Companies with mixed manufacturing and service operations in Hong Kong will be disappointed by the recent decision of the Court of Final Appeal in the case of Raider Limited v Secretary for Justice (FACV 4 of 2000, November 2 2000).
Raider owned a floor of an industrial building. Most of the floor was used for the manufacture of pagers, but approximately 13% was used for the operation of a paging service. The government objected to the operation of the paging service, on the ground that it contravened the permitted use of the premises under the conditions of sale. The permitted use was industrial, excluding any offensive trade.
Raider argued that the paging service was the final stage in, ancillary to, and so closely linked with, the process of manufacture of the pagers that it should be regarded as use for an industrial purpose.
The Court of Final Appeal disagreed with Raider's arguments and dismissed the appeal. It commented specifically on the three elements of the argument.
Final stage in manufacture
Raider relied on a case where inspection of articles was held to be the final stage of the manufacturing process. The court said that this was different from a service provided to customers after they have been supplied with the manufactured articles.
Ancillary to manufacture
The court agreed that there are many functions which may be ancillary to an industrial process. Examples of ancillary activities include research, design, testing, packaging and dispatch of manufactured articles. However, the paging service was a distinct activity and was not ancillary to the manufacture of the pagers.
Closely linked to manufacture
The court said that arguing that the paging service was so closely linked to manufacture was simply a different way of expressing the two arguments already put forward.
The government has indicated that it will rigorously enforce industrial-only use restrictions in lease conditions. The premiums charged by the government for waiver of such restrictions are high, due to the significant increase in the value of land when a waiver is granted. This is revenue that the government is unlikely to be prepared to lose.
For further information on this topic please contact Sally Durant at Baker & McKenzie by telephone (+852 2846 1888) by fax (+852 2845 0476) or by email ([email protected]).
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