The Judicial Committee of the Privy Council Decisions

Privy Council Appeal No. 5 of 1996

The Attorney General of Hong Kong Appellant

v.

Fairfax Limited Respondents

FROM

THE COURT OF APPEAL OF HONG KONG

---------------

JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 17th December 1996

------------------

Present at the hearing:-

Lord Browne-Wilkinson

Lord Jauncey of Tullichettle

Lord Lloyd of Berwick

Lord Nicholls of Birkenhead

Lord Cooke of Thorndon

  ·[Delivered by Lord Browne-Wilkinson]

-------------------------

1. By a lease dated 16th June 1862, the Crown demised to the lessee approximately 22 acres of land in Hong Kong described as Inland Lot 757 for a term of 999 years.  The lease contained the following covenant:-

"That he [the lessee] shall and will, before the expiration of the first year of the term hereby granted, at his and their own proper costs and charges, in a good, substantial and workmanlike manner erect, build and completely finish fit for use, one or more good, substantial and safe brick or stone messuage or tenement, messuages or tenements, upon some part of the ground hereby demised, with proper fences, walls, sewers, drains and all other usual or necessary appurtenances, and shall and will lay out and expend thereon the Sum of Three thousand two hundred and thirty Dollars, and upwards in the erection of one or more Villa residences only, in accordance with the terms of sale which said messuage or tenement, messuages or tenements, shall be of  the same  rate  of building,  elevation,  character and description, and shall front and range in an uniform manner with the messuages or tenements in the same Street, and the whole to be done to the satisfaction of the Surveyor of Her said Majesty, Her Heirs, Successors or Assigns."

2. Over the years, the land comprised in the lease has been sub-divided into 28 sub-plots, now known as Nos. 1-27 Hing Hon Road and 65 Bonham Road.  The respondents, Fairfax Limited, are currently the owners of the leasehold interest in Nos. 9 and 10 on which they propose to erect a high-rise residential building.  Fairfax contend, first, that the covenant in the lease does not, on its true construction, prohibit the erection of the multi-storey building, and, secondly that in any event the Crown as landlord has abandoned the covenant by acquiescing over very many years in the development of the whole of Inland Lot 757 in a manner inconsistent with the covenant.  On the other side, the Crown assert that the proposed development would constitute a breach of that covenant and has demanded a premium as consideration for the waiver by the Crown of its right under the covenant.  It was in those circumstances that Fairfax started these proceedings against the Attorney General asking for declarations that the Crown could not enforce the covenant.

3. The trial judge, Mayo J., did not decide the question of construction.  The Court of Appeal held that, despite the fact that the covenant was framed in positive terms [i.e. the covenant to erect one or more villa residences only] it necessarily prohibited the erection on the land of anything other than villas.  There is no appeal to their Lordships against that decision of the Court of Appeal on the construction of the covenant.

4. On the issue of abandonment, the Court of Appeal (reversing the decision of the trial judge) held that the Crown had abandoned the covenant and made a declaration that Fairfax is entitled "to erect a multi-storey residential building on the site of 9 and 10 Hing Hon Road".  The Crown appeals to their Lordships against that decision.

5. The whole case turns on the developments which, over the years, have taken place on Inland Lot No. 757.  At the date of the Lease, the southside of the lot fronted onto Bonham Road.  At some date long ago, a road, Hing Hon Road, was constructed so as to divide the land from east to west.  It is not proved that "villas" were ever erected on the land.  However it does appear that, at some stage, there were semi-detached houses on some of the plots, which houses were set right back from Hing Hon Road and stood in their own gardens.  It may well have been that these houses constituted "villas".  Before 1945 there were constructed on Nos.  2,  19 and  20  three-storey attached terraced houses the front doors of which opened directly onto Hing Hon Road. Those houses are still there today. But they cannot, by any stretch of imagination, be described as villas.

6. The main developments took place after 1945.  Between 1957 and 1959, 6 storey apartments (containing 12 flats) were erected on Nos. 5, 6 and 9-12.  During the 1960's, similar buildings were erected on Nos. 21-24 and Nos. 26 and 27. In 1966, a 9 storey apartment building was erected on No. 1.  Since then developments have been even more striking: on Nos. 3-4 a 14 storey apartment building (1975); on Nos. 7-8 a 21 storey apartment building (1984); on Nos. 13-17 a 26 storey apartment building (1973); on No. 25 a 6 storey apartment building (1990); and on No. 65 Bonham Road a 25 storey apartment building (1992). In consequence, the whole area of Inland Lot 757 bears no resemblance to what the original lease must have contemplated - a low density area of villa houses presumably each in single occupation - but is a high density, high-rise area of apartment blocks in multiple occupation.

7. The Court of Appeal held that, in these circumstances, the Crown must be presumed to have released or abandoned the covenant.  They relied, in their Lordships' view correctly, on the principles established in Gibson v. Doeg (1857) 2 H. & N. 615, In Re Summerson (Note) [1900] 1 Ch. 112 and Hepworth v. Pickles [1900] 1 Ch 108.  In the last of those cases Farwell J. at page 110 stated the applicable principles as follows:-

"... if you find a long course of usage, such as in the present case for twenty-four years, which is wholly inconsistent with the continuance of the covenant relied upon, the Court infers some legal proceeding which has put an end to that covenant, in order to shew that the usage has been and is now lawful, and not wrongful."

8. The Court of Appeal held that this was the clearest possible case of a course of conduct wholly inconsistent with the continuance of the covenant contained in the lease of 1862.

9. Before their Lordships, the Crown contended that Fairfax had to prove that the Crown had knowledge of the developments in breach of covenant before any question of abandonment by the Crown can be presumed.  A man cannot acquiesce in conduct of which he is ignorant.  Whilst their Lordships accept that proof of such knowledge is essential, there is here overwhelming proof.  It is true that Fairfax was unable to lead evidence showing specifically that any relevant servant or department of the Crown was aware of what was going on.  But it must be borne in mind that this case is not concerned simply with what has been going on  on  the  property belonging  to  Fairfax, Nos. 9 and 10 Hing Hon Road.  The Crown is relying on a single covenant which applies to the whole of Inland Lot 757. Therefore conduct by the Crown inconsistent with the continuing reliance upon the covenant by the Crown in relation to all parts of Inland Lot 757 is relevant to the question whether the Crown has abandoned the covenant.  Accordingly the question is whether the Crown was aware of the wholesale development of the whole of Lot 757 which has taken place over the years.

10. In the absence of any explanation the only possible inference from the fact that over a period of forty years multi-storey blocks have been built over virtually the whole of Lot 757 is that everyone, including the Crown, must have been aware of those facts.  An area of 22 acres has been transformed into an area of high-density high-rise buildings.  It would take compelling evidence, which is lacking, to rebut the inference that everyone concerned with that land was well aware that it was not being used for villas.  As Leonard J. said in the Court of Appeal: "The suggestion that the Crown as landlord did not know of the development is unrealistic".

11. Their Lordships concur with the Court of Appeal in holding that this is the clearest possible case of abandonment and will humbly advise Her Majesty that the appeal should be dismissed.  The appellant must pay the respondents' costs before their Lordships' Board.

© CROWN COPYRIGHT as at the date of judgment.