Sky Heart Ltd. v Lee Hysan Estate Co. Ltd

FACV No. 9 of 1998

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 9 OF 1998 (CIVIL)

(ON APPEAL FROM CACV No. 64 OF 1997)

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J U D G M E N T

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Mr Justice Litton PJ:

Introduction

1. This appeal concerns the effect of covenants contained in an assignment of properties in Causeway Bay now owned by the appellant (defendant). The assignment is dated 26 April 1954. The properties are Nos. 6 and 8 Kai Chiu Road which form part of a block of 16 houses standing on Section Q of Inland Lot No. 29. Section Q was carved out of Inland Lot 29, a very large piece of land, which the respondent (plaintiff) had owned in its entirety at one time. Nos. 6 and 8 Kai Chiu Road stand on subsection 8 of Section Q.

2. The history giving rise to this appeal is as follows. In December 1953 the plaintiff entered into an agreement with one Pang Sang to sell to Pang Sang land "intended to be registered in the Land Office as Section Q of Inland Lot No. 29". The agreement provided for covenants to "keep and maintain ... European style dwelling houses of a uniform design to be completed within 18 months ... of cement concrete with steel windows teak-wood flooring and servants stairs besides the main stairs ... and to keep the minimum frontage of each house not less than 23 feet facing Kai Chiu Road and Pak Sha Road respectively but such houses to be without balconies or verandah ... with the general specifications and in conformity with the levels to be supplied by [the plaintiff], the plans of such dwelling houses to be first submitted to and approved by [the plaintiff] whose approval shall not be unreasonably withheld." The agreement allowed the use of the ground floor of the houses for business purposes, but certain business were expressly excluded, as were "offensive noisome and noxious trades cabarets studios or any other similar purposes". The agreement required Pang Sang and his assignees to permit the plaintiff "or owner or owners of the adjoining premises to make connections to the drains on either side of the adjoining premises". Pang Sang further agreed to prepare footpaths abutting the four sides of Section Q and to meet the cost of forming and surfacing half the width of the roads called Kai Chiu Road, Pak Sha Road, Yun Ping Road and Lee Garden Road abutting Section Q as shown on the plan attached to the agreement and to maintain the same to the satisfaction of the Public Works Department and Urban Council. The plaintiff agreed to grant a right of way over Kai Chiu Road and Pak Sha Road (then forming part of Inland Lot 29) until such roads were surrendered to the government.

3. Pang Sang sub-sold all of Section Q and thereafter acted as "confirmor" in the subsequent assignments: There were 11 assignments for the various sub-divisions of Section Q: ten were executed on 26 April 1954, the remaining one on 13 May 1954.

4. Nothing turns on the precise terms of the covenants in the assignments. They are in identical terms. As noted by the trial judge (Mrs Justice Le Pichon) they have the common features:

- All recited the registration of Section Q at the Land Office and the Pang Sang Agreement.

- Pang Sang was a party as confirmor and in cases where there had been more than one sub-sale as first confirmor.

- All were made by reference to a common plan prepared by an architect Wong Cho Tong showing Section Q and its various subsections (with dimensions) including a system of interlocking staircases between the houses to be erected. 16 houses were to be built.

- All were with the benefit of rights of way:

(a) over Kai Chiu Road and Pak Sha Road which were still vested in the Vendor;

(b) over such parts of the scavenging lane (which bisected Section Q) as did not form part of the premises assigned;

(c) over the common staircases shared with the adjoining building.

- All assignments were subject to the rights of way in paragraphs (b) and (c) above.

- All contained identical covenants by the purchasers in favour of the vendor 'with intent to bind all persons in whom the premises thereby assigned should for the time being be vested' but not so as to be personally liable after parting with the premises assigned.

- The covenants are identical to those in the Pang Sang Agreement save that in relation to the subsection assigned, the number of houses to be erected is specified: for the larger subsections namely, subsections 6, 8, 9, 10 and RP of Section Q, two houses rather than one were to be built and the words 'with the adjoining buildings' were added to the requirement that the houses be of a uniform design (which was in the Pang Sang Agreement).

5. In about May 1992 the plaintiff came to know of the defendant's purchase of No. 8 Kai Chiu Road so it wrote and reminded the defendant of the restrictive covenants. The plaintiff was told that the defendant's purpose in acquiring No. 8 was to use it as a restaurant and dormitory for the staff and the defendant had no intention of redeveloping No. 8.

6. In August 1992 the defendant acquired the ground and first floors of No. 6 Kai Chiu Road and the remaining three floors of No. 6 thereafter. In May 1994 the defendant's solicitors wrote to the plaintiff to say that it intended to redevelop Nos. 6 and 8. In response to the plaintiff's request for confirmation that the redevelopment would not constitute a breach of the covenants the defendant's solicitors, by letter dated 24 January 1995, said:

" We refer to your letter dated 16th November, 1994 upon which we have obtained Leading Counsel's opinion. We would like to inform you of our client's position as follows:-

1. Our client intends to redevelop its property by erecting a multi-storey commercial building with shops on the ground floors. Our client is in the course of doing so.

2. Your client has already disposed of the land for the benefit of which the restrictive covenant was taken. In the circumstances, your client can no longer enforce the restrictive covenant.

3. In any event, no court will enforce the restrictive covenant in the light of the complete change in the character of the neighbourhood...."

7. In April 1995 the plaintiff acquired the 1st floor of No. 10 Kai Chiu Road in order to strengthen its case for enforcing the covenants against the defendant.

The proceedings

8. The plaintiff issued its writ on 15 August 1995 seeking an injunction to restrain the defendant from acting in breach of the covenants and from interfering with the plaintiff's rights of way (as owner of the 1st floor of No. 10 Kai Chiu Road) over the defendant's property and for damages.

9. Le Pichon J, in a judgment remarkable for its clarity and care, found for the plaintiff and ordered an injunction to be issued. The effect of the judgment is as follows:

(a) She found as a fact that the covenants affecting each of the subsections of Section Q were intended to be enforceable by the owners of the respective properties inter se, as the covenants gave effect to a building scheme devised by the plaintiff for the 16 interlocking dwelling houses covering the whole of Section Q. The defendant failed to establish such change in the neighbourhood since 1954 as to destroy the object to be attained by those covenants. The plaintiff, as owner of the 1st floor of No. 10 Kai Chiu Road, was therefore entitled to the benefit of the covenants, and had the right in equity to enforce them.

(b) She also found that the plaintiff, as the original covenantee, was entitled to enforce the covenants under section 41 of the Conveyancing and Property Ordinance, cap 219.

(c) She held that an injunction was the appropriate remedy.

10. The Court of Appeal, by a majority, upheld Le Pichon J's judgment. The judges were unanimous in upholding the trial judge on point (a) as summarized above, but Godfrey JA dissented on point (c): He concluded that as the plaintiff had divested itself of all interest in Section Q after the assignments to the sub-purchasers, and did not claim to be entitled to enforce the covenants for the benefit of land outside Section Q, the plaintiff was not entitled to equitable relief. His reasoning for refusing an injunction is as follows: The plaintiff sought the intervention of equity, not for the purpose of protecting the 1st floor of No. 10 which it had acquired recently, but for an ulterior purpose, since the acquisition of part of No. 10 was purely for the purpose of litigation; it had no substantial interest in land to be protected by the grant of an injunction. The other two Justices of Appeal did not agree.

11. All three Justices of Appeal questioned the trial judge's construction of section 41 of the Conveyancing and Property Ordinance ("CPO"); they did not think that it went so far as to confer a right on a covenantee to enforce covenants after the covenantee has parted with the land to be benefitted. This however was not essential to the outcome of the appeal to the Court of Appeal, though it meant that as the trial judge had, in ordering the injunction, based her exercise of discretion on an erroneous basis, the discretion to grant equitable relief had to be exercised afresh.

Appeal to the Court of Final Appeal

12. In its notice of appeal the appellant contends:

"(1) The...