approval to build more than 80 feet in height] was written expressly in connection with the tentative plan for the erection of flats. It then becomes difficult to construe it as giving a general waiver for all time of the restriction on height. .... The terms in which the waiver was promised in para 2(a) of the letter of 29 September were less precisely formulated but the terms of the waiver itself are plainly directed to ‘the building’, that is the particular building then proposed and not with any ideas of a more far-reaching dispensation...... If it had been the intention to grant a waiver of the restriction on height for any future building at any time during the future currency of the lease and its renewal that could have been done, but it would require clear language to express that intention.’

24.  Litton VP (as he then was) in the Court of Appeal [1997] 2 HKC 182 held at 193 that :

‘ 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.’

25.  Although the ambit of the waiver in a given situation is one of construction, the following principles are relevant :

1) there is a clear distinction between waiver of a breach of the covenant and waiver of the covenant itself.

2) waiver of a covenant cannot be lightly inferred.  It can be, but only where the conduct of the grantor is sufficiently clear and unambiguous that it would be inherently unfair for him to be permitted to go back on his word, either actually spoken or derived from his conduct.

(See : Chinachem Investment Co Ltd v Chung Wah Weaving and Dyeing Factory Ltd [1978] HKLR 83 and Expressluck Development Ltd v SJ (HCMP 1432/2005))

26.  In my view, in the present case the extent of the waiver must be considered in the light of the amended plans and the letters dated 28 June and 7 July 1966.  This means the Government’s waiver of the 30% built over restriction could only be premised on the representations given by the architect in respect of the following, namely,

1) the space below the car park would not be excavated.

2) the car park itself would not be enclosed.

3) the terrace by itself and the area below it would not be enclosed.

27.  This was made clear in the letter dated 7 July 1966 which granted the waiver ‘on the basis of the amended plans now submitted’.  At most it was waiver of the breach of Special Condition 10 by the intended building work. The waiver cannot be construed as a general waiver of that condition as a whole, so as to preclude the Government from relying on it when the owners of the Land built over it in a way contrary to the manner represented by the amended plans and upon which the waiver or dispensation was granted.  In my view the Judge had erred on the waiver issue. 

28.  This being the case it is not necessary to address the submission made by Mr Mok that :

1) Special Condition 10 imposed a twin-restriction both on height and coverage.

2) The combined effect of the twin-restriction would govern the volume and bulk of the domestic building to be built pursuant to the lease.

3) The amended plans and letter submitted by the architect were premised on a two-dimensional basis.

4) Accordingly, the non-objection, waiver or relaxation given by the DO-TW in his letter of 7 July 1966, when read as a whole with the relevant documents and events, was a conditional one, firmly tied to the three-dimensional context as shown by the amendments contained in the amended plans.

5) The conversions did not just breach the two-dimension 30% coverage but also increased the three-dimensional interior volume beyond that imposed by the twin-restriction of Special Condition 10.

The breach of permit issue

29.  The evidence showed that :

1) On 1 May 1967, the Government issued Mrs Tang a permit to use certain government land i.e. the road area adjacent to the Land for ‘intake and pipeline, approach road, septic tank and soakage pit’ (‘the Road Permit’- W3583).

2) On 1 July 1968, the Government issued her a permit to use certain government land i.e. the garden area surrounding the Land as a garden (‘the Garden Permit’- W4027).

3) On about 1 January 1973, the Government issued her a new permit, replacing the Road Permit, to use the government land for ‘approach road, septic tank and soakage pit’ (‘the New Road Permit’- W6384).

4) Sometime before the New Road Permit was granted (and before 20 June 1972 when an aerial photograph of the Land was taken), Mrs Tang built a room under the approach road which was on government land.  This was the unauthorised domestic structure referred to in the letter dated 21 July 1989 by the DLO-TW.

30.  On 7 January 1985, the Government demanded Mrs Tang ‘or the Occupier’ to pay fees due under the Garden Permit.  On 8 January 1985 the Government demanded from Mrs Tang ‘or the Occupier’ fees due under the New Road Permit.  The plaintiff later paid the fees.

31.  The argument of Mr Cooney SC for the plaintiff is that :

1) the Government, by conduct, granted the plaintiff permits to use, occupy and enjoy the government land in respect of both the garden and the road and the plaintiff, by conduct, accepted the permits;

2) the District Land Officer did not have grounds to cancel either permit and wrongly did so; and

3) the parties entered into the Short Term Tenancy as a result of a mistaken belief that there were irregularities in respect of the Garden Permit and the New Road Permit. 

32.  In my view it is clear that the terms of the letters dated 7 January and 8 January 1985 did not constitute an offer to the plaintiff to take up the permits.  The letters were simply demands for payment of the outstanding fees.  No offer and acceptance of the permits can be gathered from these letters and by the payment of the fees by the plaintiff.

33.  In respect of the breach of the Garden Permit this is purely a finding of fact.  I agree with the Judge’s view that the garden canopy is a structure by its construction.  Further the Garden Permit forbids the erection of ‘any’ structure without the written permission from the District Office.  No permission was obtained.

34.  In respect of the breach of the New Road Permit, again this is a finding of fact.  The Judge held that from the photographs that he had seen the stair case landing protruded over the Government land.  It appeared to be attached to part of the building which itself is part of the Government land.

35.  The Judge held that the New Road Permit which was issued simply for the purpose of ‘approach road’, and upon which no structures had been expressly permitted, could not in any way regularize the unauthorized building of a comparatively large room using the road/ramp as its roof.

36.  The Judge further found that there was no evidence as to whether there was any physical inspection of the Land and the surrounding area before the New Road Permit was issued in 1973 and rejected the argument that the New Road Permit regularized the encroachment of part of the room that was built under the ramp onto the road area which may render the cancellation of the New Road Permit wrongful. 

37.  I agree with the Judge’s view.

38.  As accepted by Mr Cooney the issue of common mistake would only arise for consideration if there was no breach of the Garden Permit and New Road Permit.  In view of the finding on breach, it is not necessary to address this point.

Conclusion

39.  Accordingly the defendant’s appeal is allowed.  The judgment entered in favour of the plaintiff is set aside.  There shall be declarations that the defendant is entitled to recover the waiver fees and interest and to terminate the Temporary Waiver and re-enter the Land in the event of the plaintiff’s failure to pay the fees and interest as claimed in paragraphs 2 and 3 of the Prayer of the Notice of Appeal.

40.  The plaintiff’s cross appeal is dismissed.

Costs

41.  The plaintiff is to pay the defendant the costs of the appeal and cross appeal on a provisional basis.

Hon Chu JA :

42.  I agree with the judgment of Cheung JA and have nothing to add.

Hon Lunn JA :

43.  For the reasons set out in the judgment of Cheung JA I agree that the defendant’s appeal is to be allowed, the plaintiff’s cross appeal dismissed and with the proposed declarations and the order nisi as to costs.