Cheermark Investment Ltd v. Director of Lands
Court of Appeal
Civil Appeal Nos 165 and 184 of 2016
Cheung CJHC, Yuen and Kwan JJA
1, 2, 24 November 2017

Land law — resumption — compensation — Government lease — restriction of user to “dwelling house” prohibited shop use — acquiescence/abandonment of user covenant by Government — s. 12(b) did not bar compensation for acquiesced use — Lands Resumption Ordinance (Cap. 124) s. 12(b)

Words and phrases — “dwelling houses”

[Lands Resumption Ordinance (Cap. 124) s. 12(b)]

Xs each owned the ground floor unit (the Properties) of a multi-storey building on land (the Land) under a Government lease granted in 1917 (the Lease) which restricted the use of the Land to “Reclamation building dwelling houses workshops factories or godowns or similar purposes” without prior consent (the Covenant). The occupation permit was headed “Domestic Permit” and stated that the buildings were for use for “domestic purposes”. The ground floor premises were used as shops, while the other floors were residences. The Government resumed the Land and Xs sought compensation under s. 6(3) of the Lands Resumption Ordinance (Cap. 124) (LRO). In both cases, the Lands Tribunal (the Tribunal) construed “dwelling house” in the Covenant by referring to the definition of “domestic building” in s. 6(22) of the Public Health and Buildings Ordinance 1903 (the 1903 Ordinance), namely “any building constructed, used, or adapted to be used, wholly or partly, for human habitation …” and held that shop use was permitted provided the primary use of the buildings was residential; the phrase “or similar purposes”, covered commercial use and the ejusdem generis rule did not apply. On X’s alternative case, the Tribunal held that the Government, having known the Properties were used as shops for at least 50 years without taking enforcement action, had abandoned the Covenant and s. 12(b) of the LRO, ie “no compensation shall be given in respect of any use of the land which is not in accordance with the terms of the Government lease under which the land is held” did not preclude compensation according to the acquiesced use. The Director of Lands appealed, arguing that compensation should have been assessed on the basis of residential use.

Held, dismissing the appeals, that:

Whether Covenant permitted use of Properties as shops

  • The Tribunal erred in law in holding that the Covenant permitted shop use of the Properties. First, “shop” did not fall within the natural meaning of “dwelling houses” (Penny’s Bay Investment Company Ltd v. Director of Lands (No 2) (unrep., FACV 1 & 2/2017, [2017] HKEC 2180), HKSAR v. Fugro Geotechnical Services Ltd (2014) 17 HKCFAR 755 applied). (See paras. 36, 38, 111.)
  • Second, the Tribunal’s reliance on the statutory definition of “domestic building” in 1903 Ordinance was misplaced. Inter alia, prima facie, “dwelling house” and “domestic building” appeared to have very different meanings and the context and purpose of the 1903 Ordinance were substantially different from the Covenant. There was also no evidence that the Government and the lessee had intended to use the statutory definition of “domestic building” or to give a special meaning to “dwelling houses” when they entered into the Lease (Pandix Ltd v. Hui Kam Kwei (unrep., LDCS 4000/2009, [2010] HKEC 1577) applied; Mexx Consolidated (Far East) Ltd v. Attorney General [1987] HKLR 1210, Raider Ltd v Secretary for Justice [2000] 3 HKLRD 300, Incorporated Owners of Wing Ming Industrial Centre v. Mantex Supplies Co Ltd (unrep., HCA 1505/2007, [2007] HKEC 1782) distinguished). (See paras. 38–39, 42, 44, 49–50.)
  • Third, even if primary user was the relevant test, the primary use should be domestic in every part of the building; and, in considering the cumulative effect of the activities on the premises, there should be a link between the primary and ancillary uses. Here, the shop use was wholly distinct from the domestic use (Mexx Consolidated (Far East) Ltd v. Attorney General [1987] HKLR 1210, Raider Ltd v. Secretary for Justice [2000] 3 HKLRD 300, Pandix Ltd v. Hui Kam Kwei (unrep., LDCS 4000/2009, [2010] HKEC 1577) applied). (See para. 52.)
  • Fourth, the Tribunal similarly erred in giving a wide construction to “or similar purposes” in the Covenant. This should be construed as meaning the user was “similar” to any of the specified purposes. The use as a shop did not have a similar purpose to “dwelling houses” or the other specified users. (See paras. 54, 58.)
  • Whether Government waived Covenant by abandonment
  • However, on the facts found by the Tribunal, there was no basis to overturn its determination that there was abandonment of the Covenant. (See paras. 70, 72.)
  • Whether Government could rely on s. 12(b) of LRO
  • The Tribunal’s construction of s. 12(b) of the LRO was also correct. In light of its legislative history, the legislative intent of s. 12(b) was not to exclude the waiver or abandonment of a covenant in a Government lease. Further, the Tribunal’s construction that the use of the land accorded with the terms of the Lease at the date of resumption, given the acquiescence in the user and abandonment of the Covenant, was consistent with the principles that the subject of compensation was the claimant’s estate and interest in the land at the time of resumption and this must be valued based on any potential lawful use (Director of Lands v. Yin Shuen Enterprises Ltd (2003) 6 HKCFAR 1 applied). (See paras. 86–87, 90–92.)
  • Finally, without clear language to the contrary, the words “terms of the Government lease” in s. 12(b) did not mean “the express terms” of the lease. In resumption cases, under the principle of equivalence, the emphasis was on full and fair compensation subject to any statutory qualifications (Attorney-General v. Horner (1884) 14 QBD 245 applied; The Queen v Board of Arbitrators, ex parte Attorney General (1955) HKLR 47, Re A Compensation Board, ex parte Attorney General [1971] HKLR 338 considered). (See paras. 106–107.)

Appeals

These were appeals by the Director of Lands against the judgments of the Lands Tribunal concerning the compensation payable to the first and second applicants upon resumption of land. The facts are set out in the judgment.

Jurisdictions: 

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