SPLENDID RESOURCES INC AND ANOTHER v. THE SECRETARY FOR JUSTICE for and on behalf of the DIRECTOR OF LANDS

HCMP 835/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 835 OF 2012

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JUDGMENT

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1.  This is an originating summons issued by Splendid Resources Inc (“P1”) and Sky Pacific Limited (“P2”) (collectively “the plaintiffs”) seeking various declarations concerning two parcels of land (hereinafter referred to as “Land A” and “Land B” respectively and collectively as “the Lands”) situate on Po Toi Island. At the conclusion of the hearing judgment was reserved which I now give.

Background facts

2.  P1 is the registered owner of Land A comprising 84 lots totalling 4.85 acres in area.  P2 is the purchaser of an elongated lot (“Land B”) that is sandwiched by Land A. 

3.  Land A is the subject of New Grant No 1652 and was sold by way of public auction held on 29 January 1932.  The sale was subject to the General Conditions of Sale (“GCs”) published in Government Notification No 570 of 1924 as amended (“GN 570”) and the Special Conditions (“SCs”) specified in the New Grant.

4.  Land B is held under a Block Government Lease granted in 1905.

5.  On 30 January 2012 a concern group alerted the Government of vegetation removal, possible site formation and other works on the Lands.  Upon investigation it transpired that between 13 December 2011 and 25 February 2012 the plaintiffs had carried out the following works on the Lands:

   (1) Clearance of small trees and grasses;

   (2) Boundary survey undertaken by qualified surveyors;

   (3) Partial paving of the ground of the Lands with sand and a thin layer of cement; and

   (4) Placing tiles on the partially paved ground of the Lands.

6.  The Director of Lands issued several notices pursuant to section 12(1) of Land (Miscellaneous Provisions) Ordinance (Cap 28) dated 21 February 2012 requiring unlawful structures in particular concrete slabs to be removed on or before 28 February 2012.

7.  The plaintiffs are limited companies incorporated under Marshall Islands law and the corporate vehicles used for putting the Lands to columbarium use.   

8.  In their letter dated 23 March 2012, P1’s solicitors contended that the concrete slabs were nothing more than the visual effect of the partial paving of the grounds of the lots with sand and a thin layer of cement.  The letter went on to say:

“ The paved parts are rectangular in shape against the background of the unpaved parts which are there to allow for the natural growth of grass. The white pieces on top of the paved parts are just tiles being placed on the paved part and they are simply left there on their own weight and are not affixed to the ground at all… there are also jars all containers being stored underneath some of the paved parts of the lot and some of the containers have ashes and/or other things stored in them.”

9.  In §17 of his affirmation filed on behalf of the Government, Chan Si Por, Peter described the process for constructing the concrete slabs:

“ The concrete slabs were erected by first placing a square wooden frame on the ground and concrete was poured into the frame to allow it to set. The concrete slabs were each about 1 m × 1 m in size and 4 – 6 cm thick. Some of the concrete slabs were erected with a hollow hole supposedly for storage purposes covered by a stone plate, and some of them did not have holes under the stone plate.”

10.  By 8 August 2014 there were said to be 2,050 columbarium niches present or expected on Land A: see exhibit “LTK-3” (FEHD’s confirmation of the plaintiffs’ participation in the Notification Scheme for private columbaria at §§3 – 4).

11.  Meanwhile, on 27 April 2012, the plaintiffs issued an originating summons seeking various declarations against the Secretary for Justice on behalf of the Director of Lands (“the Government”).  The declarations concern:

 (1) the non-building covenants in clause 6 of Schedule B (applicable to the New Grant) and the Block Crown Lease;

 (2) user restriction(s) (if any) in the New Grant;

 (3) whether SC 1(b) is part of the New Grant; and

 (4) whether placing or storing of ashes in jars or containers in Land A contravenes GC 15.

12.  The Government filed points of counterclaim for relief including declarations that P1 is in breach of the user restriction (GC 15 and/or clause 7(5) and/or clause 6 of Schedule B and/or SC 1(a) and SC 1(b)) in the New Grant; and that P2 is in breach of the non-building covenant in the Block Government Lease regarding Land B.  It also sought orders for the removal from the Lands of all human remains including cremated ashes and the removal of all buildings and structures on the Lands including the concrete slabs.

13.  P1 now concedes that in respect of Land A it is in breach of GC 15 which provides that:

“ Without the consent of the District Officer no grave shall be made on, nor shall any human remains be interred in, or deposited on the lots sold either in earthenware jars or otherwise.”

It also concedes that it is in breach of clause 7(5) of Schedule B:

“ That without the consent of His said Majesty, signified in writing by the Governor of the said Colony or other person duly authorised in that behalf, no grave shall be made on, nor shall any human remains be interred in, or deposited on the said premises ….”

To that extent only, P1 concedes paragraph (a) of the Points of Counterclaim.

14.  The issues that remain relate to what the parties have referred to as “the user restriction”, “the cultivation covenant” and “the structure point”.  I propose to adopt the same terminology.  Before considering those issues the relevant contractual documentation for Land A needs to be set out.

The New Grant

15.  The New Grant was a sale by public auction held on 29 January 1932 of 84 lots that together constitute Land A (which in the New Grant was referred to as the “Lot” or the “Lots”).  Apart from the covering page it consisted of:

 (1) the Auction Notice (“the Auction Notice”) and Memorandum of Agreement by the Purchaser (“the Memorandum”); and

 (2) the Notification of Sale of Land A by Public Auction (GN No S 14 of 1932) (“the Notification”).

16.  The Auction Notice read:

“ The Lot is sold for the term of seventy-five years from the 1^st day ofJuly,1898, with the right of renewal for a further term of 24 years less 3 days at a re-assessed Crown Rent as agricultural Lots subject to the General Conditions of Sale published [GN 570], and to the special conditions hereunder specified.” (Emphasis added)

17.  That was followed by Particulars set out in a table containing six headings with the 84 lot numbers written in by hand. Underneath the table were the words “SPECIAL CONDITIONS No. 1(a) and 1(b)”.

18.  The Notification (gazetted after the date of the auction) replicated the contents of the Auction Notice and stated that Land A was sold as “Agricultural Lots”.  For convenience, hereafter, “Government” will be used to refer to the Crown. 

19.  The highest bidder is required by SC 3 Memorandum to sign the Memorandum after the fall of the hammer.  The Memorandum provides that by so doing the highest bidder becomes “the Lessee thereof, under and subject to the [GCs and SCs] of such Lot and on his part to perform and abide by the said Conditions.”

20.  GN 570 provided as follows:

“ It is hereby notified … (2) that until further notice there shall be deemed to be incorporated in the published Particulars and Conditions of all sales of [Government] Land in the New Territories … (a) the following [GCs] (unless otherwise stated), and (b) such of the following [SCs] as are therein referred to by their respective numbers.” (Emphasis added)

21.  The GCs (17 in number) were then set out in full to which were attached Schedule A and Schedule B followed by SCs (1) and (2).   

22.  Schedule A specified the “Form of Government Lease”.  The party to whom the Government Lease was granted was referred to as “the said Lessee”.  It expressly provided that the expression “shall where the context admits be deemed to include … in the case of any Body Corporate its Successors and Assigns”.  Schedule B specified “Terms, Exceptions, Reservations, Covenants, Conditions, Provisoes and Agreements incorporated in Government Lease”.

23.  It will be observed that the provisions of GN 570 were deemed to be incorporated into all sales of Government land in the New Territories using two different mechanisms as explained below.  Under the landholding system in Hong Kong all such sales necessarily meant the grant of Government leases.

24.  GCs were standard provisions designed and intended to be of general applicable to all grants of Government land in the New Territories (unless otherwise stated).  SCs on the other hand were not to be applicable unless specifically referred to by their respective numbers.  In other words, GCs were automatically applicable unless expressly excluded but SCs had to be specifically identified for incorporation.

Is there a user restriction?

25.  This issue concerns Land A only.  P1 submitted that there is no restriction on use for Land A.  The Government contends otherwise.  The dispute centred on whether the phrase “sold … as agricultural Lots” appearing in the Auction Notice was descriptive or prescriptive of Land A.

26.  Mr Chain, counsel for the plaintiffs, submitted that as a matter of landlord and tenant law, a user restriction will not arise unless there is a clear and express covenant to that effect.  The New Grant does not contain an express covenant to use the lots only for agricultural purposes and none could be implied from the various covenants contained in the GCs.  It was submitted that those covenants merely prohibit various activities that are specified in them and do not have the effect of imposing any general restriction on user.  Mr Chain placed considerable reliance on the Court of Appeal’s decision in Attorney General v Melhado Investment Ltd [1983] HKLR 327.

27.  Melhado concerned a piece of land included in a grant made under a Block Government lease of 1905. In a schedule to the lease the lessee of each lot was described as it was then.  The Court of Appeal rejected the Government’s contention that the descriptions of use in the schedule was more than descriptive and limited the use that could lawfully be made of the land.  It examined the circumstances that existed in 1905 when the Block Government lease was executed and the historical background that led to the adoption of the device of Block Government leases (328C–H).  

28.  The court concluded on the facts of that case that:

 (1) The whole purpose of the schedule was to identify the lands and the parties to which the lease related and then to particularize the terms and the rents reserved by the body of the lease.

 (2) To read the users in the schedule as prescriptive would lead to absurd results (such as having to maintain the lot as a broken latrine for 75 years).

 (3) That conclusion was reinforced by the general restriction on building without a licence since it would not be necessary if the user had been intended to be other than descriptive.

See 329F–H.

29.  Nevertheless, the court (citing Watford Construction Co v Secretary for New Territories [1978] HKLR 410), accepted (at 329E) that (devoid of context) the phrase “demised as agricultural or garden ground”:

“ … could mean, on the one hand, that the land was demised on terms which prohibited its use for anything but agriculture or gardening, or, on the other, that it was land which was described as agricultural or garden ground.”

30.  The contractual documentation to be interpreted for Land A does not concern a Block Government lease but the New Grant made almost 30 years later in 1932.  In contractual interpretation, the overall importance of context is well established.  The starting point in any interpretation exercise is context (together with purpose) rather than what may be the natural and ordinary meaning of the words: see Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351 at §15.

31.  Mr Mok, counsel for the Government, submitted that in the context of the contractual documentation, the reference to the word “agricultural” is undoubtedly prescriptive.  He emphasised inter alia the following features in support:

 (1) The 84 constituent lots of Land A were identified by reference to lot numbers set out in the Particulars in the table of the Auction Notice.  So, unlike the situation in Melhado, a description of existing use was not necessary for the purposes of identification of the land.

 (2) Land A was sold for a specified Annual Government Rent for a fixed term of 75 years with the right of renewal for a further term of 24 years (less 3 days) at a re-assessed Government Rent “as agricultural Lots”.   

 (3) The basis for assessing the agreed Government Rent for what effectively would be a 99-year lease was that the land was — and was to remain — for agricultural use.  That was said to be a foundational premise of the contractual bargain.

 (4) That would also be the basis upon which the premium payable was assessed.

 (5) The position is reinforced by GC 5 which imposed substantive contractual obligations on purchasers of land “sold as a building lot”. It was submitted that unless the phrase “sold as a [] lot” substantively determines and delimits the permitted land use, GC 5 would serve no purpose.

 (6) The positive requirement in SC 1(b) imposed on the lessee to actively cultivate the land would make no sense unless the parties intended and agreed that the land was to be used for agriculture and not some wholly different use that did not involve cultivation of the land.

32.  In my view, Melhado is not authority for P1’s proposition that it is a general principle of landlord and tenant law that a user restriction cannot arise in the absence of a clear and express covenant to that effect.  Generalisations do not assist when, as here, it is a matter of contractual interpretation.  The contractual documentation in this case goes back to 1932.  Whether the lease in question imposes a user restriction must depend on the contractual context.  While the court was also referred to Irish case of The Grand Canal Co v M’Namee (1891) LR (I) 13, that authority took matters no further than Melhado.

33.  The present case is distinguishable from Melhado on the facts because the nature of the relevant contractual documentation is fundamentally different.  While there were observations in Melhado to the effect that the word “agricultural” in the Auction Notice is descriptive and not prescriptive because otherwise GC 5 would not be necessary, identification of the subject matter of the lease is not an issue in the present case, much less a central issue as it was in Melhado.  The lots were specifically and sufficiently identified by reference to lot numbers stated in the Auction Notice.  Nor would the Government’s interpretation lead to any absurd results on the facts of the present case.

34.  Further, apart from what has been said in §31(5) above, as previously noted (§§19 – 20), the GCs were of general application to all sales of land in the New Territories and automatically incorporated unless specifically excluded.  That GC 5 and, for that matter, GCs 11 and 12 may appear “inapposite” in a lease that is subject to an agricultural use restriction, such restriction was not absolute, it being contemplated that it was capable of being waived or modified by licence: see clause 6 of Schedule B.

35.  In any event, as a matter of contractual interpretation, it is but one of a number of features that are relevant.  Apart from those mentioned in §31 above (which I accept), it is also relevant to take into consideration that the disputed provisions are Government lease provisions concerning a term of 99 years affecting land in the New Territories.  It is worth mentioning that it is stated in Volume 42 Halsbury’s Laws of Hong Kong 2^nd edition at [285.126] that “[w]ithout special permission from the Government, all Government leases granted in the New Territories are for agricultural purposes and can not be used for other profitable purposes”.

36.  It is not controversial that where any interpretive ambiguity arises in the context of a Government lease, a presumption in favour of the Government applies: see New Mercury Holding Corporation v Secretary for Justice, unreported, CACV 73/2013, 15 April 2014 at §§14 – 15.

37.  Taking into account all the considerations mentioned above, as a matter of contractual interpretation, I consider that Land A is subject to an agricultural use restriction.

The cultivation covenant

38.  P1 raised two arguments: (1) SC 1(b) is a covenant that is personal to the original Purchaser and does not bind his successors in title; and (2) the court should not grant ‘bare’ declarations.

(1)  Whether SC 1(b) runs with Land A

39.  The issue is whether on its proper construction, the word the “Purchaser” used in SC 1(b) was personal to the original Purchaser or whether it ran with the land.  P1 submitted that the word “Purchaser” is to be contrasted with the word “Lessee” which is defined in Schedule A as including assigns and successors.  By using the word “Purchaser” rather than “Lessee” throughout the GCs except for one reference to “lessee”, P1 submitted that the parties must have intended to distinguish the original purchaser from a lessee (which term would include assigns and successors).  For that reason the word “Purchaser” used in the GCs and SCs is a reference to and only binding on the original Purchaser.

40.  It is common ground that the land was sold subject, inter alia, to the SCs specified in the Auction Notice.  P1’s submission comes to this: as the SCs throw no light as to the meaning of “Purchaser”, one has to look to the other parts of GN 570.  Of particular relevance was said to be the GCs (especially GCs 1, 3, 4, 5 and 6) that imposed obligations on everyone in occupation.  

41.  In my view, the proper approach is to consider the nature of the applicable SCs first.  SC 1(a) prohibited the erection of any building of any description on the lot and SC 1(b) prohibited the purchaser from permitting or allowing the land to remain uncultivated according to the custom of the country for a period of five consecutive years during the term.  It is reasonable to infer from those SCs that they were intended to be binding for the duration of the term since otherwise they would serve little purpose.

42.  Second, while I accept that the term “Purchaser” in GCs 1 and 3 can only mean the original purchaser, once the Memorandum of Agreement as stipulated by GC 3 is signed, the original purchaser automatically becomes the “Lessee” for the purposes of the Government lease: see §19 above.  GC 13 makes that construction beyond doubt.

43.  It has not been suggested or argued that P1 has no obligation to pay the annual rent for Land A.  Its liability to do so could only have arisen under GCs 7 and 13.  On P1’s construction, neither GC 7 nor GC 13 would apply since it is not the original purchaser.  If so how would its obligation to pay the annual rental have arisen?  

44.  In my view, the construction put forward by P1 is wholly untenable and contrary to common sense.  I have no hesitation in rejecting it.  Under the New Grant, Land A can only be used for agricultural purposes.  By putting Land A to columbarium use, P1 is in breach of the agricultural use restriction to which Land A is subject.

(2)  Whether declaration appropriate

45.  P1 submitted that the declaration sought that P1 is in breach of SC 1(b) should not be granted citing the rule in Patten v Burke Publishing Ltd [1994] 1 WLR 541.  The rule (which is a rule of practice rather than a rule of law) is that the court does not make declarations of right either on admissions or in default of pleading.  Patten concerned a notice of motion for judgment in default of notice of an intention to defend.  Millett J remarked that even after trial it is not the normal practice of the court to make a declaration that the defendant had been guilty of fraud or negligence.

46.  Since none of the situations mentioned in Patten pertains here, it is unclear why the rule is thought to be applicable or in what way it could assist P1’s case against the grant of a declaration.  Moreover, the question before the court is one of contractual interpretation of a covenant in a Government lease about which there has been full argument.  

47.  It was then said that what is sought in the points of counterclaim is but a “bare” declaration.  P1 contended that if it is in breach, it is open to the Government to re-enter and sue for the breach without the need for any declaration.

48.  That is not correct.  The right of re-entry under the Government Rights (Re-entry and Vesting Remedies) Ordinance, Cap 126 cannot be exercised unless and until it has accrued.  A declaration (if granted) would establish that right and so could not be said to be a “bare” declaration.

The structure point

49.  This issue applies to both Land A and Land B and arises out of covenants in similar terms.

50.  Clause 6 of Schedule B reads:

“ … the Lessee … shall not nor will at any time during the said term erect or construct any building or structure of any description on the said premises without first having obtained the approval thereto of the District Officer ….”

51.  The pertinent part of the Block Government Lease reads:

“ … the Lessee … shall not nor will at any time during the said term erect or construct any building or structure of any description on the demised premises or any apart thereof whether demised as agricultural or garden ground or otherwise without having first obtained the approval thereof of the Surveyor to His said Majesty …”

52.  The construction process has been described above: see §§5, 8- 9.  It is evident that the concrete slabs in question have been constructed or assembled in such a way that each is affixed or annexed to or is set into the ground upon which it was constructed.  Lying directly underneath some of the slabs are subterranean voids or chambers created by the removal of earth or soil and accessed through holes in the relevant slabs.  A rectangular tile is placed on top each hole.  Such tiles are not affixed to the slabs but remain in place through their own weight.

53.  Cremated ashes are stored in jars or urns in the subterranean voids that exist under many of the concrete slabs.  Each concrete slab is a self-contained unit, independent of the other slabs.  The slabs are intended to stay in place permanently or, at any rate, they manifest a degree of permanence and immovability in that short of demolition, they will remain as a permanent feature as constructed.

54.  The covenant extends to structures.  In Hobday v Nicol [1944] 113 LJKB the Divisional Court considered (at p 267) that:

“‘structure’ … is anything which is constructed; and it involves the notion of something which is put together, consisting of a number of different things which are so put together or built together, constructed so as to make one whole, which then is called a structure.”

55.  As Mr Chain submitted, whether the concrete slabs described are “structures” is largely a matter of impression.  Here, two features stand out: the works carried out have a close connection to the land through the manner of their assembly or construction being affixed to it and are immovable; their permanence is also manifest.  For my part, I have no hesitation in concluding that the concrete slabs are “structures” within the covenants.  As no relevant prior approval has been obtained for their construction, such structures constitute a breach of clause 6 of Schedule B in the case of Land A and a breach of the corresponding covenant in the Block Government Lease in the case of Land B.

Conclusion

56.  It follows that the plaintiffs fail on all three issues.

57.  Accordingly, the originating summons is dismissed.  On the points of counterclaim, the defendant is entitled to:

 (1) a declaration that as regards Land A, P1 is in breach of:

(i) the user restriction;

(ii) GC 15 and clause 7(5) of Schedule B;

(iii) clause 6 of Schedule B; and

(iv) SC 1(b) in the New Grant;

 (2) a declaration that as regards Land B, P2 is in breach of the Non-building covenant in the Block Government Lease;

 (3) an order that P1 do remove from Land A all human remains, including any crematedashes; and

 (4) an order that the plaintiffs do remove all buildings and structures on Land A and Land B, including the concrete slabs.

58.  There is to be an order nisi that the plaintiffs do pay to the defendant the costs of these proceedings with certificate for two counsel.