NEW MERCURY HOLDING CORPORATION v. THE SECRETARY FOR JUSTICE

HCMP 1798/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1798 OF 2011

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 (Heard Together)

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J U D G M E N T

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Introduction

1. These judicial review applications concern the plaintiff’s proposed real property re-developments at the following land lots located at Kadoorie Hill, Kowloon (collectively “the subject properties”):

(a)  HCMP 1798/2011 (“the 1798 application”) concerns Kowloon Inland Lot Nos 7080 and 7081 (these are adjoining land lots) (respectively “7080” and “7081”);

(b)  HCMP 1497/2012 (“the 1497 application”) concerns Kowloon Inland Lot No 7085 (“7085”).

2. In gist, the subject applications seek declaration orders that the defendant (as representing the Lands Department) should permit the plaintiff’s re-developments on the subject properties as proposed.

Relevant Government Lease covenant

3. The main disagreement between the parties stems from their different understanding of the covenant in the Government Leases regarding the “curtilage or compound” surrounding the residential premises to be built on the subject properties (“the curtilage covenant”).

4. To better understand the main disagreement, the curtilage covenant is set out below (this can be found in all the related Government Leases):

“[The plaintiff] … shall at all times during the term hereby createdmaintain and preserve in respect of and exclusively for the purposes of the residential premises now erected or being upon the demised premises a curtilage or compound of an area (including the area covered by buildings) of not less than Eight thousand square feet; AND shall at all such times provide maintain and preserve in respect of and exclusively for the purposes of any other residential premises which may at any time be erected upon the demised premises in each case a curtilage or compound as aforesaid of like minimum area” (emphasis supplied).

For convenience, the 8,000 square feet minimum area mentioned in the curtilage covenant will be called “the said minimum area” below.

5. It is undisputed the phrase in the curtilage covenant:

“residential premises now erected or being upon the demised premises”

refers to building(s) already existing at the time of grant while the phrase:

“any other residential premises which may at any time be erected upon the demised premises”

refers to building(s) which may be constructed at any time afterwards.

Issues

6. The gist of the plaintiff’s case is that, upon a proper construction of the curtilage covenant:

(1)  the said minimum area can be met by taking into account area(s) which fall outside the land lot on which the residential premises is built.  Hence, part of the said minimum area for 7080 can come from 7081 and vice versa (the total area for 7080 is about 12,700 square feet while that for 7081 is about 12,000 square feet (making a grand total of about 24,600 square feet));

(2)  in respect of 7085, the overall area of which is about 12,000 square feet, one pair of (that is, two) (semi-detached) houses can be built to replace the existing (semi-detached) house.  This is because the said minimum area for each of the two proposed houses can overlap within 7085 itself.

Relevant legal principles

7. These are not in dispute:

(a)  when construing the terms of a land grant, the court can take into account the matrix of fact (that is, the objective surrounding circumstances known (or reasonably known) to both parties) at the time of the grant: see, for example, Gold Shine Investment v Secretary for Justice [2010] 1 HKC 212, 218; Investors Compensation Scheme Ltd v West Bromwich [1998] 1 WLR 896, 912; Jumbo King Ltd v Faithful Properties [1999] 4 HKC 707, 726;

(b)  the court shall have regard to the object and purpose of the term, which can be informed by the genesis, the background and the context: River Trade Terminal Co Ltd v Secretary for Justice (2005) 8 HKCFAR 95, 107 (para 34 to 36);

(c)  the above are applicable to the construction of a lease: Woodfall’s Law of Landlord and Tenant (2012) Vol 1, para 11.007 and 11.008).

Matrix of fact and contractual construction

8. The plaintiff’s case is premised on the following.

9. First, there is no express requirement that the said minimum area should completely and exclusively lie within the land lot in question.

10. Secondly, the land grant history should also be considered.  The subject properties were land lots “carved” out of Kowloon Inland Lot No 2657 (“2657”).  2657 (with a total area of about 1.33 million square feet) was granted by Government in November 1931.

11. The curtilage covenant has its origin in Special Condition 5, Conditions of Sale of 2657:

“The number of houses to be erected on the original Lot shall not be less than 35.

The area of the site and curtilage of each house intended to comprise a separate Lot shall not be less than [the said minimum area] and the Purchaser shall not dispose of any Lot of less area. The Crown Lease of each Lot shall contain a covenant in such form as may be required by the Land Officer for ensuring the continued maintenance of such an area for the Lot” (emphasis supplied).

12. 7080 and 7081 were granted in May 1966; and 7085 slightly earlier in March 1966.  By March 1966, various land lots have already been developed.  In particular:

(1)  a pair of (semi-detached) houses have been built on at least 5 land lots (each with an area of less than 16,000 square feet);

(2)  a pair of houses plus an additional house (all semi-detached) have been built on Kowloon Inland Lot Nos 4259 and 4260 (respectively “4259” and “4260”) (with a total area of less than 24,000 square feet);

(3)  there were constructions similar to sub-para (1) above on at least 8 other land lots (each with an area of less than 16,000 square feet) and Crown Leases containing the curtilage covenant was issued for those lots on 19 March 1966;

(4)  there were constructions similar to sub-para (1) above on at least 4 other land lots (each with an area of less than 16,000 square feet) and (i) Government had confirmed that the same had complied with the Conditions of Sale, (ii) Crown Leases containing the curtilage covenant was issued for those lots on 27 April 1967;

(5)  there were constructions similar to sub-para (1) above on 7081 (with an area of less than 16,000 square feet) and a Crown Lease containing the curtilage covenant was issued.

13. On the other hand, the defendant’s case is that the “curtilage or compound” surrounding each house in each land lot must meet the said minimum area requirement.  In this connection, the defendant relies on Special Conditions 4, 5 (especially the parts quoted above) and 6 which reads:

“… the Purchaser shall not erect on the Lot any buildings other than detached or semi-detached residential premises of European type or such other buildings of European type as the Director of Public Works may approve of … Save as herein provided no building erected on the Lot shall be used otherwise than as private dwelling house …”.

14. As the defendant correctly points out, the curtilage covenant was inserted into the Government Leases for the subject properties to give effect to Special Condition 5.

15. The minimum number of houses to be built has been expressly provided for (not less than 35).  The defendant contends that the maximum number of houses to be built is controlled by the curtilage covenant (which mandates the said minimum area).  Accordingly, the maximum number of houses which can be built on 2567 would be about 166 (1,330,000÷8,000). Through this means, so the defendant further contends, development density is controlled.

16. The defendant’s above contentions are supported by the language used in Special Condition 5:

(a)  “The area of the site and curtilage of each house intended to comprise a separate Lot …”;

(b)  “The Crown Lease of each Lot shall contain a covenant … for ensuring the continued maintenance of [the said minimum area] for the Lot”.

(emphasis supplied)

They are also supported by the language in the curtilage covenant:

“… maintain and preserve in respect of and exclusively for the purposes of the residential premises [erected upon] the demised premises a curtilage or compound of [the said minimum area] …” (emphasis supplied).

Hence, an “exclusive” relationship between the residential premises and its surrounding “curtilage and compound” was intended for each land lot.

17. I also agree with the defendant that, in relation to the matters relied upon by the plaintiff (summarized in para 12 above):

(1)  earlier “inconsistent” events are irrelevant to the construction of the curtilage covenant.  This is particularly so when doctrines such as “waiver” or “estoppel” (especially “estoppel by convention”) are not part of the plaintiff’s case;

(2)  in any event, those events are not part of the evidence adduced for the purpose of the 1798 application (but only the 1497 application), and this is not a situation where RHC Ord 32 r 17 is applicable.  They are thus not admissible evidence for the purpose of the 1798 application.

18. The plaintiff also prays in aid the decision in Sheenclass International Ltd v The Attorney General 1994, MP 3382 (28 February 1995). That decision involved a land lot on which several houses have been built; the related Government Lease also contained a term the same as the curtilage covenant.

19. The plaintiff in the Sheenclass decision argued unsuccessfully that the curtilage covenant should cease to have effect. Its argument was premised on the practical impossibility for the plaintiff to perform it.  The court rejected the argument.

20. I agree with the defendant that the Sheenclass decision involved entirely different issues, the actual decision itself was unrelated to the issues herein and hence cannot advance the plaintiff’s case here.

21. The defendant rather relies on the decision in Wong Bei-Nei v Attorney General [1973] HKLR 582, a decision also involving a Government Lease with a term the same as the Special Condition 5 in this action:

“During the hearing the parties submitted an agreed set of issues …

2. Must each house to be erected on these lots have a site and curtilage of not less than 8,000 sq. ft.?

3. Can more than one house be built on one lot? … ” (p 592);

“As to the second and third agreed issues, these arise on the interpretation of Special Condition No. 5.

The plaintiff’s contention is that the restriction … only applied to and controlled the original development … and now that [the houses on the two lots] have been demolished and the site cleared the plaintiff’s are relieved of the restriction …

…

I must confess that I had the greatest difficulty in following counsel’s argument on this … As I understand it I can see no merit in it.

…

I consider that the intention of Special Conditions 5 and 6 was and is that the original parcel of land must not be divided into lots of less than [the said minimum area] ; that on each lot one house may be built …” (pp 596 to 597).

22. While the way in which the plaintiff’s case in the Wong Bei-Nei decision was put forth was different, the above remarks made by the court in that decision tend to show agreement with my construction of the curtilage covenant.

23. Finally, the defendant also relies on the principle of construction for Government Leases, namely, they are usually construed in the manner most favourable or beneficial to the grantor (that is, the defendant): the Gold Shine Investment decision, para 12; Chitty on Contracts (2012) 31^st Ed, Vol 1, para 12-086; Lewison: The Interpretation of Contracts (2011) 5^th Ed, pp 371 to 372. Because I have been able to reach a construction in the defendant’s favour, it is unnecessary to refer to this principle.  Were it otherwise, the principle would have worked in favour of his case.

Conclusion

24. There is no merit in either the 1798 application or the 1497 application.  They are dismissed accordingly.

Other matters

25. The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with in the above headings and sub-headings.  This is so only because of the need to balance between the length of the judgment and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order nisi

26. There is no apparent reason to depart from the usual rule that costs should follow the event.  There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of the subject applications be paid by the plaintiff to the defendant to be taxed if not agreed.

27. I also certify the hearing suitable for court attendance by two counsel.