YING HO COMPANY and Others vs THE SECRETARY FOR JUSTICE

HCA 10834/1998

BETWEEN

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J U D G M E N T

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The Case in Brief

1. The plaintiffs are companies in the Chinachem Group, of which Mrs Nina T.H. Wang (“Mrs Wang”) is effectively the owner and controller.  The group is a property developer in Hong Kong.  The defendant is sued as representative of the Hong Kong Government and in particular of the Secretary for Planning, Environment and Lands (“SPEL”), the Director of Lands (“DL”) and the Civil Aviation Department (“CAD”).

2. In 1991 the plaintiffs acquired Tsuen Wan Lot No.353 (“the Lot”) from the Government.  They were deemed to take possession of the Lot on 8 December 1992.  By the terms of their grant they were required to complete their building on the Lot, to the stage of obtaining an occupation permit, within four years, i.e. by 8 December 1996.  They were also required to complete a transport terminus on the Lot within three years, i.e. by 8 December 1995.  If they did not comply with these building covenant periods, the Government could forfeit the Lot without repayment of the premia paid for it or other compensation.

3. The plaintiffs originally planned to build a housing development on the Lot, but for environmental reasons this was not approved.  Then on 24 March 1994 they publicised their intention to build on the Lot the tallest building in the world.  It was to be called “Nina Tower” and was to have a total height of more than 500 metres.  The first plans for the tower were submitted to Government in May 1994.  As it turned out, the Nina Tower could not be built, because of its position relative to the new airport then being built at Chek Lap Kok.  It was too tall.  

4. In 1989 the Government had decided to build the new airport.  Its layout was such that aircraft on final approach to land from the northeast would pass over Tsuen Wan.  In fact, now that the airport is in use, the approach paths to the two runways lie overhead and on either side of the Lot.

5. In 1994 there were as yet no statutory height restrictions in respect of Chek Lap Kok Airport, and the existing ones for Kai Tak Airport did not affect the Lot.  There was no contractual height limit for none had been included in the grant of the Lot in the plaintiffs’ favour.  However, towards the end of 1994, the Civil Aviation Department decided that a height restriction of 324 metres above principal datum (“mPD”) would be required for buildings in the Tsuen Wan area in order to safeguard the integrity of the signals emitted by the instrument landing system (“ILS”) to guide the aircraft to land.  The ILS had yet to be installed.

6. The plaintiffs were made aware of the proposed height restriction in January 1995.  However for reasons which will be dealt with below they considered that this restriction did not bind them.  They continued to put forward plans for Nina Tower, which the Lands Department rejected, wrongfully according to the plaintiffs.  Ultimately the plaintiffs abandoned the plan to build the tallest tower in the world, and put forward plans for a two-tower structure with a height of 324mPD in late 1996.  Finally a somewhat different two‑tower structure was built, truncated meantime but with provision to build later to the design height of 324mPD.

7. In the meantime the plaintiffs missed the contractual deadlines imposed on them for the erection of the building itself and the transport terminus.  The Government, in the person of the DL or his officer, claimed that they had become liable to re-entry, i.e. forfeiture of the Lot and liable to pay liquidated damages in respect of delay in building the transport terminus.  The DL granted extensions of their building covenant period, but on the payment of premia, at standard rates imposed by him for such extensions.  The plaintiffs paid these premia, and the liquidated damages, under protest.  They now seek declarations that these premia and liquidated damages are not payable, as well as various other reliefs, including the repayment by government of over $500 million, and damages to be assessed. 

The Plaintiffs’ Case

8. The pleadings are lengthy.  The plaintiffs’ case has changed somewhat since its inception.  I will try to summarise it.  As it now stands it can be stated thus. 

9. In the first place, the agreement between the parties was both a land grant and a building contract, or, in effect, two building contracts, the one for the transport terminus and the other for the building itself.  Certain implied terms were implied by law or necessary to give business efficacy to the agreement.  The defendant was in breach of those implied terms because although the plaintiffs first put forward on 19 May 1994 a Master Layout Plan for the Nina Tower, which was to have a total height of 522 metres above principal datum they were only informed of the Government’s decision to fix the maximum permissible height for building on the Lot at 324mPD by letter dated 9 April 1996.  Accordingly, say the plaintiffs, the building covenant periods are no longer binding, and time is at large or alternatively the periods have been replaced or extended by such time as is attributable to the Government’s delay.  The plaintiffs say that they have suffered loss and damage as a result of such breach; they have lost profits on the building which they would have completed earlier, had they known of the height restriction; and under threat of re-entry, they were forced to pay, and paid under protest various premia and liquidated damages.  In fact as appears from the closing submissions made on the plaintiffs’ behalf the emphasis of their case is now primarily on the interpretation of the Agreement and the implied terms.

10. In the second place, the plaintiffs plead that in the same period they were told or encouraged to believe or given to understand by representatives of the Government that there were good prospects that the Government would give the plaintiffs permission to build the Nina Tower to a height of 468mPD (plus a 70 metre spire).  In addition, both on 8 June 1995 and on about 11 August 1995 Mr Bowen Leung, the then SPEL, orally agreed with their representatives that pending the Government’s determination of the maximum permissible height, the Government would extend the building covenant periods at nil premium.  Alternatively, if there was no such agreement, the statements of SPEL and the course of conduct of encouragement by Government representatives were representations on which the plaintiffs relied to their detriment.  The Government was therefore estopped from demanding liquidated damages for failure to complete the transport terminus, and premia for extension of the building contract periods.

11. The plaintiffs further say that each of the large premia extracted by the Government is a penalty.  They also claim that the Government’s demands for liquidated damages and premia, to which they were not entitled, because of the implied terms or the estoppel or because they amounted to penalties, amounted to economic coercion calculated to force the plaintiffs either to pay them or lose their investment in the Lot.  Any contracts to extend the periods were void for absence of consent, or voidable for economic distress, or were without lawful consideration.

12. We have in this trial by the agreement of the parties dealt only with the first part of the plaintiffs’ claims on liability, i.e. the delay which the plaintiffs say the Government wrongfully caused, between May 1994 and April 1996.  There is a further claim, pleaded in paragraph 29 of the (now Re-Amended) Statement of Claim that in breach of the same implied terms averred the Government delayed approval of the plaintiffs’ Master Layout Plans between July 1996 and November 1997 without any corresponding free extension of the building covenant periods.  There will be a further trial of this part of the claim but obviously how it is approached will depend on my findings in this trial with regard to the implied terms of contract for which the plaintiffs contend.

The Defendant’s Case

13. The defendant says that the short answer to the plaintiffs’ case is that they entered into an agreement with the Government to extend the building covenant period at a premium, resulting in the Government forbearing to re‑enter.  The various premia were all paid pursuant to such agreement; and the plaintiffs cannot now reclaim them.  There is no claim for that agreement to be set aside; while it is pleaded that the agreement was not supported by consideration or voidable on the ground of economic duress, this is not made out; the plaintiffs made a free commercial decision and they paid for certainty of possession. 

14. So far as the implied terms are concerned the defendant says that those contended for cannot be supported in law because they are not necessary.  No breach of an express or implied term has been made out.  The defendant denies any agreement or agreements between SPEL and the plaintiffs and says that there is no evidence to support any representation or encouragement by Government departments that the building covenant periods would be extended at nil premium pending the finalisation of the height restriction.  In any event, says the defendant, the plaintiffs could not rely on estoppel because it is “a shield and not a sword”.  So far as damages are concerned recovery is precluded by an exclusion clause.  The premia paid by the defendants for extension were not a penalty but a consideration for a separate agreement; and the liquidated damages were not in any event a penalty; they have not been pleaded as such nor is there any evidence that they were.

The Issues as Formulated by the Plaintiff

15. The plaintiff formulated the following list of issues which I will set out in full :

“1.What is the true construction of Special Condition 9(e) of the Agreement (‘the DDH Clause’) in its context and in particular does it reserve to the Director of Lands a power which is unlimited such that he is entitled to impose ‘any’ height as pleaded in para.26(4) of the Amended Defence and as denied in the Amended Reply?  Or is it subject to all or any of the following limitations:- (i) that it cannot be invoked to take away in whole or part any substantive development rights granted to the purchaser of the Lot under the Agreement and/or (ii) that it cannot be invoked for purposes irrelevant to the vendors’ private law residual interests in the Lot (i.e. the reversion) and/or (iii) if the Director of Lands seeks to introduce any new development limitation subsequent to the sale & purchase he must unequivocally invoke the Clause as well as identify precisely the new limitation sought to be introduced.

2.Does the Agreement include all or any of the implied terms pleaded by the Plaintiffs in paras.8 and 9 of the Amended Statement of Claim/Re-amended Statement of Claim (‘the SOC’) and denied by the Defendant in para.12 of the Amended Defence?

3.In particular, whether as a matter of law it is an implied term of the Agreement that the Hong Kong Government should not refuse or withhold the Plaintiffs’ applications for approval of MLPs and other building and plans save on reasonable grounds?

4.If so, whether the Hong Kong Government in deciding whether or not to approve the Plaintiffs’ application for construction of Nina Tower on the Lot was entitled to have regard to height restriction which would be imposed by legislation under Section 3 (1 AA) of the Hong Kong Airport (Control of Obstruction) Ordinance, Cap.301?

5.In any event was the Government entitled to use the DDH Clause in the circumstances of the case to determine a maximum height limit for the Lot prior to the completion of scheduled computerized modelling studies by the Civil Aviation Department referred to in paragraph 25 of the Amended Defence and which the Government, to the knowledge of the Plaintiffs, accepted as being necessary before it could arrive at any firm conclusion as to the maximum permitted height?

6.If yes, did the Government in fact invoke the DDH Clause in such manner and circumstances as would impose on the Lot a definitive height restriction that was binding on the Lot or on the Plaintiffs and if so when?

7.If all or any of the implied terms pleaded in paras.8 and 9 of the SOC were or was part of the Agreement, was any of them breached by the Government and in particular was the Government in breach of implied obligation, where the corresponding power existed, to determine within a reasonable time the maximum permissible height?

8.If all or any of the implied terms pleaded in paras.8 and 9 of the SOC were or was part of the Agreement, did the breach of those terms or any of them render the times set in the building covenants of the Special Conditions of the Agreement ‘at large’ or otherwise subject to the principle of reasonable time or did the time lost due to the Government’s delay add on to the building covenant periods?  In the first case what was a reasonable time and in the latter how many months should be added to the original time limits?

9.In any event, was the time actually taken by the Government in completing the necessary computerized modelling studies and/or in reaching a firm conclusion as to the maximum permitted height for the Lot result in state of affairs in which time ceased to be of the essence such that the time limits set in the building covenants were removed and substituted by the principle of reasonable time?  Further, having regard to the delay or time taken, what was a reasonable time?

10.Did Mr Bowen Leung, the SPEL, agree or represent to Mr C.Y. Leung and other agents of the Plaintiffs on or about the 8 June 1995 and was any understanding reached (i) that the Government would extend the building covenant period (ii) that such extension would be without premium and (iii) that such extension would cover the entire period that the Government took in coming to the final determination of the maximum permissible height ?  Further was there consideration moving from the Plaintiffs for the said agreement?

11.If the Court finds that there was an agreement (whether or not supported by consideration) or a representation to the effect that the building covenant period would be extended pending resolution of the height issue, would time be ‘at large’ and would the Plaintiffs consequentially be relieved from the original stipulated time limits and be entitled to reasonable time without payment of premium regardless of whether there was any expressed agreement not to exact any premium or liquidated damages?

12.In the events which happened, and having regard in particular to the requirement insisted upon by the Government that the MLPs must first be approved before any works apart from site formation works could start (including works on the Transport Terminal), would any agreement expressed or implied to extend the building covenant period in relation to the development also result in an extension of the period for completion of the Transport Terminal?  Would such extension be without payment of liquidated damages?

13.In the events which happened, and having regard in particular to the contents of the letter dated 29 June 1995 from C.Y. Leung & Co. to Mr Bowen Leung (SPEL) referring to the meeting of 8 June 1995 and stating that an understanding was reached ‘that the building covenant period would be extended pending resolution of the height issue’ and the fact that there was no denial from the Government until a letter purporting to ‘clarify’ the matter five months later, is the Government estopped from denying that there was such an agreement and/or were the original time limits expressly or implicitly waived?  Did the Plaintiffs act to their detriment and in the belief that there was an understanding reached that the building covenant would be extended?

14.Was there an encounter between Mr C.Y. Leung and Mr Bowen Leung on or about 11 August 1996 in Beijing as alleged by the Plaintiffs or at all and if so was there any agreement reached?

15.In any event, were the Plaintiffs relieved from having to pay liquidated damages or premiums in respect of such period or periods as would cover the time taken by the Government to come to a firm determination of the maximum permissible height and/or in respect of delays for which the Government was responsible (i) by reason of the Government’s breach of any or more or all of the implied terms as referred to in Questions 7 & 8 above (ii) by reason of the state of affairs referred to in Question 9 above or (iii) by reason of estoppel or waiver referred to Question 13 above and/or Question 17 below?

16.Was the alleged agreement of the 8 June 1995 or the alleged agreement in August-mid September 1996 unenforceable for lack of writing or was there a sufficient act or acts of part performance?  (NB: The plaintiffs no longer pursue this point)

17.In the events which have happened was the Government estopped or otherwise disentitled from demanding liquidated damages and/or premium from the Plaintiffs for failure to complete the development or parts thereof in accordance with the original time-limits and from threatening to re-enter upon the Lot by reason of such alleged failure?

18.Were the Plaintiffs entitled in principle in the events which had happened to an inquiry as to damages pleaded in paragraph 14 and/or alternatively under paragraph 27 of the SOC Claim (such inquiry to be stood however for damages to be assessed)?

19.Having regard to the answers to the questions above and below, was the Government in the events which happened acting wrongfully or otherwise unconscionably in exacting by threat or threats re-entry liquidated damages and/or premiums from the Plaintiffs as if the original time-limits were still applicable and as if time were not at large?

20.In particular, were the liquidated damages or premiums or any part or parts thereof which were exacted by the Government by threat or threats of re-entry and paid by the Plaintiffs under protests in the nature of a penalty?  (NB: The plaintiffs no longer pursue the point that the liquidated damages were a penalty)

21.If the answer to Question 19 and/or Question 20 is yes (either in relation to liquidated damages or in relation to premiums), were the monies thus exacted from and paid under protests by the Plaintiffs or any part or parts thereof held by the Government as money had and received and recoverable by the Plaintiffs?

22.If recoverable only in part, how would the amounts be computed?  In particular would the recoverable proportion of premiums be computed by reference to the published rates contained in the Lands Department’s Information Note Issue No.1/1985 by reference to which the Government had actually purported to fix the amounts payable?

23.Independently of any of the above questions, whether the Government unduly delayed in considering and/or approving or otherwise acted in breach of duty in the processing of those MLP’s (showing height not in excess of 324 mPD) subsequent to MLP 9 as pleaded in paragraph 29 of SOC?  (NB: Consideration of this issue is deferred by agreement, as noted above)

24.Having regard to the answers to the above Questions, what declaratory or other relief if any ought to be granted to the Plaintiffs?”

I propose to deal first with the facts of the case and decide the issues of fact, and then return to the other issues.

The Facts

16. There is little dispute as to the facts of this case.  The only real factual dispute concerns what was said between Mr Bowen Leung, SPEL, and the plaintiffs’ representatives at their meeting on 8 June 1995 and subsequently, and Mr Bowen Leung’s encounter with Mr C.Y. Leung in Beijing in August 1996.  In the course of the trial the plaintiffs have, it seems, ceased to lay so much emphasis on the agreements which they say were reached, that the building covenant period should be extended without premium until the airport height restriction should have been settled, and to have turned to relying more on the implied terms for which they contend.  This being so, I will first set out the facts of the case, as they appear from the documents passing between the parties.  I will deal in more detail with the various meetings and communications between the parties’ representatives on which the plaintiffs seek to rely in support of its contention that they were encouraged to believe that there were good prospects of being allowed to build to the desired height.  Lastly I will consider the evidence relating to the factual dispute as to what if anything was agreed to or represented by Mr Bowen Leung. 

17. The parties executed an Agreement for the grant of the Lot on 20 November 1992.  In consideration of the grant they paid a premium of $122,625,997.57 and surrendered other land exchange entitlements.  In effect they gave value to a total of about $1,245,000,000 for the Lot.   To the Agreement was attached the Particulars and Conditions of Grant under New Grant No.6890.  There were various conditions binding on the plaintiffs.  In particular by Clause 5 of the Special Conditions, the plaintiffs were required within six months from the date of the agreement, and prior to the submission of building plans to submit master layout plans (“MLP”) and landscaping proposals for development of the land.  No works, other than site formation works, were to be commenced until the Director of Lands had approved these MLP and landscaping proposals.  The Lot was not to be developed or redeveloped except in accordance with the MLP and landscaping proposals.  These could, however, be amended with the approval of the Director of Lands.

18. By Clause 7, the building to be erected was to be non‑industrial.  By Clause 8, the total gross floor area (“GFA”) was to be not less than 75,000 square metres nor more than 185,250 square metres.  The maximum site coverage was to be 60%, and the plot ratio for buildings in excess of 33 metres in height was to be 9.5. 

19. No specific height restriction was contained in the Special Conditions, but Clause 8(e), hereinafter referred to as the design, disposition and height clause (“DDH Clause”) provided as follows :

“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 and no building works (other than site formation works) shall be commenced on the lot until such approval shall have been obtained.”

The Director is, of course, the Director of Lands.

20. By Clause 11 of the General Conditions of the Grant, failure by the plaintiffs to perform any of the conditions would entitle the Government to re‑enter and take possession of the Lot, with forfeiture of premium and without payment of compensation.  In addition, by Clause 19 of the Special Conditions, failure to complete the transport terminus on time would render the plaintiffs liable to the Government in liquidated damages of $10,000 per day until completion to the satisfaction of the Director. 

21. The whole scheme can be summarised briefly as follows.  The plaintiffs were deemed to have taken possession of the Lot on 8 December 1992.  They had first to obtain the approval of the Director of Lands to their MLP, which was to be submitted within six months; they would then proceed to put forward their more detailed building plans to the appropriate department.  The MLP could be amended with the consent of the Director of Lands.  In theory at any rate they could not do any work except site formation work until the MLP was approved.  They were to build a transport terminus by 8 December 1995, and the building was to be completed, up to the percentage required for the issue of an occupation permit, by 8 December 1996. 

22. If the plaintiffs failed to complete the building within the time limit, the Government could re‑enter the Lot.  The effect would be that the plaintiffs would lose their cash premium as well as the value of the land exchange entitlements they had surrendered, plus any money expended by them on development of the Lot.  In addition, they would be liable for liquidated damages, if they failed to complete the transport terminus in time. 

23. Re‑entry by Government was not automatic, however.  Though there was no provision as to this in the Agreement, it was open to Government to extend the building covenant period in consideration of payment of a premium, following a practice which had been in place for many years.  The premium was calculated as a percentage of the value of the land, as assessed by the Government.  At the relevant time, the rates of premia which applied were those which had been promulgated by the Director of Lands in June 1985.  The relevant rates were 2% for the first year; 4% for the second year; 8% for the third year; 14% for the fourth year; 22% for the fifth year; and 32% for the sixth year.  These rates were fixed with a view to discouraging land developers from “land banking”, i.e. buying up land for development but not developing it, in the hope that its value would increase.  

24. Having obtained the grant, the plaintiffs first submitted an MLP for a mixed residential and commercial scheme.  Two further MLPs followed.  For environmental reasons which need not concern us here, none of these was approved.  The plaintiff does not in these proceedings complain of any fault on the part of the Government in dealing with them.

25. Then in 1994 the plaintiffs decided to build the Nina Tower.  They publicised their intention to do this in March 1994, and on 19 May 1994 the plaintiffs through their Authorised Person submitted to the District Lands Officer an MLP (“MLP 4”) for a single office 108‑storey tower with a height of 468 metres, including a bell-shaped structure at the top, plus a mast of 50 metres.  The total height was to be 518 metres or 522 mPD. 

26. The plot ratio of the tower shown in MLP 4 was to be 11.4, and not 9.5 as allowed by the Special Conditions of the Agreement.  It was hoped that the Government would, in return for dedication of some of the plot area for public purposes, allow a bonus plot ratio.  It appears that Mr C.Y. Leung, a chartered surveyor and the plaintiffs’ first witness, was originally instructed by the plaintiffs to act for them in procuring this bonus plot ratio.

27. The plaintiffs sought to obtain Government support for their scheme to build the tallest building in the world and to this end they wrote to Mr A.G. Eason, the then SPEL on 16 September 1994.  SPEL replied on 31 October 1994 with the Government’s preliminary view that there were a number of issues to be considered before firm decisions on the project could be reached.  One of these issues was aviation safety.

28. The question of aviation safety arose because in 1989, the Government had decided to build a new airport at Chek Lap Kok.  A Provisional Airport Authority was set up for this purpose.  That Authority published, in March 1992, a “New Airport Master Plan — Executive Summary” from which it can be seen that the proposed approach paths for the airport’s two runways would pass over Tsuen Wan.  In fact, as appears from later plans produced by the Civil Aviation Department (“CAD”) the Lot is situated some 19.5 km from Chek Lap Kok, and is, in effect, below a point midway between the flight paths of aircraft approaching Chek Lap Kok from the north west for landing on its two parallel runways 25L and 25R.

29. The statutory scheme for the control of building height is provided by the Hong Kong Airport (Control of Obstructions) Ordinance, Cap.301.  Section 3 thereof provides :

“(1AA)Where in his opinion the safety of aircraft so requires, the Secretary may, on the advice of the Director-General of Civil Aviation, by order prescribe areas within which no building shall exceed the height specified in the order.  (Added 88 of 1994 s.3.  Amended L.N.326 of 2000)

(1A)An order under subsection (1)(a) or (1AA) may provide that, subject to such conditions as may be prescribed therein, it shall not apply to any particular area, or any particular building, within any area prescribed by the order.  (Added 11 of 1966 s.3.  Amended 88 of 1994 s.3)”

(The Secretary referred to is SPEL.)

30. When the plaintiffs decided to build Nina Tower, there was no statutory order in existence to control the height of buildings in the area of the Lot.  The Hong Kong Airport (Control of Obstructions) (No.2) Order, which provided for a height restriction of 324mPD, only came into force on 20 June 1997. 

31. The question of height restriction was, however, being considered by CAD in 1994.  By December of that year, CAD had decided that the maximum height limit for buildings in the Tsuen Wan area should be set at 324mPD in order to protect the integrity of the instrument landing system (ILS) to be installed at Chek Lap Kok, though this limit was subject to computer modelling studies which had yet to be carried out.  The MLP had been sent to CAD for comment.  The proposed height restriction was communicated on 3 January 1995 to Mr Gordon Ongley, the District Lands Officer (Tsuen Wan) (“DLO/TW”). 

32. In the meantime the plaintiffs had submitted MLP 5 on 28 October 1994, for a building with a height of 388mPD, and a plot ratio of 9.5 though they had not despaired of obtaining their bonus plot ratio.  This building was, it appears, like that in MLP 4 but without the bell‑shaped structure or the spire.  On 6 January 1995, Mr Ongley held a meeting with representatives of the plaintiff to discuss the project.  In the course of the meeting he advised them of what the CAD had told him and suggested that they approach CAD. 

33. On 12 and 13 January 1995 representatives of the plaintiff had meetings with officers of the CAD, in particular Mr Peter K.N. Lok, the Director of Civil Aviation (“DCA”) and Mr H.C. Kwan, at that time the Chief Safety Officer (Safety Division) of the CAD.  I will deal more fully with this meeting below but it appears that there is no dispute that the plaintiffs’ representatives were told that the CAD expected to have to impose a lower angle of 0.9 degrees for the ILS signals, which would produce a height limit of about 320mPD, and that the maximum obstacle clearance height of the building would be about 470mPD. 

34. Following this meeting the plaintiffs instructed their architects to go ahead with an MLP for a building with a height of 542mPD.  On 13  and 17 January respectively the plaintiffs submitted MLP 6 and MLP 7.  Both of these were for a building much like that in MLP 4, with a bell-shaped structure at the top and a spire, this time of 70 metres, but with the floor heights changed to produce a plot ratio of 9.5.  The total height was to be 542mPD.  However on 19 January 1994 Mrs Wang wrote to SPEL urging him to allow the proposed bonus plot ratio up to 11.4.

35. On 27 January 1995 SPEL wrote directly to Mrs Wang, referring to earlier correspondence, and pointing out two significant difficulties, namely aviation safety and additional plot ratio and indicating that she would no doubt wish to consider her position in the light of the indications given.  As to aviation safety he wrote :

“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.”

36. On 17 February 1995 Mr C.Y. Leung had a telephone conversation with Mr Peter K.N. Lok, the Director of Civil Aviation, and this he followed up with a telephone call to the Provisional Airport Authority and a further conversation with Mr Lok in early March 1995.  I will deal more fully with the evidence of these communications below. 

On 21 February 1995 the DLO/TW wrote to the plaintiffs’ architects with “preliminary comments from other departments for information only”.  One of these comments was that of the DCA, and it was given in exactly the same terms as those quoted above from the letter of 27 January 1995.  The architects responded on 13 April 1995 objecting to the comment of the DCA on the ground that he had no statutory jurisdiction to make it, because the plans were based on the current statutory guidelines.  However they also submitted MLP 8 to deal with various other points raised.

37. Mr C.Y. Leung met representatives of SPEL and DL, including Mr Ongley, on 6 March 1995, when the plaintiffs’ side communicated their abandonment of the attempt to get a plot ratio of 11.4.  There was also a discussion of the height restriction problem but it appears that the meeting was inconclusive.

38. In the meantime, the plaintiffs had obtained an opinion from a consultant, Aeroports de Paris on the height restriction.  Mr C.Y. Leung sent an excerpt from this to the DCA on 14 March 1995.  In brief, the plaintiff’s experts in this rather short report advanced the opinion that the Nina Tower would be outwith the distance at which obstacle clearance limits are to be applied under relevant international regulations laid down by the ICAO.  In passing the report stated that the Tower would not affect the ILS but further that the report “has only considered Nina Tower as a concrete obstacle”. 

39. On 1 June 1995, the DLO/TW rejected MLP 6/7 on the ground that “the submission was considered not acceptable under the lease conditions because the proposed building height of 542.62 m would have an adverse effect on the operation of the Chek Lap Kok airport”.  By a letter in exactly the same terms, the MLP 8 was also rejected on 9 June 1995. 

40. At this point Mr C.Y. Leung set up a meeting with Mr Bowen Leung, the SPEL and a meeting was held on 8 June.  Mr C.Y. Leung, Mrs Wang and Mr K.T. Heng, the plaintiffs’ project manager, attended on behalf of the plaintiffs.  Mr Bowen Leung and Mr Trevor Keen, his deputy, attended on behalf of the Government.  There is a major disagreement as to what took place at the meeting; it is the plaintiffs’ case that Mr Bowen Leung agreed to allow an extension of the building covenant period without premium until the height issue could be settled, and the defendant’s case that he did not.  The meeting was however followed by a letter dated 29 June 1995 from Mr C.Y. Leung to SPEL, referring to the meeting and to a subsequent telephone conversation between them, and adding “We understand that you will extend the building covenant period pending resolution of the height issue”.  There was no reply to this letter and on 24 August 1995 Mr C.Y. Leung again wrote a reminder asking “we would be grateful if you could confirm to us at your earliest convenience the extension of the building covenant period”.

41. Also on 24 August 1995, the Secretary for Economic Services wrote directly to Mrs Wang to the effect that the plaintiffs’ consultant’s report were not considered valid and that the Director of Civil Aviation would explain that the matter to her consultant directly.  It was also advised that to protect the use of the ILS, the permissible height of any building at the captioned site had to be limited to 324mPD until computer modelling tests of the ILS had shown that it could be relaxed but that in any case it should not exceed 480mPD.  The computer modelling tests were unlikely to be completed before January 1996.  The Secretary advised that in the light of the foregoing, “the proposed 542mPD for Nina Tower does not appear to be practicable on aviation safety grounds”.

42. Following this, on 25 August 1995 Mr C.Y. Leung had a meeting with CAD at which it was agreed that the latter would include a study for building to a height of 538mPD in the computerised modelling study.  At the same time, Mr C.Y. Leung wrote to SPEL requesting a different site for the building of the Nina Tower.  However, this was refused on 9 October 1995.

43. The building covenant period for the transport terminus was, by this time, coming fairly close to its expiry date.  On 11 October 1995, DLO/TW wrote to the plaintiffs to remind them of this and in particular to remind them at that if the terminus was not completed liquidated damages would be payable.  On 23 October 1995 Mr C.Y. Leung replied to DLO/TW to argue that the delay was not the plaintiffs’ fault, and that they should be held liable for it or to pay liquidated damages.  In particular Mr Leung wrote “In view of the fact that the CAD is still in the process of conducting computer simulation tests, the Secretary had agreed that the building covenant period ... be extended” and relied on his own letter of 29 June, of which he enclosed a copy.  This produced a reply dated 1 December 1995 in which DLO/TW denied that there had been any agreement to a building covenant extension so far, but merely “an acknowledgment by the Administration that at the present rate of progress for development it would seem likely that you need to apply for extension before December 1995, and such an extension, if approved, would be at a premium”.

44. On 8 January 1996, DLO/TW wrote to Mr C.Y. Leung demanding payment of liquidated damages of $310,000 for non‑completion of the transport terminus for the period from 8 December 1995 to 7 January 1996.  This was met with a reply from Mr Leung stating in clear terms that the demand for liquidated damages was totally wrongful and “in clear breach of the agreements reached between Mr Bowen Leung ... and our clients on or before 29 June 1995, namely that the building covenant period ... would be extended without the payment of premium pending resolution of the height issue ...”  Further demands were, however, made.  They were disputed but no agreement was reached, and it is not in dispute that ultimately the plaintiffs did pay the liquidated damages demanded.

45. In the meantime the computer modelling study had been finished, and in late February 1996 the CAD advised Mr C.Y. Leung of this.  In fact the Nina Tower had not been included in the study; the inclusion was to have been at the plaintiffs’ expense, but for whatever reason it seems that nothing was done about the matter.   In early February Mr C.Y. Leung went to see Mr Pope, the DL about the liquidated damages and on 26 March 1996 there was a meeting of SPEL, DL and Mr C.Y. Leung to discuss the way forward with regard to the liquidated damages claim, extension of the building covenant period for the completion of the building and the height restriction.  Mr Pope said that there may be a possibility of allowing a grace period of 18 months with regard to the liquidated damages, but that he would need to consult lawyers before communicating further on this.  Mr C.Y. Leung was advised that it was too early to consider the extension of building covenant period because the deadline had not yet arrived.  As to the height restriction, although there was nothing in writing yet, the latest indication from the CAD was that the maximum height would indeed be fixed at 324mPD.  This was confirmed in Mr. Pope’s letter to Mr C.Y. Leung dated 9 April 1996 in which he wrote that he had “just received notification from DCA re‑affirming the earlier decision to restrict development to a height limit of 324 metres.”  It is in fact this letter on which the plaintiff relies as informing it of the Government’s final decision on the height restriction.

46. On 23 May 1996 Mr Pope again wrote to Mr C.Y. Leung, threatening the plaintiffs with re‑entry for non‑payment of the liquidated damages.  The matter had in the meantime been put into the hands of solicitors, Messrs Crawford Miller Peart who wrote to the DLO/TW on 21 May, enclosing the plaintiff’s cheque for $1,520,000 in respect of liquidated damages up to 7 May 1996 which were paid “under the strongest protest, without admission of liability, and without prejudice to our client’s rights in relation to the same”.

47. The plaintiffs after this seem to have accepted that they were at least uncertain of being able to build over 324mPD, because on 2 July 1996 they submitted MLP 9, for a truncated single tower with a height of only 324mPD.  The plot ratio was 6.998.  However, the plan was at this stage to put in extra foundations which would allow for the later extension of the tower to 542mPD or, if this could not be done, for the addition of further floors on top of the podium, though Mr Heng said that it was later accepted that building on the podium was not allowed by the Special Conditions.  Either addition would have produced, if and when it was allowed, the plot ratio of 9.5.  Mr C.Y. Leung and Mr K.T. Heng then had a meeting with Mr Pope on 15 July 1996 at which Mr Leung advised that the plaintiff had arranged for further studies to be carried out which showed that development could proceed without affecting aircraft safety.  He also asked that the building covenant be extended.  As to the first issue he was referred to the DCA; and as to the second, it was left for later consideration.

48. MLP 9 produced the first specific indication by the Government of the provisions in the Agreement on which it relied to control the building height, although in fact it appears from a letter dated 17 March 1995 from Mr Burley, for the DL to SPEL, disclosed after my order for specific discovery in the early stages of the trial, that the Lands Department took the view, based on legal advice that adequate control over the height of the building could be achieved under the MLP and DDH Clauses.  In submitting MLP 9 the architects had referred to the fact that there was no building height restriction in the lease or in any statutory document.  On 25 July, DLO/TW replied to the effect that the Government could control the height pursuant to the MLP clause (Special condition 5(a)(i)) and the DDH Clause.

49. According to Mr C.Y. Leung, he then had a chance meeting in Beijing with Mr Bowen Leung on 11 August 1996.  He told Mr Bowen Leung that the plaintiffs had obtained further experts’ reports that the height restriction could not be maintained, and would take legal proceedings against the Government on that issue.  Mr Bowen Leung replied that if the plaintiffs abandoned their plans to build the tallest building in the world, but built instead within the height limit, he would extend the building covenant period at nil premium to allow them to comply.  He referred this offer to the plaintiffs who accepted it; and he confirmed the acceptance to Mr Bowen Leung in mid‑September.   According to Mr Bowen Leung, of course, although there was a chance meeting, nothing of this sort was said or agreed and no acceptance was later confirmed to him.  This forms part of the factual issue with which I will deal later. 

50. In any event the plaintiffs finally abandoned their plan to build above 324mPD with the submission on 24 September 1996 of MLP 10, for a two‑tower office and hotel structure built to that height, with a plot ratio of 9.5.  Further MLPs were submitted, the last being MLP 14 on 7 July 2000, for the structure which was finally built, at least in part; that MLP was approved on 16 January 2001, and an occupation permit was granted on September 2001 for an office structure 100mPD high and with a plot ratio of 3.85 or 40% of the maximum allowable plot ratio.  The structure can later be built to its full design height of 324mPD. 

51. The building covenant period was meantime approaching its expiry date, i.e. 8 December 1996.  On 7 October DLO/TW advised Mr C.Y. Leung that re‑entry would be recommended because no work had been done on the site.  Various communications followed.  A 12‑month extension was offered at a premium of $72 million.  There were meetings between Mr C.Y. Leung and Mr Pope, as well as one meeting between Mr C.Y. Leung, Mrs Wang, Mr Pope and Mr Bowen Leung in an attempt on the part of the plaintiffs to argue for a free extension.  However the Government would not agree to this, and ultimately the plaintiffs paid the $72 million under protest.  They attempted to endorse the protest on their acceptance of the offer but this was not acceptable to the DLO/TW.  Ultimately the written acceptance was returned without any endorsed condition, but by their letter of 19 May 1997 the plaintiffs’ then solicitors, Messrs Ford, Kwan & Co. stated that “Chinachem’s acceptance of your offer is made under protest and subject to its contention that the demand for payment of a premium of the extension of the building covenant is in breach of contract and unlawful”.  There were further extensions of the building covenant period from time to time.  It is only necessary to note that in each case the plaintiffs accepted the offer of extension but recorded a protest in identical or similar terms.

The Basis of the Height Restrictions

52. Before going further it is helpful to set out the basis for the height restrictions with which this case is concerned.  The oral evidence on this comes mainly from Mr H.C. Kwan and Mr Peter Lok and is also to be found in various internal documents of the CAD or passing between the CAD and other departments.  We are here concerned with two height limits, the obstacle clearance height and the electronic height.  Mr Kwan was in fact concerned in his work more with the obstacle clearance height; his expertise did not lie in electronics; but he says that he was in daily contact with the Chief Electronics Engineer.

53. The obstacle clearance height is based on obstacle limitation surfaces laid down by the International Civil Aviation Organisation’s Annex 14 (Aerodromes).  In effect the surface is defined by an angle or a number of angles upwards from the horizontal, taken from the runway threshold.  As calculated by the CAD the maximum height of the limitation surface and therefore of any building which could be erected in Tsuen Wan would be 480mPD.  This would include any thin spire to be erected on the top of such building. 

54. There was some dispute about the applicability of the ICAO limits at a distance of more than 15 km from the runway threshold; the Nina Tower would have stood at a distance of 19 km.  It appears that Aeroports de Paris took the view that beyond 15 km, the limits do not apply.  The same query was raised with Mr Peter Lok, the DCA, by officers of the CAAC to whom Mrs Wang had complained, apparently in the hope that some influence could be brought to bear on the Hong Kong CAD.  Mr Lok corresponded on the matter with a Mr Ma Xiaowen, and Mr H.C. Kwan and the Department’s Chief Electronics Engineer Mr W.Y. Leung had a meeting with a Mr Jin of the CAAC on about 8 September 1995 to explain the Department’s interpretation of the relevant ICAO document, which, according to Mr Kwan, Mr Jin accepted.  In any event, so far as the CAD is and has always been concerned, 480mPD is an absolute height limit.

55. The electronic height is the height restriction which may be imposed in order to allow the ILS to operate without interference, or with interference at an acceptable level.  ILS is required for airport operations in instrument meteorological conditions.  Put simply it enables the aircraft to find its way down through cloud to the runway.  One may imagine a cone of electronic signals pointed upwards at a shallow angle with the aircraft flying down the centre line of the cone until it finds the runway.  There are various categories of ILS of which Category III is the most accurate, in the sense that it allows for the lowest altitude at which the threshold may be visible for landing on breaking through the cloud cover though in fact I believe some systems allow for automatic landing.  Obstacles, be they terrain or buildings, may stick up into the cone of signals and distort them so that in an extreme case the aircraft cannot maintain the centre line and so may miss the runway.  In a less extreme case the effect of the distortion may be to degrade the system so that operations can only be conducted when the cloud cover is higher than would have been allowed without the distortion.  So there is a combined safety and economic aspect; with a less accurate system, safety can only be maintained in better weather, i.e. with fewer operations which may have an adverse economic effect.

56. From its experience with the use of ILS and the Instrument Guidance System at Kai Tak airport the CAD’s electronics engineers considered that the height limits required to safeguard the ILS should be based on a slope of 1:62.5 or 1.6%.  This would I think have meant that the lower surface of the electronic signals, which is referred to as the protection surface, would have had to lie at an angle of 0.9 degrees above the horizontal.  In any event, using this slope the maximum height of the Nina Tower could be no more than 324mPD. 

57. It appears from internal correspondence within the Government, and in particular that coming from Mr Peter Bodiley, the Assistant Director in charge of the Technical Section of the CAD that another possible protection surface was at one stage in consideration and that was based on a slope of 1:50, or 2%.  This would have produced an electronic height limit of 404mPD.  In March 1995, Mr Bodiley advised the Secretary for Economic Services that after modelling the proposed height limit of 324mPD could be relaxed, and if the claims of the manufacturer of the ILS were substantiated by the model, the building height limit could be 404mPD.  Subject to further assessment a thin spire on top of the building, with the overall height not exceeding 480mPD might also be acceptable.   Mr H.C. Kwan said that he considered that figure very optimistic, and indeed as it turned out Mr Bodiley later wrote to the Secretary for Economic Services on 7 July 1995 to the effect that tenders by then received from prospective ILS manufacturers indicated that a 2% protection surface may not be sufficient and that the CAD was not optimistic that the 1.6% slope could be relaxed.  In the end the CAD maintained the 1.6% slope and it was on that basis that the height restrictions were ultimately gazetted; and it is Mr Kwan’s evidence that flight tests carried out once the ILS had been installed supported the imposition of that slope. 

58. It is important to remember when considering the import of the various meetings and correspondence between the parties, that, so far as I can see, while the CAD may have at some stage thought it possible that the height limit might ultimately be as much as 404mPD, it never thought and never said that the absolute height might be more than 480mPD.  It does not appear that the specific figure of 404mPD was ever communicated to the plaintiffs.  In the end the Nina Tower, inclusive of its ornamental spire, could never have been built to a height of more than 480mPD.  At most it might have been possible to build a building to a height of 404mPD with a thin spire on the top.  That may have allowed the plaintiffs to build the tallest building in the world; there was some mention of the Chongqing Tower in China which was at the relevant time the tallest, at 437 metres; but they would never have been able to build the building whose height is shown in their earlier MLPs, and which they wanted to build and indeed only abandoned with MLP 10.

The Meetings

59. Under this heading I include meetings and telephone conversations between the parties and their representatives other than those which specifically relate to the alleged agreement made by Mr Bowen Leung in June 1995 and the alleged agreement made by him in Beijing in August 1996, and based on which the plaintiffs seek to show that they were told or encouraged to believe or given to understand by representatives of the Government that there were good prospects that the Government would give the plaintiffs permission to build the Nina Tower to a height of 468mPD (plus a 70 metre spire). 

60. The first meeting which is relevant to these proceedings is that between Mr Gordon Ongley in his capacity as Government Land Agent (Kowloon) and representatives of the plaintiffs on 6 January 1995.  It was attended by Mr C.Y. Leung and Mr Joseph Leung who is a director of the plaintiffs and in effect the right‑hand man of Mrs Wang who controls them.  There is no real dispute as to what happened.  The meeting was primarily concerned with plot ratio.  Mr Ongley, having heard from the CAD that a height restriction was proposed, passed this on to the plaintiffs’ representatives, told them that he was still awaiting CAD’s comments on the their MLP and suggested that they take the matter up with the CAD.

61. Following this suggestion the plaintiffs’ representatives contacted the CAD and meetings were held on 12 and 13 January 1995.  The witnesses among those present were Mr Peter Lok and Mr H.C. Kwan for the CAD and on the second occasion, Mr K.T. Heng, the plaintiffs’ project manager; his assistant was present at the first meeting.  There are some notes made by Mr K.T. Heng.  There is not really much dispute about what happened.  The CAD officials explained to the others the reasons for the proposed height restrictions; the obstacle clearance height or flight path was put at 470 metres and the electronic height at 320.  There was some discussion of whether it might be possible in future to use more advanced equipment to mitigate the height requirement.  Mr Heng says, and Mr Kwan agrees that the CAD officers expressed themselves willing to discuss the matter further with the plaintiffs’ experts, but it does not appear that they held out any hope that the electronic height could be exceeded.  Nor is there any suggestion that they held out any hope that the obstacle clearance height might be exceeded.

62. The next encounter was between Mr C.Y. Leung and Mr Peter Lok in a telephone conversation on 17 February 1995.  There were also some follow‑up telephone calls thereafter, in particular in early March.  There is some dispute about the tenor of the conversation on 17 February; Mr Leung seeks to show Mr Lok as being helpful and encouraging; Mr Lok’s evidence is that while he sought to avoid being an “abominable no-man”, i.e. a nay-sayer, and while he was trying to see if the developer could be accommodated without compromising safety, his position was that until computer modelling had been done it was impossible to say whether or not the 324mPD restriction could be relaxed.  In fact Mr Leung made a note of the conversation, and Mr Lok accepts that it is more or less accurate.  It seems that Mr Lok said that it may be possible to relax the restriction, if not up to 500 metres, to something over 300.  Mr Leung says that Mr Lok told him that the Provisional Airport Authority had to be persuaded of this and he did in fact thereafter contact that Authority but was told that height restriction was a matter for the CAD.  Mr Lok says that he suggested persuading the Airport Authority to adopt a lower category of ILS which would not degrade safety but would only reduce the probability of successful approach and therefore reduce the viability of the airport.  This seems a little strange, because the whole point of having a major international airport is that it be usable by aircraft as much of the time as possible; that I believe was one reason for leaving Kai Tak.

63. Various other matters were discussed in the meeting such as the possibility of using a Microwave Landing System which might have solved the problem, the discussion of same at an upcoming international meeting in Montreal, and so on.  However it seems that Mr Lok said that the use of such equipment was years away; the year 2010 was mentioned. 

64. Mr Lok also after this meeting made various inquiries of his staff, apparently to find out the reasons for the proposed height limit, whether it could be changed, whether other electronic devices could be used and so on.  The answer he got from his Chief Electronic Engineer at the beginning of March 1995 was that a decision would depend on what ILS was selected, but that experience indicated that because of the terrain in Hong Kong a slope of 1:50 might not be adequate, therefore the slope of 1:62.5 had been adopted as appropriate.  This could be reviewed when modelling studies had been done and equipment selected.  Similar information was passed by Mr Bodiley to the Secretary for Economic Services on 24 March. 

65. There was another meeting on 25 August 1995 in which Mr Lok and Mr C.Y. Leung participated, this time with Mr K.T. Heng and Mrs Wang herself.  Here again Mr Leung characterises Mr Lok as having been “very positive and optimistic about not having to impose the height limit of 324mPD”.  So does Mr Heng.  Again Mr Lok denies this and says that he took the same neutral stance.  In fact he wrote a memorandum reporting to the Secretary for Economic Services on this meeting, and saying that his experts explained in detail the electronic limit (324mPD subject to computer modelling) and the physical obstacle limitation as well as the projected implementation dates for Microwave Landing System (MLS) and Global Positioning System (GPS) which might not replace but complement the ILS for a long time thereafter.  (These are, it seems the systems which might come into operation in 2010 or so).  Mr Lok says that Mrs Wang asked for the computer modelling to be extended to cover the feasibility of MLS/GPS curved approaches which would not pass over the Nina Tower so that if this proved feasible the Tower could be constructed up to the electronic or obstacle clearance height in the first instance and later extended to 542mPD when these systems replaced ILS altogether.  In fact, as we know, this never went ahead; it was to be done at the plaintiffs’ cost and neither side seems to have pressed for it. 

66. What can be seen from all the internal documents is that Mr Lok’s subordinates were taking a prudent and cautious approach.  This indeed is to be seen in Mr Bodiley’s memorandum to SPEL dated 24 April 1995 expressing concern that an unqualified height of 324mPD had been stated when (in his view) CAD would most likely state a greater height later and that this could give the developer cause for complaint.  Now it may well be that on 17 February and subsequently Mr Lok was having, as was put to him and he accepted, an “honest dialogue” with Mr C.Y. Leung.  But I find it impossible to imagine that he as Director would, either before or after he had ascertained the prudent approach of his technical staff, been concerned to give a developer any kind of assurance or even indication that what the developer wanted was likely to be allowed eventually.  That just does not make sense.  He and his department are concerned primarily with aviation safety and efficient operation and I cannot see him saying “probably” to the plaintiffs when all his technical staff were taking the line of “maybe; wait and see”.  There is a vast difference between the two positions.  I do not believe that Mr Lok ever said that it was likely that the electronic height restriction for the ILS could probably be eased and I am satisfied that he never said that it was likely that the obstacle clearance limit could be departed from.  I believe his evidence that he took a neutral stance pending the outcome of computer modelling.

67. What can also be seen from the evidence of the plaintiffs’ lobbying of the DCA, directly or through the CAAC, is that they were concerned not to obtain a relaxation of the electronic height, within the obstacle clearance limit, but with the validity of the obstacle clearance limit itself.  They did not accept the validity of that limit.

68. The other meeting referred to by the plaintiffs in their Further and Better Particulars is that between Mr C.Y. Leung and Messrs Ongley, Canice Mak and others on 6 March 1995.  Mr Joseph Leung made a note that afterwards Mr C.Y. Leung told him that Mr Mak had been supportive and that someone on the Government side said that the Government had no current right to impose a height limit.  Mr Mak in evidence denied this.  Mr C.Y. Leung’s own evidence is in fact that it was he who said this and the Government side did not respond.  In fact as the evidence came out there does not seem to be anything very conclusive or even significant about that meeting. 

The Alleged June Agreement and the Alleged Beijing Agreement

69. In respect of both of these, the major protagonists, and indeed the only ones in Beijing were Mr C.Y. Leung and Mr Bowen Leung.  At the June meeting, also present were Mr K.T. Heng and Mrs Wang herself on the plaintiffs’ side, and Mr Trevor Keen, the then Principal Assistant Secretary (Lands) on the Government side. 

70. These major protagonists give totally different accounts of what happened between them.  They are both highly respected men, and in the public eye, Mr C.Y. Leung as Convenor of the Executive Council 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.  Indeed the same applies to most if not all of the witnesses here.  If we are not dealing in every case with “the good and the great” we are at least dealing with senior professionals.  As always it is necessary to look at the evidence in the light of inherent probability and against its factual background including the correspondence and other contemporaneous documents, including those internal Government documents, voluntarily discovered or discovered following my order for specific discovery, and the evidence of the various other Government officers from the Planning, Environment and Lands Branch and the Lands Department.

71. I am obliged to Counsel on both sides for their minute and closely‑reasoned dissection of this background evidence as well as their arguments on the evidence of the protagonists.  Counsel for the plaintiff have produced an extended chronology of some 67 pages mostly devoted, and counsel for the defence an appendix of some 47 pages entirely devoted to such dissection.  I have considered these closely but although I will no doubt be criticised for this I do not think it necessary or desirable in the context of this judgment to go into such detail myself; at any rate, not if the judgment is to be kept to an acceptable length.

72. I will however say this; Counsel went into great detail concerning the internal Government documents and memoranda, what they meant, and how the various defence witnesses interpreted them.  This included what the witnesses thought that the authors thought, or might have thought.  For instance there was canvassed, not only what Mr Bowen Leung, or Mr Pope or whoever wrote in a memorandum, but what Mr Keen or Mr Canice Mak or another officer thought the author intended.  This sort of thing can really be regarded as going to the subjective intention of one party to a contract, which must be excluded in deciding what the terms of the contract were.  It is only relevant and I have only taken it as relevant in considering what was actually communicated between the parties.

73. It is not in dispute that the two sides met on 8 June 1995 in order to discuss the issue of the proposed height restriction.  It is the plaintiffs’ case that Mr C.Y. Leung put it to Mr Bowen Leung that because the height issue had not been resolved, and therefore the MLPs had not been approved, it would be physically impossible for the plaintiffs to complete the transport terminus or the building itself within the building covenant period and that therefore the plaintiffs deserved an extension of that period at nil premium pending the Government’s ascertaining of the permissible height.  Mr Bowen Leung was sympathetic and supportive.  He said that he would have to liaise with the CAD about the maximum height, but if the plaintiffs would agree he would extend the building covenant period at nil premium pending resolution of the height issue.  To this Mrs Wang agreed.  Mr Heng has produced a note to the same effect, which he says he made contemporaneously.  Further, the report of Aeroports de Paris was given to Mr Bowen Leung though this seems to be treated in the plaintiffs’ evidence more as an incidental and as something to be passed on for the consideration of the DCA.

74. It is the defendant’s case that the plaintiffs’ representatives rehearsed the planning arguments for their proposal, referred to the fact that there was no statutory height control and that there might be implications for the property industry if Government used lease conditions for this purpose.  The report of Aeroports de Paris was put forward as an indication that the proposed building would not present a problem for flight paths, air traffic control or the ILS.  Mr Bowen Leung responded by saying that this was an aviation issue on which he would need to consult the Secretary for Economic Services and the DCA.  What was discussed is reported in a letter from Mr Bowen Leung to the Secretary for Economic Services dated 14 June 1995; it is Mr Keen’s evidence that he kept notes of the meeting which were since destroyed but on the basis of which this letter was drafted.  Both Mr Leung and Mr Keen say that if there was any mention of extension of the building covenant period it was incidental. 

75. There was nothing in writing between the parties immediately following the meeting.  The only document which exists to throw any light on what was said is the letter to which I have just referred.  I leave aside Mr Heng’s note of the meeting, and will return to it later.  The first communication from the plaintiffs’ side came in Mr C.Y. Leung’s letter of 29 June 1995.  This he says followed a telephone conversation between himself and Mr Bowen Leung in which the agreement reached at the meeting was confirmed.  The internal documents on the Government side on which the plaintiffs rely as supporting their case also appear after this date.

76. Looking first at the meeting of 8 June, it seems to me inherently improbable that a senior civil servant such as Mr Bowen Leung would make or allow himself to be manoeuvred into making the kind of agreements alleged here, in such a meeting or at all.  He was a Policy Secretary and not some kind of despot.  He could not give an order and expect automatic compliance from those departments under his administrative charge.  While there is some support in admissions made by Mr Pope for the proposition that ultimately the SPEL’s will would prevail over that of the DL, nevertheless it was the DL who held the delegated authority of the Governor to decide on the extension of a building covenant period and whether or not a premium should be charged for it.  As Mr Bowen Leung said, he well knew that and the developers also knew it.  So it is unlikely that Mr Bowen Leung would ever have made the agreement alleged without referring it to his department and doubly unlikely in the light of the previous departmental and inter‑departmental memoranda on this matter to which I have been referred and which he must have come upon in his “background reading” before the meeting.  Any policy secretary who did something of this sort would risk an intra‑departmental dispute over who had the power to do what, with probable reference to the Governor and embarrassment for everyone concerned.

77. It is very difficult to see how, if the plaintiffs thought that they had reached a binding agreement for a free extension at the meeting on June 1995, that was not immediately recorded in correspondence and confirmation of it sought; or why, if at a later stage the free extension was not forthcoming, there was no real reliance on it.  No one said, in terms, that a free extension had been agreed at the meeting.  The first mention of an agreement comes in Mr C.Y. Leung’s letter of 23 October 1995 referring to his own letter of 29 June.  That letter refers to an “understanding” that the period will be extended; later it gathers steam, so to speak, and evolves into an “agreement” though not for free extension; then the date changes as between 8 June and “before 29 June”; and finally it reverts to an “impression” at Mr C.Y. Leung’s meeting with Mr Pope on 28 January 1997.  Mr C.Y. Leung’s explanations of this indefiniteness under cross‑examination are not convincing.  It is also difficult to see why, if there was such an agreement and it had been contemporaneously recorded, the plaintiffs did not, either through Mr C.Y. Leung or by themselves, put forward Mr Heng’s note in support of it.  That this note should never have surfaced before discovery in the proceedings casts grave doubt on its authenticity.

78. Suppose however that Mr Bowen Leung had made the agreement alleged at the meeting on 8 June 1995 and then thought better of it; in that case Mr Keen would have had to be a party to the conspiracy to deny it for it was he who took the notes (though they are not now available) and he who drafted the letter to the Secretary for Economic Services.  There is some dispute as to whether the meeting, or parts of it, were conducted in English or Cantonese and even a suggestion that the agreement was made in Cantonese and not understood by Mr Keen.  The latter says that he understands a fair amount of Cantonese, but he is not fluent, and he says that Mr Bowen Leung would have known that.  The suggestion that the agreement was made in Cantonese seems far‑fetched because there would simply be no point in having Mr Keen present to take notes of a meeting conducted in whole or in part in Cantonese if he was not fluent in it.  Nor would there be any point in making an agreement in Cantonese if the person who was there to note it was or might be unable to understand that it had been made.

79. It is also to be noted that the plaintiffs apparently did not go to the meeting of the 8 June with the express intention of seeking a free extension.  On Mr Leung’s admission, they did not work out in advance any game plan for their arguments if the request was turned down.  They did not send their financial controller Mr Joseph Leung but rather their project manager and their consultant surveyor.  All this suggests that if there was a mention of extension it was incidental to their major proposition which was that the height restriction was unnecessary.

80. It is, however, true that after the telephone conversation on 28 June 1995, various documents came into being.  Much reliance is placed on the fact that Mr Bowen Leung on 30 June 1995, having received Mr C.Y. Leung’s letter that he “understood” that the building covenant period would be extended did not immediately deny it but instead wrote a memorandum to his Deputy, Mr Canice Mak in these terms :

“We’d better ask D of Lands to extend the building covenant period. There is no way the developer can meet it, and it is not her fault.”

81. This was passed on by Mr Mak to Mr Keen and then to Mr K.F. Chan who on 4 July 1995 copied Mr C.Y. Leung’s letter to DLO/TW and DL with a memorandum in these terms :

“Given that we still have to sort out the problem regarding the height of the building on the site, there is no way for the developer to meet the building covenant.  I think we have to extend the BC period. I should be grateful if you would set this in motion.”

82. In fact these communications are specifically referred to in the Re‑Re‑Amended Reply.  The plaintiffs say that they show that an understanding had been reached that the building covenant period would be extended.

83. Mr C.Y. Leung’s evidence of the telephone conversation on 28 June is rather self‑contradictory.  He appeared to be saying both that Mr Bowen Leung had confirmed that the building covenant period would be extended without premium, and that he never mentioned the premium because that had been agreed on 8 June.  Mr Bowen Leung for his part says that there was some mention of extension, and he was sympathetic to it, but he told Mr C.Y. Leung that he would have to apply to the Lands Department for it; he did not say that it would be extended or that it would be extended without premium.  His explanation for his memorandum is that it was indeed his view that the period should be extended, and although his Branch did not have the authority to do it, it could take a view and express that view to the Lands Department; and that is why he wrote the memorandum.  The memorandum by Mr Chan to the Lands Department was likewise passing on that view.

84. Curiously enough it appears that Mr Ongley did not receive this memorandum, nor a follow‑up memorandum dated 29 August 1995 which also passed on Mr C.Y. Leung’s letter of 24 August requesting confirmation of the extension, although his headquarters did receive the copies.  This is unexplained. In fact the plaintiffs generally seem quite keen on some kind of conspiracy theory; much emphasis was put on the absence of briefing notes for the meeting, the defendant’s failure to give discovery of various documents without order, and so on.  It was put to Mr Burley, though he denied it and there is not a shred of evidence to support it, that he bore a grudge against the plaintiffs and Mrs Wang.  It was put to Mr Keen, equally baselessly that there was some kind of quarrel between Mr Bowen Leung and Mr Pope.

85. It is of course easy to raise suspicion particularly when papers go missing.  I think the absence of briefing notes is adequately explained in evidence.  I think that the defendant’s failure to give as full discovery as should have been given may be explained rather by a questionable decision or decisions by one of her legal staff rather than some kind of conspiracy involving that staff and the departments concerned in this case.  The fact that these two memoranda did not reach the DLO/TW is unexplained but even if someone did conveniently lose them it would not necessarily follow that the alleged June agreement had been made.

86. Now certainly these memoranda show that Mr Bowen Leung was sympathetic to the plaintiffs’ case.  So also do various other memoranda.  For example on 2 November 1995 that Mr C.Y. Leung had been pressing for a reply to the plaintiffs’ application for extending the building covenant period and adding “I think we should grant it; how do we stand?” and on 18 January 1996 he wrote that “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.”

87. Mr Bowen Leung does not deny being sympathetic; indeed he said that he was sympathetic to the developer because he saw the need for an extension.  The difficulty is that there is a vast difference between sympathy and commitment just as there is between the position of saying “probably” and that of saying “maybe; wait and see”.  There is a vast difference between holding a view that something should be done and communicating that view internally within one’s own Branch, and giving a commitment or even an understanding to someone outside.  While these internal documents show Mr Bowen Leung’s attitude, and perhaps support an inference that he might have given some indication as to what might happen they do not support his having made an agreement or given an undertaking, particularly as to extension without premium.

88. As to the Beijing meeting it is Mr C.Y. Leung’s evidence that he met Mr Bowen Leung there by chance on 11 August 1996.  Both were in town for and had been attending a meeting of the Preparatory Committee at the Swiss Hotel.  They met outside the hotel.  Mr C.Y. Leung told Mr Bowen Leung that the plaintiffs had obtained further experts’ reports that the height restriction could not be maintained, and would take legal proceedings against the Government on that issue.  Mr Bowen Leung replied that if the plaintiffs abandoned their plans to build the tallest building in the world, but built instead the best‑designed building in the world within the height limit, he would extend the building covenant period at nil premium to allow them to comply.

89. Mr C.Y. Leung says that he returned to Hong Kong where on 13 August he told Mr K.T. Heng about the matter during a meeting at the chambers of Mr Ramesh Sujanani, a barrister the plaintiffs had instructed, and their then solicitor, Mr Peart; Mrs Wang then apparently telephoned the chambers after Messrs Leung and Peart had left as a result of which she asked to meet Mr C.Y. Leung on her return to Hong Kong; they met on 1 September 1996 and she then gave instructions that the offer be accepted.  Mr Heng has produced notes of these meetings and the telephone call, and Mr Sujanani has also given evidence about it, albeit after refreshing his memory from Mr Heng’s note.  Mr C.Y. Leung says that he telephoned Mr Bowen Leung to advise him of Mrs Wang’s acceptance of the offer in mid‑September but Mr Bowen Leung denies this.  

90. The same sort of criticism applies to the alleged Beijing agreement as to the alleged June agreement; if it really happened and Mr C.Y. Leung reported on it in the presence of the plaintiffs’ legal representatives, it is extremely strange that it never featured in any correspondence between himself or the plaintiffs and Mr Bowen Leung, or in solicitors’ correspondence or in any document at all, before the pleadings.  It is true that there are notes of what Mr C.Y. Leung told Mr Heng and there is the evidence of Mr Sujanani to support that but at the end of the day the question is, not what Mr C.Y. Leung told others, but whether what he told them was true; their hearsay of what he said does not help that.  Inherent improbability also attaches to the circumstances of the alleged Beijing agreement; the protagonists were both there for the Preparatory Committee meeting; as Mr Bowen Leung says, that was his focus and the matter for which he had prepared; that they should then have had this “meaningful discussion” between coming out of the meeting and getting into their cars does not seem likely. 

91. There are also seems to be some confusion in that the mind of Mr C.Y. Leung about the idea of the best‑designed building in the world and when that was first mooted.  In evidence, he said that that was first suggested in Beijing by Mr Bowen Leung, but to the latter’s memorandum of 2 November 1995 shows that it was then suggested, in a telephone conversation, by Mr C.Y. Leung himself.  It also came up in the meeting between Mr Bowen Leung, Mr Pope and Mr C.Y. Leung on 26 March 1996.

92. A further point is that, if Mr. Bowen Leung had made the agreement alleged in June 1995, and had then conspired with others to hide it, it seems extremely improbable that he should then, after many months of discussion back and forth between the plaintiffs, himself and the Director of Lands, have made the agreement which Mr C.Y. Leung says he made in Beijing; in other words another agreement that was not within his practical power to make.  Indeed the same applies even without such an agreement.  By the time of the Beijing meeting the plaintiffs were saying that an agreement had been made and the Government was denying that; I referred above to correspondence in December 1995.  If there was no agreement Mr Bowen Leung would know that the claim that there was one must be based on a misconstruction of something he had said.  He would hardly be likely to say anything else to a representative of the plaintiffs which might be further misconstrued.

93. Various other arguments were raised based on discrepancies between statements and viva voce evidence.  There are also the various minute arguments based on dissection of the surrounding facts as they appear from memoranda and records of meetings.  I do not think there is anything to be gained by doing a similar dissection exercise.

94. It is for the plaintiffs to prove on the balance of probabilities the agreements which they allege.  I am not satisfied that any agreement was made at the meeting on the June 1995.  It seems probable that Mr Bowen Leung said something to Mr C.Y. Leung on the telephone on 28 June 1995 which the latter has construed as an indication of support. The latter says rather ruefully that he was “too kind to the developer” in the context of the meeting, and he probably did show sympathy and encouragement in the telephone conversation.  He might have given a stronger indication of support than he should have.  However I do not believe that Mr Bowen Leung went so far as to agree or indicate that the building covenant period would be extended free of premium.  Even in his subsequent internal memoranda there is no mention of this, which was ultimately a matter for the decision of the DL.  I am further not satisfied that the alleged Beijing agreement ever came into being either.

95. Returning to the plaintiffs’ list of issues, this means that in respect of Issues Nos.10 and 11 I have decided that there was no agreement, representation or understanding as contended for and therefore no question of time being “at large” as a result thereof.  The same applies to Issue No.14; there was no such agreement.

96. It is as well before leaving this area to deal with the plaintiffs’ Issue No.13 whereby they claim estoppel or waiver arising from the fact that Mr C.Y. Leung’s letter of 29 June 1995 was never explicitly denied until five months later, I think the answer must be that, as defence counsel put it, estoppel is a shield and not a sword and there can be no representation by silence; a representation must be clear and unequivocal.  There was no clear and unequivocal representation by Mr Bowen Leung at the meeting or on the telephone and there is no clear and unequivocal statement in Mr C.Y. Leung’s letter that a clear and unequivocal representation had been made.  If there had been, no doubt it would have produced an answer on the lines of “We never agreed anything of the sort”.

The Agreement

97. I turn to the questions of interpretation of the Agreement and whether it includes all or an of the implied terms pleaded.  I set these out as they appear in Paragraphs 8 and 9 of the Re‑Amended Statement of Claim :

“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.”

98. Before considering whether any terms should be implied into the Agreement it is necessary to look at the interpretation of the Agreement itself, to see whether any implied terms were necessary, and to consider the effect of the DDH Clause.

99. The principles of interpretation are set out by Lord Hoffmann in Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] WLR 896 at 912 :

“I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 3 All ER 237 at 240-242, [1971] 1 WLR 1381 at 1384-1386 and Reardon Smith Line Ltd v Hansen-Tangen, Hansen-Tangen v Sanko Steamship Co [1976] 3 All ER 570, [1976] 1 WLR 989, is always sufficiently appreciated.  The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life.  Almost all the old intellectual baggage of ‘legal’ interpretation has been discarded.  The principles may be summarised as follows.

(1)Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2)The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include.  Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3)The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent.  They are admissible only in an action for rectification.  The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life.  The boundaries of this exception are in some respects unclear.  But this is not the occasion on which to explore them.

(4)The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words.  The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean.  The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax (see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352, [1997] 2 WLR 945.

(5)The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents.  On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.  Lord Diplock made this point more vigorously when he said in Antaios Cia Naviera SA v Salen Rederierna AB, The Antaios [1984] 3 All ER 229 at 233, [1985] AC 191 at 201:

‘… if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.’”

100. The Agreement is on its face an agreement for the Government to grant a lease of the land to the plaintiffs with certain substantive development rights.  Those rights are to build on the Lot, within four years, a building with a stated maximum gross floor area and plot ratio, subject to the proviso that the building’s design, disposition and height be approved by the DL.  There is also a collateral agreement for the plaintiffs to build for the Government, within the same building, a transport terminus within three years.

101. What the plaintiffs sought was the lease of the Lot and the right to develop it by constructing a building with a certain gross floor area and plot ratio; these are the factors which decide whether or not a development can be expected to make a profit for its developer, and profit is the raison d’être of any development company.  Presumably they expected to be able to make a profit from the development they agreed to, otherwise they would never have entered into the agreement.  What the Government sought was to have some development on the land within four years, because it did not want “land banking”; and as part of that development, a transport terminus.  The Government as head landlord and indeed as the Government retained an interest in the design, disposition and height of the building because those factors may affect the neighbouring land which the Government has to lease out, as well as the public generally.  It did not matter to the Government what kind of building was built, be it commercial or residential so long as there was no problem with its design, disposition or height.  All of these matters were or should have been known to both parties.  In particular the plaintiffs knew that they were dealing with the Government which has many other interests and duties than those of a private landlord.  In the light of that knowledge, the plaintiff was apparently quite ready to undertake to comply with the Government’s requirements as to design, disposition and height so long as it had its substantive rights with respect to gross floor area and plot ratio.  There was never, before the Agreement was entered into, any discussion of the maximum height of the building; nor indeed does it appear that that was in the mind of either party.

102. I think it is important to bear all this in mind when considering the plaintiffs’ complaints that they have had their substantive development rights taken away in whole or in part.  In my view they have not.  They never had any unlimited right as to height.  Their right to build to an agreed maximum floor area and plot ratio has never been curtailed because they could always have obtained that within the 324mPD limit, or much less. 

103. Turning to the plaintiffs’ Issues Nos.1 and 3-5 which are all concerned with interpretation of the Agreement rather than with the implication of terms, it seems to me that the Government had the power under the Special Condition 5(a) generally to disapprove MLPs and under the DDH it had the power to disapprove them on the grounds of design, disposition and height.  In Hang Wah Chong Investment Co. Ltd v.  Attorney General [1981] 1 WLR 1141 it was held in the Privy Council that the Director of Lands’ refusal or withholding of approval under such a clause as is contained in special condition 9(e) need not be upon reasonable grounds.  Yam J followed that in an interlocutory hearing in this case and the Court of Appeal upheld him.  This would seem to favour an unlimited power.  For my own part I think it would be contrary to business common sense to say that the Director has a power which could be invoked to take away substantive development rights because no one would want to enter into a contract if his substantive rights under it might be subject to arbitrary reduction; but it is not necessary to decide that point, because on my finding no substantive development rights were taken away.  

104. I consider that the DDH Clause can be invoked for purposes relevant both to the Government’s interests as Government and as head landlord for the reasons I have given above.  It seems to me that to say that the Government could not have regard to height restriction which would later be imposed by statute is quite unrealistic.  Indeed in general the argument that the Government in its dealings as landlord could only deal as landlord and disregard its other duties and functions seem to me unrealistic.  It is one of those arguments which while it has a certain attraction as a proposition of law seems to fly in the face of reality.  In this connection it is also worth noting what Briggs CJ said in Crozet Ltd & Ors v. Attorney General [1973-76] HKC 97 at 101 :

“But Mr Jackson‑Lipkin ... asked the rhetorical question ‘Is a covenant in a lease between the Crown and a subject to be treated as an instrument to enforce Government policy?’  I must confess that I do not see why not, providing that the Government policy is within the law.”

105. I also do not accept that the Director must unequivocally invoke the DDH Clause as well as identify precisely the new limitation sought to be introduced.  There is nothing in the Agreement to that effect.  The clause does not give the Director the power to determine an airport height restriction and it does not impose on him any duty to determine a maximum permissible height.  What it does is to allow him to reject an MLP on the ground of height.  He may not need to give reasons for rejection but prudence would dictate that he should at least indicate a height which would not produce a rejection.  In fact SPEL’s letter of 27 January and the DLO/TW’s of 21 February 1995 did that. 

106. As to whether the Government was entitled to use the DDH Clause to determine a maximum height before the completion of computer modelling tests, I think it was.  It could have said, right at the outset, “The CAD intends to fix a height of 324mPD; it may be possible to relax that within an absolute of 480mPD; but as a matter of prudence we will allow you to build no higher than 324mPD.”  Now, maybe the plaintiffs would have had cause for complaint if a higher level had later been fixed; but the complaint would not have been based on loss of profit, because as we know they could have built to the maximum plot ratio and GFA within that level.  We also know from the evidence of the plaintiffs’ director, Mr Joseph Leung that profits from the Nina Tower would initially have been lower than those expected from an ordinary development.  It is no doubt true that the plaintiffs’ building would not have the prestige, or give them the prestige which they could expect from the tallest building in the world, but we are here dealing with a commercial situation and what matters is profit.  Prestige may of course bring profit but that does not seem to be what was expected here, on Mr Leung’s evidence, at least not in the short term; and loss of profit in the long term does not seem to be relied on.  Maybe the plaintiffs, having publicised their intentions, would consider they had lost face by being prevented from building what they had projected but again this is not really quantifiable in commercial terms. 

Implied Terms

107. I have set out above the implied terms pleaded.  In his final submissions Mr Chang SC summarised them in two terms, 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.

108. Mr Tang SC for his part argued that the only term which could be implied would be that the building covenant period would be extended if there was culpable conduct or undue delay on the part of the Government resulting in the plaintiffs’ not being able to complete building within that period.  The two positions are not far apart.  Either way it seems that fault on the part of the grantor would be required. 

109. As Gatehouse J put it in Ashmore v. Lloyd’s [1992] 2 LL L R at 626 :

“There are three bases on which a term can be implied into a contract.  The first two, which the plaintiffs describe as ‘implications in fact’ both depend upon the presumed joint intention of the parties and arise under (i) the well-known doctrine of The Moorcock 91889 14 PD 64 — the ‘business efficacy’ test, or (ii) the equally well-known ‘officious bystander’ test, based on Lord Justice McKinnon’s judgment in Shirlaw (Shirlaw v Southern Foundries (1926) Ltd. [1939] 2 KB 206.) The third, described as a term ‘implied in law’ does not depend upon the presumed joint intention of the parties, but upon the principle derived, as the plaintiffs say, from Liverpool City Council v. Irwin [1977] AC 239.”

110. In Liverpool City Council v. Irwin [1977] AC 239, 253-254 Lord Wilberforce set out four bases on which terms may be held to exist notwithstanding that they are not expressed.  In Twinkle Step Investment Ltd v. Smart International Industrial LtdBokhary PJ summarised them thus :

“(1)Established usage.  This was not argued in the present case. 

(2)On the principles of The Moorcock (1889) 14 PD 64.  In the words of Chitty on Contract (27th Ed) at para 13-005, ‘A term will be implied if it is necessary, in the business sense, to give efficacy to the contract.’

(3)Reasonableness.  This was, rightly, rejected by Lord Wilberforce.

(4)By establishing what the contract is, some terms not having been stated.”

111. It is as well also to set out the “officious bystander” test.  Per Lord Mackinnon in Shirlaw at page 227 :

“Prima facie a matter which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement they would testily suppress him with a common, ‘Oh, of course.’  At least it is true, I think, that if a term were never implied by a judge unless it could pass the test, he could not be held to be wrong”

112. Another classic statement of the law on implication of terms, which encapsulates both the “business efficacy” and the “officious bystander” tests appears in B.P. Refinery (Westernport) Pty Ltd v. President, Councillors and Ratepayers of Shire of Hastings[1978] 52 ALJR 20.  This decision was followed by the Court of Appeal in Hong Kong in Attorney General v. Melhado Investment Limited [1983] HKLR 327 and by Hunter J in Shun Shing Hing Investment Co. Ltd v. Attorney General [1983] HKLR 432. 

113. Lord Simon, delivering the majority opinion in that case at page 26, said :

“Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express.  In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied : (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

114. The test for terms implied by law is set out in Chitty on Contracts, 26^th edition at 13-003 :

“The implication of a term is a matter of law for the court and whether or not a term is complied is usually said to depend upon the intention of the parties as collected from the words of the agreements and the surrounding circumstances.  In many classes of contract, however, implied terms have been become standardised, and it is somewhat artificial to attribute such terms to the unexpressed intention of the parties.  The court is, in fact, laying down a general rule of law that in all contracts of a defined type — for example, sale of goods, landlord and tenant, employment, the carriage of goods by land or sea — certain terms will be implied, unless the implication of such a term would be contrary to the express words of the agreement.  Such implications do not depend on the intentions of the parties, actual or presumed, but on more general considerations.”

115. Whichever test is used, the business of the court is not to re‑write the contract and implication is a matter of strict necessity; see Ashmore v. Lloyds at page 627.  Further we have to look at what is strictly necessary in the context of the facts, i.e. an MLP after the building covenant period had already run a good fraction of its course, to build an extraordinary building.  As I have indicated, when the Agreement was made height was not an issue.

116. It seems to me that if one applies the “business efficacy”  and the “officious bystander” tests, bearing in mind the objects of the Agreement as I have set them out above, the only term which would be strictly necessary would be that which the defendant accepts.  In particular if the officious bystander, gifted with the foresight to imagine an MLP for an extraordinary building being made more than a year into the building covenant period, were to ask “The grantee must obtain approval for its building before it can start work; should not there be some term to regulate how long the grantor takes to consider the MLP”.  I think the answer would be “Well, it depends when the application is made and what is applied for, but of course, if delay is caused by the grantor’s fault, so that the building covenant period cannot be complied with, then the period must be extended.”

117. In fact the Government recognises this principle, and did allow a four‑month extension.  It was put in cross-examination to Mr Pope, and he said “If delay is caused by Government, then we would usually grant an extension free of premium for that period of time that the delay occurred.”  He also said that it was a well‑established principle, which had been there for years and was well‑known to the building trade.

118. The plaintiffs also argue that the terms for which they contend should be implied by law.  They rely heavily on the principle of co‑operation stated by Lord Blackburn in Mackay v. Dick (1881) 6 App Cas 251 at 263:

“I think I may safely say, as a general rule, that where in a written contract, it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part of the carrying out of that thing, though there may be no express words to that effect.  What is the part of each must vary according to the circumstances”

119. But as the defendants argue this principle does not go beyond the principle that a term will only be implied if strictly necessary; per Thomas J in North Sea Energy Holdings NV v. PTT [1997] 2 Lloyd’s LR 418 at 430 :

“What is made clear in all the cases is that a duty to co-operate will only arise if the term can be implied to that effect.  Thus, the issue is whether the implied term for which [the plaintiffs] contend satisfies the legal test of strict necessity.  In doing so, it is useful to apply in the ‘officious bystander’ or the ‘business efficacy’ test as an aid in this task.  I must also have in mind the consideration that the law can enforce co‑operation only in a limited degree and to the extent that it is necessary to make the contract workable.” 

With this I respectfully agree. 

120. The plaintiffs also say that the Agreement is a composite contract being both an agreement for sale and purchase of a leasehold estate, a lease, an agreement to build and assign back a transport terminus plus an agreement to build non‑industrial buildings up to a certain gross floor area, and that this last is a building contract.  Implied terms such as that the defendant would not prevent or hinder the plaintiffs’ performance of the building contract and that they would co-operate with the plaintiffs in their performance of that contract have long been established as inevitably or very often employed in building contracts.  I do not propose to advert to the various authorities to which they refer, because it seems to me that while these principles would apply where a builder is building for an employer, in no sense were the plaintiffs here employed to build a building for the Government.  The Government simply had no direct interest in what was built; that was a matter for the plaintiffs so long as it was acceptable as to design, disposition and height.  The Government had a reversionary interest in the Lot but I do not see that that is relevant; by the time the Lot reverts to Government, given Hong Kong’s history of building and re‑building, who knows what will be on it?

121. If I am wrong in this, and the building covenant was indeed a building contract to build a non‑industrial building of between 75,000 and 186,000 square feet, and such terms would be implied, they were not breached; the Government never hindered them or failed to co‑operate with them in the performance of that contract, which they could have performed by building below 324mPD.

122. In conclusion, then my finding on the issue of implied terms is that the only term which could be implied is that the building covenant period would be extended if there was culpable conduct or undue delay on the part of the Government resulting in the plaintiffs’ not being able to complete building within that period. 

Did the Government Breach the Agreement?

123. As I have found, the Government was entitled to use the DDH Clause to regulate height.  Issue No.6 on the plaintiffs’ list is, did it in fact do so, in such a way as to impose a definitive height restriction and if so when?  The first explicit mention of the DDH Clause comes in the letter from DLO/TW dated 25 July 1996.  The first specific rejection of an MLP on the ground of height came in June 1995 and I think that must have been an exercise of the DDH Clause because that is the only clause which is concerned with height.  But it does not really matter, because in fact the plaintiffs were already notified of the height limit laid down by the DCA.

124. The plaintiffs rely heavily on the fact that none of the defendant’s witnesses disputed that the SPEL’s letter of 27 January and the DLO/TW’s letter of 21 February 1995 were not determinations of the permitted height by the DL, nor an exercise of power under the DDH Clause.  Mr Pope accepted the distinction between conveying what another department had advised and an actual exercise of his power.  No doubt that is right, but both these letters were indications that the DCA had advised a specific height limit.  Mr Joseph Kwun, who succeeded Mr Ongley as DLO, said that from the letter of 21 February 1995 the developer should understand that it was possible that their MLP would be rejected and that it was for the developer’s benefit so that they knew that if they submitted further MLPs in the same mode those would be rejected.  This seems obvious.  The developer puts in the MLP; the DLO replies with a number of “preliminary comments” from other departments and the obvious purpose of this is to let the developer know that unless the MLP is amended to conform with the requirements of the other departments, it will be rejected.  In fact, a further MLP was put in addressing some of the “preliminary comments” but not that relating to height.  It is reasonable to imply that if the plaintiffs had then submitted an MLP for a building 324mPD in height, it would have been approved.

125. The DLO did not delay in advising the plaintiffs of the requirement of the CAD which would have to be met if the MLP was to be approved.  That was, I think, enough to give the plaintiffs the choice of what they should do next.  I do not see that there was any need for the DLO formally to invoke the DDH Clause and say that under it the proposed height, or any height above 324mPD would be disapproved.  In fact the plaintiffs chose not to alter the MLP so that it would conform to the height limit and could be approved. 

126. I do not see that any delay in relation to MLP 4 can be laid at the door of the Government.  That was held up because of the plaintiffs’ attempt to obtain bonus plot ratio which was ultimately abandoned.  The issue of height only surfaced in January 1995.  I do not think the SPEL’s letter of 27 January can be disregarded as not coming from the Lands Department; to do so would be to accept the argument of a division between Government in its role as landlord and Government in its other roles.  In any event the letter came from the Policy Secretary whose area of responsibility covered the Lands Department.  But if that letter can be disregarded the letter of 21 February cannot.  By that time the CAD meetings of 12 and 13 January had been held and Mr C.Y. Leung had had his long telephone conversation with Mr Lok and had been told that it may be possible to relax the restriction, if not up to 500 metres, but to something over 300 metres.  The plaintiffs would then know that the Nina Tower as they planned it could never be.  They had two choices, either to build to a level which they knew would be acceptable, or to wait in the hope of being able to overturn the obstacle clearance limit.

127. I conclude then that there was no breach by the Government of the only term which could be implied into the Agreement.  This disposes of the plaintiffs’ Issues Nos.7 and 8.  As to Issue No.9 as to whether the time actually taken for the computer modelling studies resulted in a “state of affairs” in which time ceased to be of the essence, I do not see how this could apply in circumstances where Government did not cause the delay.  My finding will likewise dispose of Issue No.12.  Issues Nos.15, 17 and 18 are also dealt with by my findings so far.  As to Issue No.18, if there was no breach on the part of Government, there is no entitlement to an inquiry as to damages.  However I will say in passing that if there had been I doubt that, if the Government had been in breach of implied terms, the provisions of General Condition 5(a)(i) could have precluded a claim for damages.

The Penalties Claim

128. The plaintiffs claim that in any event, the premia paid to the Government for extension of the building covenant periods were penalties and unenforceable.  They were paid under protest, and the plaintiffs are entitled to repayment of them as money had and received or by way of the equitable remedy of restitution.  This remains the position even if the Government was not in breach of any implied term of the Agreement and the delay came about solely through the fault of the plaintiffs themselves.

129. The argument goes like this.  The plaintiffs paid a great deal of money for the Lot.  They had to develop it in four years.  If they failed to do so in time the Government could re‑enter, and they would lose what they had paid for the Lot as well as any investment they had made in it in terms of building.  In analogous situations involving construction contracts such contractual stipulations are either not to be given literal effect or if they would be unconscionable they are unenforceable as penalties.  Such stipulations perished because they were in terrorem of the builder or extravagantly disproportionate to the landowner’s potential or likely losses.  In the present situation, the forfeiture clause may be invoked for any breach of the building covenant, however trivial and in any event the penalty to the plaintiffs that the benefit to the Government are extravagantly disproportionate because there has been no loss to the Government.  On each occasion the premium payment was made by amendment to the Special Condition 6(a) which provides for the building covenant period.  Each such amendment constitutes an unenforceable penalty clause.

130. In fact the argument seems to have evolved.  The original position argued in the plaintiffs’ Opening was that they did not claim that the Government could not seek, obtain and retain premia in exchange for not exercising rights of forfeiture, but those rights did not arise because the plaintiffs were never in breach of the building covenants.  Now it is argued that the rights of forfeiture do not arise because each premium is a penalty.  In particular, it is said that the failure to complete the buildings within the PC period does not entitle the Government to re‑enter, but only to damage for its actual loss (if any) from late completion.  In the Conditions of Grant time is not made “of the essence”.  It cannot be implied that time is of the essence.  No notice making time of the essence and fixing a reasonable new time for performance has ever been served on the plaintiffs.  Therefore, the Government never had any lawful entitlement to forfeit or re‑enter the Lot.

131. If this is right, it calls into question the whole practice of the Government of charging a premium in exchange for the extension of a building covenant period, because every building covenant is a building contract and every premium, which is exacted without reference to actual loss is a penalty.  This seems to run counter to the authority of Hang Wah Chong and also Lok On Co. Ltd v. Attorney-General [1986] HKLR 857, a case relied on by the defendant in support of the “short answer” argument.  However the plaintiffs argue that the penalty argument was never raised in Hang Wah Chong because that case was based on a waiver.  Nor was the penalty argument raised in Lok On Co. Ltd because in that case there was a statutory order whereby lease covenants were deemed to exist and the defendants say that the argument could not be raised because a statutory contract cannot be unconscionable even if prima facie it is penal.

132. In Lok On Co. Ltdthe plaintiff owned land upon which were dangerous buildings in respect of which demolition orders were made, followed by orders for re‑development.  Before the re-development could be completed the time limit prescribed in the orders was reached, giving a right of re-entry to the Crown.  The plaintiff sought extensions of time and these were granted on payment of premia.  In respect of the final extension the plaintiff paid the premium “under protest” and challenged the right of the Crown to make such a demand.  The Originating Summons was struck out and the plaintiff appealed.  On appeal it was argued that since the plaintiff would have a claim to relief from forfeiture if the Crown re‑entered for breach of the “covenant” the Crown was acting unconscionably in demanding, as consideration for the extension of time, a sum greater than that which might be ordered to be paid on the granting of relief against forfeiture on a re‑entry.  This did not find favour with the Court of Appeal.  Per Sir Alan Huggins, VP at page 858 :

“What the Crown was offering was an act of grace — an extension of the time fixed by the ‘covenant’ for the erection of the building.  As consideration for such an act of grace it was legitimate for the Crown to impose such terms — whether reasonable or unreasonable — as it might think fit.  On the other hand, it was for the Tenant to agree or not as it chose.  If it agreed, it was in effect paying an insurance premium to cover itself against the risk that, should the Crown re-enter, the court might decline to grant relief.  If the Tenant thought the premium demanded too high for the benefit thus offered, it could have refused to pay.  The Crown would then, presumably, have exercised its right of re‑entry and the Tenant could have brought an action for relief against forfeiture.  In that event the court would have had to decide whether to grant relief and, if so, what terms (if any) should beimposed.  Had there been a re‑entry it may be that the court would have adjudged that relief should be granted upon payment of compensation and have assessed that compensation at a figure below that which the Crown demanded as the price of the extension, but the two sums would have been for two entirely different, although distantly related, benefits.  This Court should be slow to interfere with the rights of fully competent parties to contract on whatever terms they think appropriate.  There was here nothing which made the bargain offered ‘unconscionable’ in the sense in which that word had been interpreted by the courts of equity, and I thought the judge was right to strike out the Summons.”

133. And per Fuad, JA at 853-854 :

“Although the facts of Hang Wah Investment Co. Ltd. v. Attorney General of Hong Kong [1981] 1 WLR 1141 were different, the broad principle that where a tenant seeks a concession from his landlord in relation to the development of the land leased, the landlord is entitled to make the granting of that concession conditional upon the payment of a premium, was expressly recognised by the Privy Council.  As in that case, in the instant case there was no averment that the demand for the premiums were capriciously advanced....  If a person who has a legal right to do something threatens to exercise that right unless he is paid a certain sum of money, it is difficult to see how the amount involved can be made the subject of legal proceedings.  The offeree is free to accept the concession or not.  What he cannot do, it seems to me, is to pay over the sum demanded (even though under protest), prevent the exercise of the legal right, and then come before the court and ask for his money back on the basis that it was ‘money had and received’.  The position might well be different if the issue of bona fides arises.  The Crown’s intimation that it would re-enter for breach of the covenant unless the premiums were paid could hardly be classified as a threat, and could not possibly be regarded as extortion or oppression.”

This last passage is also relied on by the defendant in support of the argument that the plaintiffs could not pay “under protest” and then demand the money back.  I will return to that point later.

134. The “penalty” argument likewise did not surface in the case of Shun Shing Hing Investment Co. Ltd v. Attorney-General[1983] HKLR 432, although there was some mention of unconscionability.  That case arose out of similar circumstances to the instant case.  The developer, incidentally also a company within the Chinachem group, purchased two lots of land from the Government.  The contract provided that the development should be completed within three years with a minimum expenditure of $780,000 and that the Government could re‑enter in the event of failure to comply with those requirements.  The developer knew of and relied upon the Government’s policy of granting extensions of time, as an alternative to re-entry, on the payment of premia, calculated according to a scale introduced in 1975.  In fact, that scale was one of the historical forerunners of the scale applied by the Director of Lands in the instant case.  After the developer had paid two premia for extensions under the 1975 scale, the Government in 1981 changed the scale.  The premium for the third extension sought by the developer was much higher.  The developer applied to the court for a declaration that it was entitled to an extension under the old scale, and argued that it was so entitled because there was an implied term in the contract and also the government was estopped from denying its right, not because of any express representation or director statement the plaintiff but because of the propounding of policy by the government to its own staff and the discovery of the policy by the developers.

135. The argument was never raised in Shun Shing Hing that the premium was a penalty, and there was no attack on the policy generally.  The question of unconscionability did raise its head and was dealt with by Hunter J at 439 as follows :

“In the light of its own valuation, the Crown asked a new premium for the year’s extension of just over a million dollars.

It was being suggested, I thought, at one time that the size of that, by comparison with the original premium, was sufficient to show that that charge was unconscionable.  But the matter developed in a slightly different way.  I need only say this: it by no means follows, in my judgment, that that charge was unconscionable.  Certainly there was a doubling of the initial premium by reason of this charge with the prospect of further premia; but when that is set against the sevenfold increase, at least, in value of the site, it puts the matter in its context.  It is sufficient for me to say that it is quite impossible, in my judgment, to prove that this new charge was unconscionable, without revealing what the figures were on both sides of the equation, and no attempt was made by the plaintiffs to do that. …

Finally, it seems to me in this context that ‘unconscionable’ does not have the technical meaning of being in breach of contract or of being equivalent to a breach of contract.  It means harsh, excessive, inordinate, and you only prove that something like a premium is unconscionable by showing that the amount is unconscionable.”

136. This is not of much assistance in the present case, because what was being compared were two levels of premium, the first calculated on the purchase price and the second on the land value.  Here the plaintiffs would say that any premium would be unconscionable precisely because it is a penalty; it is not an estimate of the Government’s losses because the Government would never have any.  Presumably therefore it would have nothing to do with the value of the land.  

137. I do not see that the building covenant can be regarded as a building contract.  The Agreement is for the grant of land subject to conditions the breach of which entitles the Government to re-enter, and ultimately for a lease of that land.  It is far removed from the cases which have produced the principles of law on which the plaintiffs seek to rely.

138. The defendant says that in any event each premium was not a contractual penalty but consideration for a separate agreement, i.e. an extension of time for completion of the building and/or forbearance from re‑entry.  I accept that on the face of the correspondence the premia were paid for amendment of Special Condition 6(a) (and 12(a) though that does not concern us here) but I do not see how this could make the premium a penalty.  There is no provision in the Agreement itself for extension on payment of premium or otherwise; the provision is that once the condition is breached there is a right of re‑entry.  Forbearance from re‑entry would be an act of grace and any agreement for extension of time and amendment of a condition to reflect that would be a separate agreement from the original agreement which had been breached by the failure to meet the condition.  I do not see how the amendment could be regarded as a penalty clause imported into the original Agreement. 

139. It seems to me that on the authority of Hang Wah Chong Investment Co. Ltd and Lok On Co. Ltdthe Government, once it was entitled to re‑enter, could as an act of grace forbear to do so in consideration of a premium which it could impose as it thought fit, and whether that premium was reasonable or not; and that is what it did. 

Economic Duress

140. The plaintiffs’ pleaded case on this is that the defendant’s letters offering extension on payment of premium each constituted unlawful acts of economic coercion in the form of illegitimate pressure calculated to force the plaintiffs either to pay the large premiums unlawfully demanded or to lose to the Government their investment in the Lot.  In order to avoid losing their investment, the plaintiffs paid up, under protest and subject to their contention that the demand for payment was in breach of contract and unlawful.  Further, if and to the extent that the exchanges of correspondence had any contractual effect, there was no lawful consideration for the agreements because the Government merely offered the plaintiffs that to which they were entitled, namely quiet enjoyment of the Lot; and any such contract or contracts were void ab initio for absence of consent or voidable on the ground of economic duress and were also avoided by the disclaimers made by the plaintiffs. 

141. All this depends, it seems to me, on whether or not there was any breach of contract on the part of the Government.  If there was then a demand for premium might be unlawful and the question of coercion might arise.  If there was not, then it is impossible to see how, in the light of the cases cited above, the demand for a premium as consideration for an act of grace in forbearing to carry out a lawful re‑entry could be unlawful.  In the light of my findings on that I do not think the question of economic coercion arises.  The same must apply to the plaintiffs’ arguments about unjust enrichment. 

142. It seems to me that when the offers of extension, and in particular the first offer, were made the plaintiffs were free to accept them or not.  They had various alternative remedies.  They could have sought relief against re-entry under the Government Rights (Re‑entry and Vesting Remedies) Ordinance, Cap.126.  This included the under section 8 the right to petition the Governor under subsection 1(a) or to apply to the Court for relief against re‑entry under section 1(b) either on the basis of disputing the right of Government to re‑enter or on the basis that they would have been entitled to apply if the lessor had been a private party and had exercised the right of re‑entry.  They also had the common law rights preserved by section 10.  They did not rely on these remedies but instead chose to pay up.  Mr Joseph Leung in evidence compared the much smaller sum of $72 million which the plaintiffs would have to pay, with the massive losses they would face if they lost what they had put into the Lot in the way of investment.  Mr Tang SC says that this shows a commercial decision to avoid the risk involved in litigation.  Counsel for the plaintiffs say (for arguments were advanced by both Mr Chang SC and Mr Barlow) that this is a misrepresentation of Mr Leung’s evidence which showed that his companies were forced to choose the lesser of two evils.  Much of this argument was of course advanced by the plaintiffs’ side on the basis that the Government was in breach of the Agreement, and by the defendant on the basis that even if that were so, the premium agreements would stand; the “short answer”. 

143. The defendant’s “short answer” is that in any event, whether there was an express agreement to extend the building covenant period or a breach of an implied term by which it would be extended, the plaintiffs entered into a fresh agreement which settled the matter.  The situation was the same as where a party, faced with a claim or an action for enforcement, opts to deal with it by paying a sum demanded by the other party.  Following Lok On Co. Ltd it matters not that the payments were made under protest.  Now the plaintiffs cannot go back on the fresh agreement unless they can have it set aside on some ground such as fraud or economic duress.  The latter is the only ground pleaded, though the plaintiffs do not ask for the premium agreements or any of them to be set aside. 

144. I think this “short answer” might have been effective if I had found a breach of an implied term in the Agreement but not if I had found the Government to be in breach of an express collateral agreement to extend the building covenant period.  In the first case, the plaintiffs would, I think, have been in the position of a party who settles an arguable case by payment, because the existence of an implied term is always a matter for argument, and no one knows if it really exists until a court decides that it does.  If however there had been an express agreement, for the Government to disregard it would have been bad faith.  Lok On Co. Ltd would not have applied to nullify the effect of the plaintiffs’ assertion that they paid under protest.   To demand a premium would have been illegitimate and the question of economic coercion would have arisen, and I think that following the more recent authorities and in particular Dimskal Shipping Co. S.A v. I.T.F. [1992] 2 AC 152 (HC) it would not have been necessary for the plaintiffs to show that their will, or the will of Mrs Wang had been overborne.  But in the light of my findings that there was no specific collateral agreement and no breach of an implied term in the Agreement itself, it seems to me that the plaintiffs are quite simply in the situation described by Fuad VP in the part of his judgment in Lok On Co. Ltdreproduced above.  They were free to accept the concession or not.  They could not pay over the sum demanded (even though under protest) to prevent the exercise of the legal right, and then come before the court and ask for the money back on the basis that it was “money had and received”.  The Government was not acting in bad faith.  The premium could not be regarded as extortion or oppression. 

145. This disposes of the remaining Issues in the plaintiffs’ list, except for No.23 which is concerned with the matters pleaded in paragraph 29 of the Statement of Claim and will be for resolution later. 

Conclusion

146. It follows that the plaintiffs’ claims must be and are dismissed except for those which arise out of the matters pleaded in paragraph 29 of the Statement of Claim.  It will be necessary for the parties to apply for directions as to how those matters are now to be dealt with.

Remarks:
Appeal by 1st to 8th Plaintiffs to Court of Appeal. Appeal dismissed. Please refer to the appeal judgment of CACV000291/2002.