PANDIX LTD v. HUI KAM KWEI AND ANOTHER

LDCS 4000/2009

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Application No. LDCS 4000 of 2009

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JUDGMENT
ON
 THE PRELIMINARY ISSUE

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The Background

1.  This decision concerns an Application made under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”) for an order of compulsory sale of all the undivided shares of and in Sub-sections 1 and 2 of Section H of New Kowloon Inland Lot 317 (“the Lots”).

2.  There are 2 existing buildings erected on the Lots with the building at No. 291 Sai Yeung Choi Street North, Kowloon sharing a common staircase with the Building at No. 293 Sai Yeung Choi Street North, Kowloon. There are total 12 units in the 2 buildings with 2 units on each floor, namely basement, ground floor, 1^st floor, 2^nd floor, 3^rd floor and 4^th floor. The Applicant owns 11 units out of the 12 units representing an ownership of 91.67% of the total undivided shares in the Lots and the Respondent owns 1 unit at ground floor No. 291 Sai Yeung Choi Street North, Kowlon (“the Respondent’s Unit”). It is not in dispute that the buildings are over 50 years old.

3.  Since it is not in dispute that the average of Applicant’s undivided shares of the Lots exceeds 90%, I am satisfied that the Applicant was entitled to make this Application pursuant to section 3(1) of the Ordinance.

4.  Under section 4(1)(a) of the Ordinance, the first determination by the Tribunal would be the determination of dispute, if any, on the Existing Use Values (“EUV”) valuations undertaken in the application valuation report filed pursuant to section 3(1)(a) of the Ordinance, namely the report dated 3 March 2009 prepared Mr. Charles Chan, FRICS, FHKIS, a Chartered Valuation Surveyor, appointed by the Applicant.

5.  According to his report, Mr. Charles Chan was of the view that all the units in the subject buildings (except for the 2 basement units for storage purposes), including the Respondent’s Unit, are for domestic purposes only. He made reference to the Government Lease of the Lots in coming to his view. The relevant parts of the Government Lease are as follows:-

“…… And will not …… erect any buildings on the said piece of ground hereby demised or any part thereof other than twenty dwelling houses the design thereof to be subject to the special approval of the said Director ……”

“…… And shall not ……use, exercise or follow ……the trade or business of a Brazier, Slaughterman, Soap-maker, Sugar-baker, Fellmonger, Melter of tallow , Oilman, Butcher, Distiller, Victualler or Tavern-keeper, Blacksmith, Nightman, Scavenger, or any other noisy, noisome or offensive trade or business whatever ……”

6.  The Respondents take issue of the EUV valuations carried out by Mr. Charles Chan, in particular the proper construction of the Government Lease of the Lots in question.

7.  The Agreed List of Issues (which is effectively the determination according to section 4(1)(a) of the Ordinance) includes:-

(i)      What are the EUV of all the units at Nos 291 and 293 of Sai Yeung Choi Street North, Kowloon; and

(ii)     The EUV of the Respondents’ Unit.

8.  It is the Respondents’ case that the phrase “dwelling house” (or “dwelling houses” according to the Government Lease) does not mean for domestic purposes only, as suggested by Mr. Charles Chan in his application valuation report. The Respondents submitted that the phrase “dwelling house” has a much wider meaning than domestic purposes only. If the Respondents were right, it would be wrong for Mr. Charles Chan to carry out the EUV valuations for all the units (except for the 2 basement units) of the buildings on the Lots for domestic purposes only.

The Preliminary Issue

9.  To facilitate this Tribunal to determine this issue, the parties jointly made an application for the determination of it as a preliminary issue for the Application:-

“Upon proper construction of the subject Government Lease of the Lots in question whether the restriction of “dwelling houses” means for domestic purposes only.”

10.  The parties also agreed that the costs of this determination be reserved.

11.  The parties are of the view that this Tribunal should determine this preliminary issue first before proceeding to determine other disputes between the parties on the EUV valuations. Parties were hoping, although there is no guarantee, that once this preliminary issue is finally disposed of, the parties would be in a far better position to agree other valuation assumptions and steps, so that even if this could not dispose of all the disputes between the parties entirely, the time for the hearing of the Application would be substantially reduced.

12.  I agreed with the parties’ view above and therefore gave directions for determination of this preliminary issue first. I would also make further directions once this issue is finally disposed of.

The Dispute

13.  The Applicant suggested that “dwelling houses” mean domestic purposes only but the Respondents disagreed with that. The Respondents accepted that a “dwelling house” is of residential nature and are to be dwelt in. The Respondents also accepted that a “dwelling house” is physically capable of being used for human habitation. However, the Respondents argued that it does not necessarily follow that “non-domestic” use of a “dwelling house”, or part thereof, is therefore not permitted. In other words, the Respondents have suggested a slightly wider interpretation of the words “dwelling houses” than what the Applicant has.

14.  It has been suggested to this Tribunal that if the “non-domestic” use was only ancillary to the domestic use of the property, for example, storage of furniture for a family, it would not be considered as a separated and independent “non-domestic” use of the “dwelling houses” and the parties agree that this is permitted under the Government Lease. The Respondents however said that they, in fact, went further than that. They submitted that “non-domestic” uses not ancillary to the domestic use of the property, for example, using part of the property as residence and the other part of the property to conduct a piano tutorial class or to operate a grocery store, are also permitted under the Government Lease in question.

15.  I have to say that the differences of view between the two sides are not huge.  This is my understanding of the Respondents’ contention: the Respondents argued that, for the facts of this particular case, as long as some parts of the Respondents’ property are used as domestic purposes, other parts of the same property are permitted under the subject Government Lease to be used for any “non-domestic” purposes not necessarily ancillary to the domestic part. This is the wider definition which the Respondents suggested to this Tribunal but was disagreed by the Applicant. If I agree with the Respondents’ statement, I should therefore hold that the restriction of “dwelling houses” does not mean for domestic purposes only as there are other non-domestic uses not ancillary to domestic use are allowed. On the other hand, if I were of the view that “non-domestic” use not ancillary to the domestic part of the same property is not permitted, I should then hold that the restriction of “dwelling houses” means for domestic purposes only under the subject Government Lease.

16.  For ascertaining the true and proper construction of the words “dwelling houses”, it is necessary for me to look at the ordinary meaning of them first. Then I shall turn to consider the authorities relied on by the parties and make a finding as to the true and proper meaning of the terms in the context of the Government Lease.

The Ordinary Meaning of “dwelling houses”

17.  First of all, in my judgment, it is right for the Applicant to rely on the plain, ordinary and popular meaning of “dwelling houses”. The Applicant used the definition in “Oxford Dictionaries Online” which said that “dwelling” is a formal word for “a house, flat or other place of residence”. In other words, the meaning relied on by the Applicant was a plain, ordinary and popular meaning of the word “dwelling”.

18.  The Respondents did not seem to disagree with this approach but added that the words “dwelling houses” must be construed in a wider sense. The Respondents also submitted that they had no quarrel with the Applicant that the words “dwelling” and “residential” are of more or less the same meaning but they suggested that “dwelling” does not equal to “domestic”.

19.  In other words, there is no dispute that the ordinary meaning of “dwelling” means “residential” and a “dwelling house” means a house for “residential” use. The Applicant argued that “dwelling” means “domestic” and “domestic” only but the Respondents said that the word “dwelling” should cover a much wider spectrum of activities other than “domestic” activities.

20.  In my judgment, as a plain, ordinary and popular use of the words “dwelling”, “residential” and “domestic”, I am unable to see the logic behind the Respondents’ argument why they are different. These words have been used in the ordinary daily life for so many years that they mean exactly the same thing to me, namely a place for private residence. For this reason, I accept that the plain, ordinary and popular meaning of “dwelling” means “domestic” only.

The Government Lease must be Construed in Context

21.  It is not in dispute that the parties’ intention is the most important consideration for the construction of a Government Lease and, the parties agreed that, it must be construed as a whole. The object of construction is to ascertain what the parties’ mutual intentions were at the time when the Government Lease was granted.

22.  The Applicant suggested that the covenants of the Government Lease were copied from existing templates. I do not accept that. Although no evidence is adduced to prove otherwise, I expect the Government to be very careful in its choice of words in a Government Lease as it is a very important piece of title document. Even if I were wrong, namely the Government was using existing templates, in my judgment, it was only done so because this was a convenient way to draft a formal lease. It does not, therefore, mean that the parties’ intentions would not then be reflected by the words or templates which the parties had particularly chosen for.

23.  The Respondents suggested that for the construction of this particular Government Lease, I should also look at the permitted uses under the town planning zoning as well as the definition of “domestic building” under the then Building Ordinance, Cap. 123 (1950 revised edition). I do not find this submission helpful too. In my judgment, I simply do not see how the town planning zoning and the definition of “domestic building” under the then Building Ordinance, Cap. 123 (1950 revised edition) could give any assistance to the Respondents’ argument at all. I could not see the relevance of these statutory definitions on the meaning of a private contract between the Government, being the lessor and the Respondents, being the lessees.

24.  The Respondents suggested that I should construe the Government Lease in the context that:-

(a)     the lease was granted in 1934 when Hong Kong was in its early stage of development, and it was not unusual for people to live at the back of the premises where they operate their businesses; and

(b)     the fact that there were 2 basement stores only accessible from the back which suggested that some sort of non-domestic use was contemplated.

25.  I agree with the Respondents that I should construe the Government Lease in context but I think that in 1934, when the subject Government Lease was granted, even accepting that it was quite common for people at that time to live and operate some family businesses at home, this is certainly not evidence to suggest that it was the intention of the Government to allow the people do so under the Government Lease. If it was so, I would expect a much less restrictive provisions than the present one found in the lease.

26.  The presence of the basement stores and the way how they are accessed were neither here nor there. It was probably a mini-warehouse for the residents of the building for storage of large items, for example large furniture. I therefore disagree with the Respondents’ suggestion that some sort of non-domestic use was contemplated. In my judgment, the basement stores were just uses ancillary to the residential use on the upper floors of the building.

27.  The Respondents also argued that if the restriction of “dwelling houses” means for domestic purposes only, the covenant against offensive trade would be somewhat superfluous. The Respondents submitted that some non-domestic uses must be contemplated in a “dwelling house” so that the incorporation of the covenant against offensive trade was necessary. I do not see why this must be so. The covenant against offensive trade is a separated and independent covenant for the Government to rely on for enforcement against offensive activities. It was incorporated for a specific purpose and I do not agree that even if the restriction of “dwelling houses” means for domestic purposes only, it is therefore superfluous.

28.  Subject to the above, I find that the relevant parts of the Government Lease are the user covenants, which were drafted with the intention to control the use of the land and the buildings erected thereon. In my judgment, this is the proper context which this particular Government Lease should be construed in.

The Meaning of “dwelling houses” and the Legal Authorities

29.  In support of their arguments, I have been given a number of legal authorities by the parties to consider.

30.  The Applicant invited me to look at an English Court of Appeal judgment, Northern Theatres Co Ltd v. Shillito [1925] 2 KB 100 where the construction of a piece of English statute, namely Halifx Improvement Act, 1853, was in issue. The meaning of “private dwelling house” was discussed and it was held by the court that theatres or factors were not within the meaning of “private dwelling house”. On the other hand, the Respondents relied on South-West Suburban Water Company v. Guardians of the Poor of St. Marylebone [1904] 2 KB 174 which said that a school was a “dwelling house” within the meaning of the Waterworks Clauses Acts, 1847. In making such ruling, an old English authority Cooke v. New River Co (1888) 38 Ch D 56 was relied on. However, the Applicant submitted that in Northern Theatres Co Ltd (supra), it was held that the ruling of Cooke v. New River Co (supra) was of no general application and therefore Northern Theatres Co Ltd (supra) was bad law.

31.  In my judgment that the above authorities of the parties do not provide much assistance for the determination of the present dispute. They only turn on the interpretation of some particular England statutes in question. I therefore do not consider them useful for my determination.

32.  The Applicant further relied on Lewin v. End [1906] AC 299 and  Re 1-4, White Row Cottages, Bewerley [1991]3 WLR 229 . I accept that in both judgments, the courts discussed thoroughly the meaning of “house” and “dwelling house” in the context of statutory interpretation and it seems to me that the phrase “dwelling house” and “house” had been used interchangeable in the Lewin v. End (supra). Although some useful discussion of what the meaning of “dwelling house” could be found in the judgments, I do not find them helpful at all for ascertaining the plain, ordinary and popular meaning of the words “dwelling houses”. They mean what they ordinarily mean. I do not need to rely on any of them to come to that conclusion.

33.  Regarding the authority of MacMillan & Co Ltd v. Rees [1946] 1All ER 675, I accept the statement that “…… sleeping on particular premises at night, or having meals on them, did not ipso facto have the effect in law of making those premises a dwelling house.” But this again, in my judgment, gives no assistance to the determination of the contention between parties. The contention is whether or not “non-domestic” activities, like commercial or business activities, are permitted in “dwelling houses” but not when some “domestic” activities are being carried out in some business premises, whether or not the business premises would, then, turn into “dwelling houses”. I therefore do not consider that much assistance can be derived from the authority.

34.  Apart from the English authorities, the Applicant also put forward two local authorities in support of its argument: Wah Yick Enterprises Co. Ltd. v. Building Authority [1999] 1 HKC 580 and Expressluck Development Ltd v. Secretary for Justice HCMP 1432 of 2005 (unreported, dated 26 July 2007). First of all, I do not accept Wah Yick (supra) is relevant at all. It was decided in the context of land use control under the Town Planning Ordinance, Cap. 131 and the Buildings Ordinance, Cap. 123 for the meaning of “house” in an area zoned for “village type development”. Whether or not the definition of the word “house” in the context of statutory interpretation had a fluidity of meaning is neither here nor there. It is irrelevant to the construction of the Government Lease in question. I therefore do not find it useful at all for my determination. Secondly, regarding the other authority, Expressluck (supra), I accept that it was a construction of Government Lease case and therefore it should be of some relevance. However, I agree that the words used in the covenant in that case was different from the words used in the covenant of the present case. In Expressluck (supra), the covenant concerned was about “domestic houses” but not “dwelling houses”. It was categorically decided by the learned Judge that no commercial or business activities would be permitted in “domestic houses”. The learned Judge came to the view by relying on a number of authorities including the commentary in Hill and Redmond’s Law of Landlord and Tenantat paragraph 7066 :-

“… A covenant to build a house as a private dwelling house requires also that it shall be kept as such …, the addition of the conversion of the premises into flats, their use as a school, or as a charitable institution, the subletting of part whether as apartments or otherwise, even if the subtenant is bound to use the part sublet as a private residence, the carrying on of a guest house, and the taking of lodgers or paying guests, and the grant of occupational licences in return for payments will in general constitute breaches of the covenant.”

35.  The Respondents did not oppose to this Tribunal to accept the conclusion of Expressluck (supra). They were of the view that it was, in fact, decided in their favour. The Respondents argued that Expressluck (supra) confirms their view that “domestic houses” and “dwelling houses” are quite different. The Respondents had no difficulty to accept that no commercial or business activities would be permitted in “domestic houses” but what they disagreed with is that “non-domestic” uses like commercial or business activities should be permitted in a “dwelling house”. The Respondents submitted that when the Government used different terms in Expressluck (supra) from the present case, it intended to limit the use to 100% domestic in that case but not in the present case.

36.  The above very attractive argument from the Respondents, indeed, advanced their case in the best possible light. However, after some consideration, I am not persuaded to accept it. First of all, the Government Lease in Expressluck (supra) and the Government Lease in the present case are two different unrelated leases under different factual backgrounds although granted by the same legal entity, namely the Government. There is no presumption that different terms in different leases drafted and granted at different times must mean differently. There is no evidence to suggest that for the same meaning, the Government would use the same terms every time when it drafted new leases at different times. Secondly, if “domestic houses” and “dwelling houses” mean the same thing (which I have already decided to be so for their plain, ordinary and popular meanings) it was not necessary for the Government to use the same terms, “domestic houses”, to mean 100% domestic every time in drafting leases. Since the Government Lease in Expressluck (supra) and the one in the present case were drafted at different times, it is not uncommon for the Government to use different words at different times but to mean the same thing, although I agree that it is undesirable to do so as this may cause problem in future interpretation.

37.  Since I find that the plain, ordinary and popular meanings of the words “dwelling”, “residential” and “domestic” are the same, I therefore accept that Expressluck (supra) is of some limited application for the present dispute and find that commercial or business activities are therefore not permitted in “domestic houses” and thus “dwelling houses”.

38.  The Respondents also reminded me that in most of the authorities cited by the Applicant, the discussion only concerned “private dwelling house” but not “dwelling house”. The Respondents also submitted, in relying on an Australian authority,Downie v. Lockwood [1965] VR 257 from the Supreme Court of Victoria, that these two terms in fact mean quite differently. According to Smith J, it was held that:-

“In popular speech the term is commonly used in a narrower sense derived, perhaps from an abbreviating of the expression “private dwelling-house”. In this narrow sense it covers, I think, only those places of abode which are either separate structures or else divided from other buildings by vertical walls, and which in addition, are occupied or adapted for occupation, by persons living in one household. But for premises to be used “only as a dwelling-house”, in this narrow sense of the word, it is not necessary that the persons residing therein should be members of the one family, or related to each other. For example, if half a dozen students rented a house such as I have described and made it their place of abode, living in it in one household, they would be using it as a “dwelling-house” even in this narrower sense.”

39.  I do not find the argument for the distinction between “private dwelling house” and “dwelling house” useful for the present determination. The present determination concerns whether or not “non-domestic” activities, like commercial or business activities, are permitted in a “dwelling house” but not whether or not a “dwelling house” is permitted to be let to other people who are not “family members” of the owner for residential purposes. According to Smith J:-

“Where a family is living in a house such as I have described, and they take in boarders who have no exclusive occupation of any part of the premises and who live there with the family as members of the one household, the premises, I consider, are still being used “only as dwelling-house”, in the narrower sense of the word. …… And this situation, in my view, is not altered merely because the boarders outnumber the family, so long, at least, as a single private household is maintained of which the boarders and the family are all members. It does not follow, of course, that the word “dwelling-house”, in its narrower sense, would cover an unlicensed hotel or a large scale boarding-house run by a staff and catering for all comers. In such a case the public element becomes so prominent that the boarders can no longer be regarded as members of a household, still less of a private household.”(emphasis added)

40.  In my view, the distinction between “private dwelling house” and “dwelling house” only concerns the “public character” of the property and does not have much bearing on the Respondents’ argument in this case. The ruling of Smith J does not support the argument put forward by the Respondents at all. This could be understood from the following remarks made by the learned Judge:-

“The proper conclusion upon these facts is, I consider, that the boarders and the plaintiff and his wife and son lived in one household, that of the plaintiff; and that the presence of the boarders did not give the house a public character. The question, then, is whether this use went beyond a use of the premises “only as a dwelling-house.

The word “dwelling-house” is capable of a wider meaning in which it extends to any building or part of a building used as the place of abode of one or more persons. ……

……It was contended on behalf of the defendants that premises cannot be said be used “only as a dwelling-house” if any business is carried on therein; and that where there is a settled practice of taking in boarders in the numbers and in the circumstances disclosed by the evidence in the present case this constitutes the carrying on of a business. In my view, however, if the premises do not assume a public character, and if the only business carried on is that of supplying for money the accommodation, meals and domestic services the enjoyment of which renders the boarders members of the household, this will not involve that the premises are used otherwise than as a dwelling-house” ….” (emphasis added)

41.  The Respondents also invited me to look at the authority Graham v. Shiels 8 SLT 368 which concerned a medical practice. Again, I am unable to find much assistance from it. The learned Judge in that case rejected the argument that a medical practice with some “boarding houses” for patients was in breach of the terms of the title documents which included a description of “ dwelling-houses”. The learned Judge was of the view that the terms were just “introductory words” and were not part of the operative restriction. For this reason, it was decided that there was no question of any breach. Although the learned Judge also went on to comment that he did not accept that “boarding house  ……, is not a dwelling-house”, no analysis was given in the judgment as to the reasons for that remarks. I therefore place no reliance on this judgment at all.

42.  After reviewing all the authorities cited by the parties, I do not find any of them to have any direct application to the present case, except Expressluck (supra) for some limited use. However, having said all the above, I do share a general flavour of all the authorities cited to me that “non-domestic” uses, like business or commercial uses, are somewhat inconsistent with the use as a “dwelling house”. In my judgment, to be a “dwelling house”, it must be a place for enjoyment of accommodation, meals and other domestic activities only. Not a single authority suggests to me by the parties that shops, warehouses, industrial workshops or factories, offices or theatres were uses permitted in a “dwelling house” (not even part thereof). At most, the arguments for school and boarding houses for students or patients were only on certain occasions accepted by the courts as uses consistent with the description of “dwelling houses” but these decisions turned entirely on their own facts and, in my view, have no general application in here.

Conclusion

43.  In my judgment, adopting the plain and ordinary meaning of the “dwelling houses”, it must mean for domestic purposes only. In the context of a Government Lease for controlling use of land and building, this is a clear and unambiguous expression that only domestic uses are permitted in “dwelling houses”. If the Government were to have the intention to allow for what the Respondents are contending for in this case, a less restrictive and less specific description of user would be adopted, for example “non-industrial use” or just “house”. For the subject Government Lease, I find that the word “dwelling” qualifies the word “houses” for a more specific meaning, namely for domestic use only.

44.  For reasons above, I find for the Applicant on the preliminary issue that upon proper construction of the subject Government Lease of the Lots in question the restriction of “dwelling houses” means for domestic purposes only.

Orders and Further Directions

45.  For further conduct of this proceeding, I make the following orders:-

(1)     It is declared that upon the proper construction of the subject Government Lease of the Lots in question, the restriction of “dwelling houses” means for domestic purposes only;

(2)     A further directions hearing for the Application, not to be before 11 November 2010, be fixed by the Listing Officer, estimated time: 1/2 an hour; and

(3)     Costs reserved.