Relaxation of Conditions of Sale: the principles of contractual interpretation

In United Bright Ltd v Secretary for Justice ([2012] HKEC 1095, CFI) UB was a developer that planned to build a 37 storey block of flats with associated facilities on land that it owned in Kowloon. The 1939 Conditions of Sale of the land had imposed restrictions (1) on the type of buildings that could be erected (limiting them to detached or semi-detached houses for a single family); and (2) imposed restrictions on the design, disposition and height of the buildings that could be built (‘the DDH restriction’). In the 1950s architects and solicitors acting for the then owner sought relaxation of these restrictions. These negotiations culminated in the issue in May 1957 of a Modification Letter from the Registrar General to the owner’s architect. In return for a premium this (1) allowed flats to be built; (2) required the owner to get the plans approved by the Building Authority in the usual way; and (3) provided that in all other respects the Conditions of Sale were to continue in full force and effect. UB now sought declarations that the effect of the Modification Letter was to remove entirely any restriction on the height of the building that could be erected and on the number of storeys that could be built. UB failed.

The court saw its task as being one of the interpretation of the Conditions of Sale and the Modification Letter (applying the well-known principles from Investors’ Compensation Scheme and Jumbo King). The relevant background included: the precise and limited nature of the modification sought in the 1950s by the owner’s advisers (they wanted to create blocks of no more than four flats); the fact that the Government policy on the method of calculating the premium for a modification at the time was published and well-known to advisers; the amount of the premium paid in 1957 and the fact that it reflected the specific modifications that had been proposed on behalf of the owners. There had been no proposal to replace the DDH restriction. The Modification Letter made clear changes and provided that, save as expressly varied, the Conditions of Sale were to remain in full force and effect. The Modification Letter reference to Building Authority approval was not intended to replace the DDH restriction.

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