YING HO CO LTD AND OTHERS v. THE SECRETARY FOR JUSTICE

CACV 291/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 291 OF 2002

(ON APPEAL FROM HCA NO. 10834 OF 1998)

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J U D G M E N T

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Hon Rogers VP:

1. This is an appeal from a judgment of Deputy High Court Judge Muttrie given on 4 March 2002. By that judgment the judge dismissed the plaintiffs' claims in this action save for those which arise out of paragraph 29 of the re-amended statement of claim. At the conclusion of the hearing this court did not require to hear argument on behalf of the defendant save for clarification as to the terms of the concession which had been made in the court below. This court reserved its judgment which we now give.

Background

2. The plaintiffs are companies which are apparently linked by common ownership and are within what the statement of claim pleads as the Chinachem Group of Companies. No distinction is drawn between them and for the purposes of these proceedings they have common interests. All the companies are controlled by Mrs Nina T H Wang ("Mrs Wang"). The defendant is sued in her capacity as representative of the Hong Kong Government. Specifically, the actions of the Secretary for Planning, Environment and Lands ("SPEL"), the Director of Lands ("DL") and the Director of Civil Aviation ("DCA") and their departments are relevant.

3. By new grant dated 20 November 1992 the plaintiffs acquired Tsuen Wan Town Lot No. 353 ("the lot") at a premium of HK$122,625,997.57 in addition to which a substantial quantity of land entitlements were also surrendered. The total consideration has been put at a value of well over HK$1 billion. The area of the lot was approximately 19,500 square metres. The grant contained a number of conditions which placed the plaintiffs under substantial obligations. General condition 10(b) provided that the fulfilment by the plaintiffs of the obligations under the conditions of grant was a condition precedent to the grant and the continuation of the tenancy. That condition went on to provide that any acceptance of rent, rates or other payments by the Government would not constitute a waiver unless the Government had acquiesced in any breach. Clause 11(a) provided that the Government was entitled to re-enter the lot and take back possession of it or any part of it if the plaintiffs failed or neglected to perform, observe or comply with any of the conditions.

4. Under special condition (5)(a)(i) the plaintiffs were required to submit Master Layout Plans ("MLPs") within six months of the date of the agreement. Special condition (5)(b) provided that:

"No building, landscaping or any other works (other than site formation works) shall be commenced on the lot or any part thereof until the (MLP) ... had been approved by the (DL)."

No variation or alteration of the MLP was to be permitted without the prior written approval of the DL.

5. Special conditions (6)(a) and (9)(a) when read together required the plaintiffs to erect a building or buildings with a gross floor area of not less than 75,000 square metres and no more than 185,250 square metres and have the development fit for occupation within 48 months of the date of possession i.e. by 8 December 1996. The plaintiffs were also required to complete a ground floor transport terminus within 36 months of the date of possession i.e. by 8 December 1995. Apart from provisions relating to the maximum and minimum development of the lot special condition (9) also contained site coverage and plot ratio restrictions which varied depending upon the height of the building. The minimum height specified in the table in that special condition was "not exceeding 15 metres" and the table went up to the category of "over 61 metres". The maximum plot ratio was specified as being 9.5. That restriction was not only contained in special condition (9)(d) but also was to be derived from special conditions (9)(a)(ii) and (b).

6. Finally, mention should also be made of special condition (9)(e), referred to below as the DDH clause, which read:

"The design, disposition and height of any building or buildings erected or to be erected on the lot shall be subject to the prior written approval of the Director [i.e. the DL] and no building works (other than site formation works) shall be commenced on the lot until such approval shall have been obtained."

7. As already indicated, the plaintiffs obtained possession of the lot on 8 December 1992. Between November 1992 and December 1993 the plaintiffs submitted three MLPs. These were rejected. The reasons for the rejection are irrelevant for the purposes of this appeal and do not form the subject of any complaint. In early 1994, the plaintiffs informed the District Land Office, Tsuen Wan ("DLO/TW") that they intended to construct a purely commercial development on the lot. There was, apparently, a public announcement on 24 March 1994, by Mrs Wang on behalf of the plaintiffs, that they intended to build the tallest building in the world on the lot. On 17 May 1994, the DLO/TW wrote to the plaintiffs reminding them of their obligations to complete the transport terminus within 36 months from the date of possession of the lot and their obligation to complete the development within 48 months. The letter concluded:

"As there is no construction works being commenced on the subject site, I would draw your attention to the captioned Special Conditions. Besides, please let me know the development programmes on the Transport Terminus and the said footbridges as soon as possible."

8. On 19 May 1994, the plaintiffs submitted a further MLP, MLP4. It would appear that the scale of the plan of MLP4 was half the size that it was required to be. Nevertheless, by a letter of 10 June 1994, the plaintiffs were informed that the submission contained "fundamental breaches" of the lease conditions first, because the gross floor area exceeded the maximum permitted under special condition (9)(a)(ii), secondly, because the plaintiffs had provided for access to the lot in unpermitted places. That letter went on to say that because there would have to be substantial changes to the plan, the MLP had not been examined in detail. The final paragraph reminded the plaintiffs again of their obligations to complete the transport terminus by December 1995. The reminder was renewed, again, at the end of that month.

9. A further MLP, MLP5, was submitted in October 1994 following a meeting between representatives of the plaintiffs and the DLO/TW. At that meeting discussion had turned upon whether the plaintiffs were to be required to pay a waiver fee in view of the interim use of the lot as an unauthorised public fee paying car park. The plaintiffs were, again, reminded of their obligations to complete the transport terminus, which, by then, would have had to be completed within just over a year.

10. MLP5 having been submitted on 28 October 1994 was withdrawn on 17 January 1995. In relation to MLP5 the proposal was similar to MLP4 save that the height of the building was reduced from approximately 518 metres to 388 metres but the plaintiffs still sought an enlarged plot ratio to 11.4, so that there could be subsequent development of the building in which event it would then be the same height and design as that in MLP4. That increase of the plot ratio appears to have been the focus of much of the interchange both within Government and between the plaintiffs and Government.

11. At a meeting between the DLO/TW and representatives of the plaintiffs on 6 January 1995, the plaintiffs were alerted to the fact that the Civil Aviation Department ("CAD") considered that, because the proposed development may affect aviation of the new airport at Chek Lap Kok, there would have to be a height restriction. The judge found that the plaintiffs heeded the advice they were given to discuss the matter with the CAD. Mr K T Heng, the plaintiffs' project director, and his assistant held meetings with the DCA and the Chief Safety Officer of the CAD on 12 and 13 January. The plaintiffs were told that the CAD expected that a height limit of 320 mPD would have to be imposed and a maximum obstacle clearance height of the building would have to be about 470 mPD.

12. Despite that warning, on 13 and 17 January the plaintiffs submitted MLP6 and MLP7 respectively. Both showed buildings which were similar to that in MLP4 save that the plot ratio in the buildings was 9.5. The total height of the building, including mast, was 542.62 mPD.

13. On 27 January 1995 the Deputy Secretary, writing on behalf of SPEL, sent a letter addressed to Mrs Wang which contained this paragraph:

"Aviation Safety

The Director of Civil Aviation has advised that the imposition of a maximum building height limit of 324 metres above Principal Datum is required for any building to be erected on this site in order to protect the Instrument Landing System and safeguard the operations of the Chek Lap Kok Airport. I believe the Director of Civil Aviation has explained this to you."

14. Following that letter there was a telephone conversation between Mr C Y Leung, who was acting as the plaintiffs' consultant, and the DCA. The judge's conclusion as to the outcome of that telephone conversation was that the DCA probably indicated that it may be possible to relax the height restriction, if not up to 500 metres, to something over 300 but that it was impossible for him to say whether the restriction of 324 mPD could be lifted until after computer modelling had been carried out. There was some discussion of using an alternative guidance system based on microwave but in any event that would not be in commission until the year 2010. It seems that the DCA made various inquiries after the conversation, the result of which was that no final decision could be taken until it was known precisely what instrument landing system ("ILS") would be used.

15. On 21 February 1995 the DLO/TW wrote to the plaintiffs' approved person setting out a large number of preliminary comments in relation to MLP5 as it had been amended by MLP6 and 7. Amongst those comments was the same point which had previously been made in the letter of 27 January in relation to the DCA advising that the imposition of a maximum height limit of 324 mPD was required in respect of any building to be erected on the lot.

16. There was a submission of a further MLP, MLP8, by the plaintiffs' approved person on 13 April 1995. This had taken into account many of the preliminary comments in the letter of 21 February 1995 save that the height of the building shown in the plan remained the same as in MLP6 and 7 namely 468 metres with an additional spire or mast of approximately 70 metres. It is of interest to note that in relation to the height of the building the approved person wrote:

"Comments from Director of Civil Aviation (1)

We strongly object to the remarks given by the Director of Civil Aviation in respect of the proposed height of the development, an area which we consider, with due respect, that the Director of Civil Aviation has no statutory jurisdiction whatsoever, as the plans are prepared based on current statutory guidelines."

17. Shortly after that, on 21 April, the DCA sent a memo to SPEL in which it was indicated that the height of 324 m should not have been unqualified since later in the year the CAD might "... most likely be specifying a height limit which is higher than 324 m." The DCA was concerned that if that were to happen the developer might have cause to complain. Shortly thereafter the building plans for the transport terminus were rejected because there had been no approval of an MLP.

18. On 15 May 1995 Mr Bowen Leung took up office as SPEL. Whilst the date of his appointment is not, as such, significant, the focus of a major part of the plaintiffs' claim has been that Mr C Y Leung, who, as already noted, was advising the plaintiffs and making representations on their behalves, made two agreements with Mr Leung. The first agreement was said to have been made shortly after his taking office. It is clear from the record of a meeting of the Lands Department's Building Committee III that on 18 May 1995 the CAD were by then advising that in order to protect the integrity of the ILS a height limit of 324 mPD had to be imposed for the proposed building on the lot. The minute shows that the CAD considered that if the proposed area of protection could not be provided it would mean that the airport might need to be closed down or operated on reduced capacity in times of poor weather or poor visibility which could mean that operations were reduced by as much as 40%. The minute continued:

"Under such circumstances, flights approaching HK may have to be diverted elsewhere. In other words, the Airport will not be able to operate in all-weather conditions to its full capacity as originally planned."

The committee considered that the MLP then before it, with a building height of 542.62 mPD, should be rejected but that there should be no further reference to a height limit, not even to the figure of 324 mPD.

19. There were exchanges of memos and internal meetings between, for example SPEL and DL, during the course of May 1995. There is no doubt that it was SPEL's view that the Government should bring in legislation which would cover the question of the permitted height of a building and the vicinity of an airport rather than have to rely on using the DDH clause. Whether or not this was a reaction to the comments in the letter of 13 April is another matter.

20. On 1 June 1995, the DLO/TW wrote to the plaintiffs' approved person rejecting MLP6 and 7 as being not acceptable under the lease conditions because the proposed building height was 542.62 mPD. It was said that that would have an adverse effect on the operation of the Chek Lap Kok Airport. There then followed a meeting on 8 June 1995 between Mr Bowen Leung and his deputy and Mrs Wang, Mr C Y Leung and Mr K T Heng of the plaintiffs. The plaintiffs found that part of their case upon an agreement which it was alleged was made at this meeting. It was said that Mr Bowen Leung had orally agreed with the plaintiffs' representatives that in consideration of the plaintiffs agreeing to wait for the Government's final determination on the maximum permissible height for Nina Tower, which the Government could not then determine pending the results of certain tests and/or studies to be conducted, the Government would extend the building covenant periods at a new premium. (See paragraph 16 of the re-amended statement of claim.)

21. The judge considered the evidence in relation to this agreement very carefully. As he said the major protagonists were Mr C Y Leung, who at the time of the hearing was the Convenor of the Executive Council, and Mr Bowen Leung, the present Director of the Hong Kong SAR Government Office in Beijing. They gave totally different accounts of what had happened. The judge considered all the evidence, the surrounding facts and the subsequent events and came to the clear conclusion that there had been no such agreement as had been pleaded and alleged by the plaintiffs. It suffices to say that the judge came to the conclusion that although Mr Bowen Leung was sympathetic to the plaintiffs' case that there should be an extension of the period of the building covenant he had made no commitment to the plaintiffs. At the meeting the plaintiffs produced a survey report by Aeroports de Paris, their own consultants. The survey report was designed to show that the proposed building height was safe. The judge found that Mr Bowen Leung had maintained that this was really an aviation issue and that the matter would have to be taken up with the Secretary for Economic Services and the DCA. On the following day, 9 June, the DLO/TW again wrote to the approved persons acting on behalf of the plaintiffs rejecting MLP8 which had been submitted on 13 April on the same basis that it was unacceptable under the lease conditions because of the building height of 542.62 mPD.

22. Much was also sought to be made on behalf of the plaintiffs of a letter of 29 June 1995 written by Mr C Y Leung to Mr Bowen Leung. That referred to a telephone conversation which had taken place on the previous day. The letter read:

"We refer to our meeting on 8 June 1995 between the undersigned, Mrs Nina Wang of clients and yourself, and to our telephone conversation yesterday regarding the height of the above proposed development.

We understand that you are in consultation with the Civil Aviation Department and would let us have the outcome of this as soon as possible. In the meantime, we understand that you will extend the building covenant period pending resolution of the height issue."

Immediately following that letter Mr Bowen Leung gave instructions that the DL should be requested to extend the building covenant period because the developer could not meet the time limit and he considered that it was not her fault. Although the judgment does not go into any great detail about the telephone conversation, it is clear that the judge rejected any notion that Mr Bowen Leung might have made or confirmed any agreement as to the extension of the building covenant period during that conversation.

23. There was no immediate response to Mr C Y Leung's letter of 29 June. There is an internal memo of 7 July 1995 from the DCA to the Secretary for Economic Services which makes clear that the DCA was not optimistic that there could be any relaxation. It was clear from the memo written on behalf of the DCA to the Secretary for Economic Services that the CAD was not optimistic that the 1.6% slope, which gave rise to the maximum height of 324 mPD, could be relaxed.

24. At about this time the plaintiffs had enlisted the support of a Mr Chen Xu Hua who was the Director General of the CAAC in Beijing to try to persuade the Hong Kong Government to relax their clearance requirement for the airport ILS. The CAD took the intervention of the CAAC so seriously that an offer was made to despatch two experts to Beijing to explain the issue. As it transpired that was not, apparently, required.

25. On 5 August, the Secretary for Economic Services wrote to SPEL informing him that the consultants employed by the plaintiffs had made many general assumptions that were not applicable to the Chek Lap Kok airport. The conclusion of the letter was that in order to protect the use of the ILS the permissible height of the building had to be limited to 324 mPD until modelling showed that it could be relaxed but that in any case it could not exceed 480 mPD. This information was communicated by a letter written on behalf of SPEL to Mrs Wang on 24 August. That letter would appear to have prompted an almost immediate response. There was a memo dated 25 August from the DCA to the Secretary for Economic Services recounting that Mrs Wang accompanied by Mr C Y Leung and Mr Heng had visited the DCA's office and there had been a meeting at which the DCA had explained the necessity for the limitation to 324 mPD. That memo indicates that Mrs Wang requested that, at her expense, the computer modelling should be extended to cover the feasibility of a different system which would allow curved approaches. If the computer modelling showed it was feasible the proposed building could be constructed up to the ILS limitation in the first instance and then be extended up to 542 mPD when the new system replacing the ILS were put in place.

26. On 29 August, a memo was sent on behalf of SPEL to DLO/TW referring to Mr C Y Leung's letter of 24 August. On 19 September, Mr C Y Leung wrote to SPEL suggesting that the plaintiffs should explore with Government the possibility of choosing another site for development of the world's tallest building. The letter continued

"Should the height control of the new site be lifted only after the operation of Chek Lap Kok Airport, our client would consider phased development to accommodate the circumstance. However, our client is determined to realise this project for the confidence in the future of Hong Kong.

We would appreciated it if you could inform the Transport Department and Highways Department about the building height problem which will eventually delay the completion of the bus terminus and formation of green area."

27. The suggestion of an alternative site was all but ruled out in a letter from SPEL to Mr C Y Leung of 9 October in which it was said that it would be extremely unlikely that that alternative site could be identified. On 11 October, a letter was sent on behalf of the DLO/TW reminding the plaintiffs of the due date for completion of the transport terminus and that in default there would be liquidated damages in accordance with special condition (19). The letter also stated that if the building was not completed on the lot and fit for occupation by 8 December 1996 the Government would be taking the "appropriate actions". There was another reminder letter of 25 October, but in the meantime, on 23 October, Mr C Y Leung wrote to the DLO/TW referring to his letter to SPEL of 29 June and stating the plaintiffs' contention that the plaintiffs had, through no fault of their own, been unable to proceed with the works because of the "unresolved height issue". The letter continued:

"In the circumstances, we cannot see how our client can or, for that matter, should be held liable for the alleged delay in the completion of the Transport Terminus or be liable to pay any purported liquidated damages, as stated in your letter. And, in any event, we refer you to the terms of our letter dated 29 June 1995, referred to above."

28. Mr Bowen Leung's sympathy for the plaintiffs was evident from a memorandum, dated 26 November, on the internal files to his deputy in which he referred to the absence of legislative control over the height and the fact that the Government could only use the DDH clause to control the height. The note continued:

"I have also spoken further with C. Y. Leung. His wishes are to extend the BC without penalty payment or premium. I told him that Government would be prepared to discuss the extension, but I would not be able to give any instruction to LD to waive the payments. All will depend on negotiation."

29. The reference to speaking to Mr C Y Leung may have been to a conversation about a fortnight earlier, which Mr Bowen Leung had recorded in a note to his deputy on 15 November. In that note Mr Bowen Leung mentioned that it had been indicated that the plaintiffs might abandon the idea of building the tallest building in the world.

30. On 1 December 1995, a letter was written on behalf of DLO/TW referring in the first place to the obligation to erect the buildings on the lot within 48 calendar months. The letter went on to say:

"The current problem is that your client has insisted on the construction of a building up to a height of about 542.62 metres which would have an adverse effect on the operation of the Chek Lap Kok Airport and is not acceptable under the said Conditions of Grant. Your client must of course bear full responsibility for any consequences arising from the continued insistence on development upon conditions which are not acceptable under the Conditions of Grant.

In this connection, I would also like to clarify that there has been no agreement as to a building covenant extension so far. There was merely an acknowledgement by the Administration that at the present rate of progress of development it would seem likely that you need to apply for an extension before December 1996 and such an extension, if approved, would be at premium. I would also like to stress that any agreement for a building covenant extension would be without prejudice to the liquidated damages obligation under Special Condition (19)."

31. Nothing transpired from that letter save that on 8 December the time for completing the transport terminus expired. On 8 January 1996, a letter was written on behalf of DLO/TW enclosing a demand note for $310,000 being liquidated damages for non-completion of the transport terminus up until 7 January.

32. On 17 January 1996, Mr C Y Leung wrote to DLO/TW with reference to that demand note. The letter went on:

"It is our considered view that your demand for liquidated damages is totally wrongful and in clear breach of the agreement reached between Mr Bowen Leung, the Secretary for Planning, Environment and Lands, on behalf of the Government, and our clients on or before 29 June 1995, namely that the Building Covenant period in relation to Tsuen Wan Town Lot No. 353 would be extended without the payment of premium pending resolution of the height issue of the building proposed to be built on the site. In this context, we refer you to our letter dated 19 September 1995 addressed to Mr Bowen Leung and refer you, in particular, to the second and third paragraphs.

The agreement referred to in paragraph 2 above, was confirmed on several occasions, subsequent to 29 June 1995, in telephone conversations/contacts between Mr Bowen Leung and the undersigned and our clients. On every one of those occasions Mr Bowen Leung affirmed the existence and binding effect of this agreement. Our clients have relied on this agreement and Mr Bowen Leung's confirmation of the same, to their detriment.

Accordingly, we would ask you to withdraw the demand note. Copies of our letters to Mr Bowen Leung dated 29 June and 19 September are enclosed."

33. Mr Bowen Leung's reaction to that letter appears to have been immediate. In a memo dated 18 January to his deputy he pointed out straightaway that there is a confusion between extending the building covenant and the demand for payment under liquidated damages. The second paragraph of the memo read:

"I can't find Lands Dept. acting on or reply to our 66 [a reference to his memo of 30 June 1995 to those in the SPEL department saying that the Director of Lands should be requested to extend the Building Covenant period and that the developer was not at fault]. The developer has a case to argue, although I understand D of Lands may have other views. Notwithstanding that we have never given any written undertaking to the developer to extend the B.C., it is arguable whether they should bear the full responsibility."

34. The reply memo from the assistant emphasised the distinction between the extension of the building covenant if the building had not been completed and liquidated damages if the terminus had not been completed. It stated that the Government would no doubt extend the building covenant at a premium but that the issue had not yet come up. As regards the liquidated damages the Government did not consider that those could be waived and it would invite criticism form the Director of Audit if they were. Mr Bowen Leung's memo in response to that was that a reply should be given drawing a clear distinction between the building covenant and the liquidated damages and making the point that Government had not gone back on their word to consider the extension of the building covenant. Reference is made to the reply being cleared with the Attorney General's Chambers because he, Mr Bowen Leung, suspected that the plaintiffs might take the matter to court. On 6 February, a letter was sent on behalf of DLO/TW to Mr C Y Leung's company denying that there had ever been an agreement between SPEL and the plaintiffs that the building covenant period would be extended without payment of premium. It also pointed out that the liquidated damages was separate and distinct from the building covenant.

35. On 19 March 1996, Mr C Y Leung sent a letter to DL setting out in some detail a chronological history of the events relating to the plaintiffs' involvement in the lot. Significantly, in this letter there is no allegation that there had been an agreement to extend the building covenant period without payment of premium. In relation to 8 June 1995 it is said that a meeting was held at which the Aeroports de Paris consultant report was handed over and that:

"At his meeting, SPEL agreed to extend the Building Covenant period pending resolution of the height issue (see Appendix 8) [Appendix 8 was a copy of the letter of 29 June 1995.]"

The letter concludes as follows:

"In conclusion, our clients, not surprisingly, feel very aggrieved at what has happened. Not only has their world famous development come to a halt but they are, further, being unjustly penalised in the sum of HK$10,000 per day for the delay in the construction of the transport terminus, which is totally outside their control, since DLO/TW refuses to accept the plans for the transport terminus until the MLP is approved and the MLP cannot be approved until the height restriction is made certain by Government, which it is not; even today.

In those circumstances, we believe that the imposition of a penalty (because that is what it truly is), is clearly inequitable and grossly unfair to our clients, who have always been most keen to develop this site as soon as possible. The delay which has occurred cannot be attributed to them. We trust you will agree."

36. There was a meeting between Mr C Y Leung and SPEL and DL on 26 March 1996. There is a memo signed by Mr Bowen Leung which sets that out. There is no indication in that memo that any suggestion had been made by Mr C Y Leung that there would be an extension of the building covenant at nil premium. The DL was reported to have said that it might be possible for a grace period of 18 months to be awarded but that he would need to consult lawyers before communicating further with Mr C Y Leung on that subject. The question of an extension to the building covenant was too early to be discussed. As regards the height restriction, it was made clear that it would have to remain at 324 mPD. Mr C Y Leung is recorded as being inclined to agree with SPEL that he would suggest to Mrs Wang that she should consider building the best-designed building in Hong Kong instead of the tallest.

37. On 9 April, the DL wrote to Mr C Y Leung with reference to the letter of 19 March and the subsequent meeting on 26 March. Having made specific comments in relation to each, the letter concludes by saying that the DL could find no justification for waiving the payment of liquidated damages.

38. Eventually, on 5 November 1997, MLP12 was submitted and notification of the approval thereof was given on 2 January 1998. The transport terminus was taken as completed on 14 June 1999 and the plaintiffs paid a total liquidated damages of $12.75 million. They also paid building covenant extension premiums of a total of $543.242 million. That was despite the fact that they were given a second extension of four months premium free which was offered by a letter of 26 November 1997.

39. It may also be observed that it was the plaintiffs' case on the pleadings and at trial that there had been an agreement entered into between Mr C Y Leung and Mr Bowen Leung acting as SPEL in August and September 1996. It was said that the two had met in Beijing on 11 August 1996 whilst they were there for a Preparatory Committee meeting. The allegation was that Mr C Y Leung had said that the plaintiffs had obtained expert opinion to the effect that the 324 mPD height restriction could not be sustained and that the plaintiffs were going to take legal action against the Government. In response Mr Bowen Leung had informed Mr C Y Leung that if the plaintiffs were willing to abandon their plans to build the tallest building in the world on the lot and not to challenge the Government on the height restriction but were instead to build the world's most prestigeous building on the lot he would extend the building covenant periods to cover the entire period of the construction at nil premium. It was said that in or about mid-September 1996 Mr C Y Leung had informed Mr Bowen Leung that the plaintiffs accepted the offer. These allegations were not accepted by the trial judge and were not pursued on appeal.

The plaintiffs' claim

40. The plaintiffs claimed that there had been an express agreement to extend the time for completion of the development and in the alternative that the Government had waived or was estopped from enforcing its right of re-entry. They claimed declarations that the Government was not entitled to the liquidated damages or the premiums which had been extracted and repayment of those sums and in addition damages for loss of profits or income totalling some $324 million. The basis of the plaintiffs' claims was that in the first place there should be a term implied in the contract. In the second place that there had been an express agreement that there would be extensions of the building covenant period. In the third place that the plaintiffs had been lured into a sense of false security that no premium would be required for the extension of the building covenant period and that as a result the Government was debarred from claiming any premium. In the fourth place, it was said that the Government's demands for liquidated damages and premiums had been made on a false basis which amounted to economic duress and that the plaintiffs were thereby entitled to a return of the payments made.

Implied terms

41. The way in which the plaintiffs have put their case on implied terms seems to have varied during the course of the proceedings. In the re-amended statement of claim the plaintiffs put their case as follows:

"8. The following are implied terms of the Agreement which are implied by law and/or are necessary to give business efficacy to the same: -

(1) that the Government shall process the Plaintiffs' applications for approval of MLPs and other building and planning applications without delay;

(2) that the Government shall not refuse or withhold approval of such applications save upon reasonable grounds;

(3) that the Government shall not directly or indirectly do any act or refrain from doing any act which would prevent or make it impracticable for the Plaintiffs from fulfilling or to fulfil their obligations under any condition or conditions of the Agreement;

(4) that Special Conditions 6(a) and (b) shall not be enforced and/or the time for completion of the development of the Lot and Transport Terminus shall be extended where the Government itself is responsible in whole or part for delaying the approval of the Plaintiffs' MLPs and other building and planning applications.

(5) that if it became necessary for a maximum height to be imposed on the Lot then it was, at all times, the Government's duty and/or obligation to determine the maximum permissible height in relation to the Lot and to inform the Plaintiffs of the same within a reasonable time or alternatively within such time as would enable the Plaintiffs to adhere to the time limits stipulated in the Agreement.

(6) that if the time taken by the Government to determine and inform the Plaintiffs of any such maximum permissible height of the Lot was too long and/or unreasonable then the time limits as set out in the Agreement would not be applicable and time would be at large alternatively replaced and be extended by such time as is/was attributable in whole or in part to the Government's delay.

(7) that the Government would process the Plaintiffs' applications for approval of MLPs, when submitted, within a reasonable time.

(8) that the Government was, at all times, under a duty or obligation to cooperate with the Plaintiffs so as to enable the Plaintiffs to comply with the terms of the Agreement, in particular, those terms relating to time.

9. Further or alternatively, it is an implied term of the Agreement which is implied by law and/or is necessary to give business efficacy to the same that if non-completion of development of the Lot and Transport Terminus within the time or times specified under the Agreement was or is due to delay wholly or in part, directly or indirectly on the part of or attributable to the Government, then: -

(1) the Government shall extend the Building Covenant periods;

(2) the Government shall refrain from exercising or threatening to exercise its power of re-entry under General Condition 11;

(3) the Government shall not be entitled to demand or exact and the plaintiffs shall not be liable to pay any charges premiums penalties or liquidated damages pursuant to the Agreement or otherwise by reason of such delay, or as the result of any extension of the Building Covenant periods rendered necessary by reason of such delay."

42. In paragraph 107 of the judgment the judge recorded that by the time of final submissions, Mr Chang SC summarised what he said should be implied terms in the following way, namely:

"(1) that the grantor shall not derogate from the building covenant periods by preventing or hindering the grantee's compliance with the time limits whether by unreasonable usurpation of time or otherwise; and

(2) that if the grantor does so, the time limits are set at large or replaced by an extended time limit incorporating the period lost to the grantee."

43. In his closing submission Mr Tang SC, on behalf of the defendant, made the following concession:

"... This is why we say that under the MLP clause, as well as the DD&H clause, and in this context particularly perhaps the MLP clause, we could not have sat on an MLP for four years. We do not contend that. We have to deal with it without undue delay. That is the point that we make, and that is the submission that we will be making to your Lordship, that there must be no undue delay." [Day 29 p.127 l.9-16]

44. A little later Mr Tang clarified the concession which he made in the following terms:

"I would put it slightly differently for emphasis. We must not take an unreasonable time over it, but of course an 'unreasonable time' is another way of saying taking a reasonable time, but I would say that because of the different emphasis and possibly there may (be) a slight difference between not taking an unreasonable time and a positive duty to do it within a reasonable (time). We put it on the basis that we must not take unreasonable time as opposed to a positive duty to take only a reasonable time." [Day 29 p.131 l.13-22]

45. The judge summarized the concession made by Mr Tang and no real point turns upon that. After reviewing the various arguments which had been put to him the judge came to the conclusion that the only term which could be implied into the contract was that the building covenant period would be extended if there had been culpable delay or undue delay on the part of Government resulting in the plaintiffs' not being able to complete the building within that period.

46. On this appeal the plaintiffs' skeleton argument repeated the formulation of the implied term contained in the notice of appeal which was said to have been implied in the contract in the following way:

"It is implied by law and/or in order to give business efficacy, the DL's power under DDH clause carried with it a corresponding duty to determine qua Government Land Agent the permissible height for the purposes of the building covenant and to convey such determination to the plaintiffs promptly."

47. In the course of argument, the question was raised as to the time at which it was said that the DL should have specified the maximum or permissible height. Mr Chang did not contend that that height should be specified at the outset of the contract. His submission was that the reasonable time was triggered on the submission of an MLP which contained a proposal for the erection of the building which exceeded the height which the DL was prepared to approve.

48. In my view, it cannot be said on looking at the terms of the grant, that there would have been any requirement on the DL to specify any maximum height at the date of the grant. On the contrary, the terms of the grant are quite precise. Under the DDH clause the Government is given power to approve or disapprove an MLP on the basis of height. If it had been the parties' intention at the commencement of the contract that the Government should have indicated the maximum height, then the parties could have so stipulated on the making of the contract which resulted in the grant.

49. Neither do I see that it would be possible to imply a term that an obligation on Government to specify a maximum height would be triggered by the submission of an MLP on the basis of which a building was proposed which exceeded the maximum height which the Government was prepared to sanction.

50. It would neither be necessary for business efficacy to imply any such term as has been suggested, still less in my view would an officious bystander receive a positive answer, had he posed a question as to whether a term along the lines argued on this appeal. I use the term "along the lines" advisedly, because in my view, the difficulty Mr Chang had in formulating the precise terms of the alleged implied term, even by the time this appeal came to be argued, is a fair indication that there is also difficulty with regard to satisfying the test that an implied term should be precise.

51. I do not see that there can be any complaint with regard to the law which the judge considered was applicable to the question as to whether a term should be implied in the contract. In my view, he came to the correct conclusion and there are no grounds for altering his decision in this regard.

52. I would add, further, that, as can be seen from the chronology that I have set out at some length, it would in any event have been impossible for the Government to specify a maximum height. At the beginning of 1995, the plaintiffs were alerted to the fact that there was a difficulty because of the height of their proposed building and that there would have to be a limit of 324 mPD. The plaintiffs were informed that there might be a possibility of raising that limit if various tests showed that that could be done. To have required the Government to specify a maximum limit when they were prepared to conduct those tests to see whether the limit could be raised would neither have been necessary in the business sense to give efficacy to the contract, still less would it pass the officious bystander test.

The alleged agreement of 8 June 1995

53. The judge came to the clear conclusion that there had been no agreement between Mr C Y Leung and Mr Bowen Leung on 8 June 1995. In doing so he had regard first of all to their oral evidence. In paragraph 70, he approached the evidence on the basis that they were:

"... both highly respected men, and in the public eye, Mr C. Y. Leung as Convener of the Executive Counsel and Mr Bowen Leung as the present Director of the Hong Kong SAR Government Office in Beijing. They may be expected to tell the truth to the best of their recollection but of course they are subject to the fallibilities of recollection which affect everyone."

54. The judge considered all the relevant documentary evidence. Having considered all the arguments which have been put to us by counsel, I would say that not only has there been no ground shown on which this court could interfere with the findings of fact of the court below, but I would go further. In my view there is every ground for considering that the judge fairly and correctly came to the conclusion that there had been no agreement as had been alleged by the plaintiffs. For my part, I consider that it is only necessary to point out that the correspondence which emanated from Mr C Y Leung following the meeting on 8 June 1995 did not demonstrate that he was under the illusion that any extension of the period of the building covenant would be premium free. Such an allegation was never made in the correspondence until a great deal later. Even then it was made in correspondence with the DLO/TW. Significantly, the letter of 19 March 1996, over which a great deal of trouble must have been taken in the drafting, is not put on the basis that there had been any such agreement. In my view, there is no ground for coming to the conclusion other than that the judge was correct in his finding.

Estoppel

55. The plaintiffs' case of estoppel is put on the basis that the plaintiffs had been lulled into a false sense of security by the conduct of the Government and in particular SPEL. The matters relied upon by the plaintiffs in support of this argument centre upon the letters of 29 June, 24 August and 23 October and the meeting of 8 June and the telephone conversation of 28 June 1995. The letter of 24 August was a simple reminder, following up the letter of 29 June, and asking for confirmation that there would be an extension of the building covenant period. In argument Mr Chang also suggested that there might be other matters arising from the events in 1995 which would give rise to this impression. It is said that these matters and in particular the failure by the Government to make a corrective response to the suggestions made in the letters had lulled the plaintiffs into a sense of security that their obligations to complete the building in accordance with the timetable set out in the grant would be extended free of any premium.

56. The first matter to which I would refer is the fact that the letters referred to do not relate to the grant of any extension of the building covenant period free of premium. They simply refer to the extension of the building covenant period. Whatever else might have happened, it was no doubt to be expected that the Government would extend the period. The question of extending the period without requiring a premium is quite another matter. Hence, given the fact that the judge found that there was no promise to extend the building covenant period on 8 June or in the telephone conversation on 28 June, the fact that the plaintiffs might have anticipated that the period would be extended would have raised no greater an expectation than that. Hence even on the basis put, I do not see that any estoppel can arise.

57. The difficulties which face the plaintiffs go further than that. In the absence of any duty to reply, I do not see that a failure to respond to a letter could give rise to an estoppel. An estoppel will arise on a representation. It is difficult to envisage circumstances where silence can constitute a representation. Certainly in the circumstances of the present case, given the findings of fact by the judge in relation to the meeting and the telephone conversation, I do not see that any duty to respond, the failure in carrying out of which would constitute a representation, could arise in this case.

58. Finally, it is necessary for a party relying upon an estoppel to show that he has altered his position in reliance upon it. Whilst it is true that the plaintiffs continued to make all efforts, including enlisting the assistance of PRC officials to try to intervene on their behalf with the Hong Kong Government officials, to persuade the Government to raise the height limit, they were left under no illusion that no premium would be charged and the correspondence from Government, which has been referred to above, cannot be ignored.

59. I would also add, that it is trite that an estoppel can only be used as a shield and not a sword. The scope, therefore, for the use by the plaintiffs of any estoppel would be very limited.

Duress

60. The final argument upon which the plaintiffs rested their case was that the Government's actions in demanding liquidated damages and premiums for extension of the periods of the building covenant were unjustified and illegal. There can be no doubt that if money is obtained by putting a party in a position where economic circumstances dictate that he must comply with the wrongful demands of the other party, the court will set aside any alleged agreement which is made because of those wrongful demands. For that to happen, however, it is necessary for the demands to be wrongful. In view of the conclusion to which I have already come, I cannot see that is so in this case.

Conclusion

61. In the circumstances, the plaintiffs' appeal must fail. I would therefore dismiss this appeal and make an order nisi of costs in favour of the defendant.

Hon Le Pichon JA:

62. I agree.

Hon Sakhrani J:

63. I agree.