XCHRX SHEENCLASS INTERNATIONAL LTD v. ATTORNEY GENERAL

1994, No.MP3382

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The Plaintiff is the registered owner of the Remaining Portion of Kowloon Inland Lot No.4164, also known as No.20 Lomond Road, Kowloon ("the Property"). The Original Crown Lease in respect of the whole Inland Lot No.4164 was granted on 3rd November 1948. It comprised of Nos.4-22 of Lomond (then called Leven) Road. The partition of Lot 4164 was made in 1953. Consequently No.20 ("the Remaining Portion") and No.22, (Section F of the said Lot) was developed into a self-contained house with its own compound or curtilage. The Plaintiff now owns only No.20. The Original Crown Lease provided that "The lessee .... shall not at any time during the term hereby created erect or permit to be erected on any part of the said piece of parcel of ground any house with a compound or curtilage of an area (including the area covered by such house) of less than 8,000 sq.ft. ..."

2. In other words, should the lessee of Lot No.4164 erect any house, each house together with the compound or curtilage must be not less than 8,000 sq.ft. This was described by the Plaintiff as "the curtilage restriction" and by the Defendant "the curtilage covenant".

3. The whole Lot 4164 is about 44,843 sq.ft. Five houses were built thereon as follows :-

(i) Nos.4 and 6;

(ii) Nos.8 and 10;

(iii) Nos.12 and 14 formed one house which is called Crowfields Court;

(iv) Nos.16 and 18 form one house which is called Lomond Court;

(v) Nos.20 and 22.

4. All these five houses complied with the aforesaid restrictive covenant of building a house with curtilage of not less than 8,000 sq.ft.

5. However, the Property, being the Remaining Portion, occupies only 4,557.75 sq.ft. If the Plaintiff redevelops the Property it cannot therefore fulfill the requirement of the restrictive covenant in the Original Crown Lease since it cannot possibly build a house with a curtilage of not less than 8,000 sq.ft. Accordingly the Plaintiff applied for a declaration that the curtilage restriction has been, since 20th August 1976, of no effect by virtue of s.8 of the Crown Rent and Premium (Apportionment) Ordinance, Cap.125 and that the Plaintiff holds the said remaining portion subject to no curtilage restriction. Section 8 of Cap.125 provided as follows :

"8. Effect of apportionment on section

(1) With effect from the publication in the Gazette of notice under section 22(1), the owner of the section shall hold the same as if there had been granted to him a separate Crown lease of the section for the residue of the term of years created by the Crown lease of the lot, containing, so far as they are applicable thereto, the covenants (other than the covenants to pay the Crown rent and the premium, if any), stipulations, exceptions, reservations, provisos, powers and conditions contained in the said Crown lease of the lot."

Crown Rent in respect of the Lot was apportioned in 1976 between the various sections, subsections and the Property pursuant to the aforesaid s.8. Notice to that effect was published pursuant to s.22(1) of the said Ordinance, Cap.125 in the Hong Kong Government Gazette on 20th August 1976. Crown Rent of the Property was determined at HK$58.

6. Sir John Swaine, Q.C., counsel for the Plaintiff submitted that the said apportionment has by virtue of s.8 of the Ordinance created or deemed the existence of a separate Crown Lease over each of the aforementioned portions within the whole Lot. Thus, as the argument goes, the notional "separate Crown Lease" under which by virtue of s.8 of the Ordinance, the Plaintiff holds the Property contains the curtilage restriction only if such restriction constitutes a covenant stipulation, exception, reservation, proviso, power or condition "applicable" to the Property. The Plaintiff submitted that the curtilage restriction is not applicable to the Property because, whereas it is capable of being sensibly applied to the Lot as a whole, it is incapable of being sensibly applied to the Property because the property occupies an area of substantially less than the area of 8,000 sq.ft. stipulated by the curtilage restriction. Otherwise, if the Plaintiff tries to observe the curtilage restriction, it would then impose upon the Plaintiff as a lessee an obligation to maintain a house with a curtilage beyond the boundaries of the property held and therefore beyond its control.

7. Further, s.9 of the Ordinance provided as follows :

"9. Saving of Crown lease of lot

Save in so far as the same is necessarily affected by the fact that a section is by virtue of section 8 held as if the separate Crown lease referred to in that section had been granted and save as otherwise provided in this Ordinance, the Crown lease of the lot shall continue in full force and effect in respect of any part of the lot which continues to be held thereunder."

Thus the Plaintiff argues that the natural implication of the express provision of s.9 was that the Original Crown Lease shall continue in full force and effect in respect of any portion of the Lot which continues to be held thereunder. Since this section can only sensibly be read to envisage that a portion held by virtue of the apportionment under s.8 of the Ordinance as if "a separate Crown Lease" had been granted would not then be one which "continues to be held" under the Original Crown Lease.

8. Miss M. Yuen, counsel instructed by the Attorney General, submitted that the issue before the Court is one of applicability of covenant and not its performance. If the curtilage covenant is applicable to the notional Crown Lease of the Property, i.e. the remaining portion or No.20 Lomond Road, the fact that the Plaintiff needs the co-operation of a third party to perform it is neither here nor there. The third party envisaged here is the owner of No.22.

9. I would like to note here that in respect of Nos.12 and 14, i.e. Crowfields Court and Nos.16-18, i.e. Lomond Court, both these two sublots did obtain a modification of the Crown Lease at a premium to the effect that the curtilage restriction would no longer apply.

10. Miss Yuen submitted that the applicability of covenant depends on its nature and its substance and not whether the Plaintiff itself can or cannot perform the covenant. The nature of the curtilage covenant is negative. The substance of the curtilage covenant is control of the type of development which is allowed on the Property. It merely restricts the owner of the Property from erecting any house on the Property together with a curtilage of less than 8,000 sq.ft. It is not a positive building covenant which requires the owner to build within the property a house with a curtilage of not less than 8,000 sq.ft. In this respect, it is different from the case of Wong Bei Nei v. Attorney General [1973] HKLR 582. The covenant in that case was to require the owner to build or to erect on the lot not less than 35 houses and each of them shall not be less than 8,000 sq.ft. The requirement to build these houses is positive.

11. In the case before me, the Crown lessor does not require the lessee to build any house but should the lessee build a house with a curtilage, then it must be not less than 8,000 sq.ft. If the lessee of the Property, i.e. the Plaintiff, wants to observe the restrictive covenant, it can just sit tight and do not build any house at all. It has been decided that a tenant's covenant to use premises only for a stated purpose did not impose any positive obligation on him to use them at all, and is merely a negative covenant not to use them otherwise than for the stated purpose - see the case of Edler v. Auerbach [1950]1 KB 359. Devlin, J. (as he then was) said at p.368 :

".... The regulation does not touch the letting of premises: it concerns only their use. The lease contains a covenant by the tenant to use the premises for professional purposes and not otherwise. Though positive in form, this is really a negative covenant; it should more correctly be phrased as a covenant not to use the premises otherwise than for professional purposes. Counsel for the plaintiff rightly concedes that it cannot be construed as imposing any obligation on the tenant to use the premises at all. The plaintiff [i.e. the tenant] can legally perform all his obligations under the agreement. He can get no benefit from it, because he could not, assuming the prohibition in the regulation to be absolute, enter into occupation; but that is immaterial. ...."

Further, there is no implied condition on the demise of premises that they are physically or legally fit for the purpose for which they are let (see pp.373-4 of Devlin J.'s judgment.)

12. I accept the submission of Miss Yuen that the sole question is whether the so-called curtilage restriction is applicable to the Property. I said "so-called" because the restriction is not just curtilage but a house with a curtilage and the house can be, say 1,000 sq.ft. but then the curtilage must be not less than 7,000 sq.ft. Section 8 provided that the Original Crown Lease shall be applicable so far as they are applicable as contained in the said Crown Lease. The difficulty in the performance or observation of the Plaintiff of this restrictive covenant was not created by the apportionment of the Crown Rent but by the partition of the owners way back in 1953. As I have said, a similar joint redevelopment to replace the existing building was possible for the owners of Nos.12 and 14 and similarly Nos.16 and 18, i.e. Section D and the remaining portion thereof and Section 1 and the remaining portion of Section E.

13. In other words, the state of affairs was not brought about simply by the Director of Lands apportioning the Crown Rent. Otherwise, co-owners can escape covenants which they consider commercially unattractive by partitioning their land and thereafter applied to apportion the Crown Rent pursuant to Cap.125.

14. Against the aforesaid background, the main consideration of course is the true construction of s.8 of Cap.125. The preamble of Cap.125 provided that the Ordinance was : "To provide for the apportionment of Crown Rent and Premium". The legislation clearly is not intended to rewrite Crown Leases. Section 8(4) provided that :

"(4) Nothing in this section shall affect any right or liability acquired or incurred by the Crown or the owner of the section under the Crown lease of the lot prior to the publication in the Gazette of notice under section 22(1), save that as from the day referred to in subsection (2)(a) or (b), as the case may be, any such liability of the owner of the section to pay the principal Crown rent or the principal premium, if any, to the Crown shall determine."

In other words, all rights and liabilities acquired or incurred by the Crown or owner of the Crown Lease shall be preserved or not affected. The whole intention of the Ordinance was to apportion the Crown Rent so that owners of various sub-lots shall not (after apportionment) be jointly or severally liable for the Crown Rent for the whole lot.

15. One example given by Miss Yuen of non-applicability in certain situation is where a covenant applicable to whole lot stipulated that a particular strip of land is to be surrendered to the Crown in the future. If that strip of land is not within the section after the apportionment, then the covenant to surrender it would obviously not be applicable to that very section.

16. Further, the owner of No.22, i.e. Section F, should have a reasonable expectation that the Property would have a larger development potential if the Plaintiff is not permitted to develop by itself by reason of the curtilage restriction. Both of them are still bound by it.

17. By reason of the aforesaid matters, I am of the view that s.8 of Cap.125 could not be intended by a so-called sidewind to nullify or to take away rights under a covenant just because the Crown apportioned Crown Rent for various subsections. Accordingly, the Originating Summons before me must be dismissed with costs to the Defendant.