Pak Fah Yeow Investment (Hong Kong) Co Ltd v Proper Invest Group Ltd

The Deed of Mutual Covenant (“DMC”) operates as a local law for the development that it covers. The original covenantors are, of course, bound by the terms of the DMC (for so long as they retain an interest in the land) as a simple matter of contractual obligation. Successors-in-title are also bound provided that the conditions laid down in section 41(2) of the Conveyancing and Property Ordinance are satisfied. Section 41(2)(c) requires that the covenant be “expressed and intended to benefit the land of the covenantee”. Thus, there is a distinction to be drawn between covenants that are linked to land ownership and purely personal covenants; only the former can satisfy CPO, s.41(2).

Bailey J. in Congleton Corporation v Pattison had formulated the test as follows:

“the covenant must either affect the land as regards mode of occupation or it must be such as per se, and not merely from collateral circumstances, affect the value of the land”.

The simplicity and apparent logic of the distinction are deceptive, however, since its application to specific covenants has generated some illogical and arbitrary distinctions .

At issue in Pak Fah Yeow Investment (Hong Kong) Co Ltd v Proper Invest Group Ltd was the question as to whether the right to rename a building conferred in the DMC benefitted the land of the covenantee. Such a right (and the exclusive right to use a car parking space) had been granted to the appellant’s predecessor in title by clause 3 of the DMC. When the appellant sought to exercise its naming right, it was resisted by the respondent, who succeeded at first instance. A declaration was granted that the appellant was not entitled to rename the building.

Clearly, the appellant faced an uphill struggle since the Court of Appeal had previously decided in Lamaya v Supreme Honour Development Ltd that a naming right did not run with the land. It argued that the authority of Lamaya was diminished because, in Lamaya, counsel had conceded that the right to name a building was not an interest in land capable of passing by assignment; as a result, what Lamaya had said on the issue should be regarded as obiter.

Rogers VP, with whom the rest of the court concurred, saw force in the appellant’s arguments. It is clear that an unfortunate choice of name could reduce the value of the building. In Union Insurance Society of Canton, Ltd v The Homgkong Land Co. Ltd. Cons J held that changing the name of a building was a breach of the right to quiet enjoyment. This suggested that it was linked to the enjoyment of the land and further suggests that the right to rename the building falls within CPO, s.41(2).

The Court of Appeal, nevertheless, felt bound by its previous decision in Lamaya and rejected the appeal . There was thus a discrepancy between the Court of Appeal’s stated view as to the merits of the case and its decision. A decision of the Court of Final Appeal on the matter would be helpful.