AGRILA LTD. AND OTHERS v. COMISSIONER OF RATING AND VALUATION

CACV 107/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 107 OF 1999

(ON APPEAL FROM LDGA NOS. 5-32, 41-53, 55-59, 88, 92, 100-109 AND
123 OF 1998 (CONSOLIDATED))

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J U D G M E N T

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Mayo, J.A.:

1. This is an appeal from a judgment of the Lands Tribunal.

2. The Appellants are subsidiaries or associated companies of nine groups of developers of land in Hong Kong. They are the owners of land which they are either developing or about to develop.

3. They acquired the land before 30th June 1997 by way of new grant, surrender and re-grant or exchange for development purposes.

4. It is common ground between the Appellants and the Commissioner of Rating and Valuation ("the Commissioner") that the main issue which has to be resolved is whether "rateable value" under the Government Rent (Assessment and Collection) Ordinance, Cap. 515 ("the Rent Ordinance") bears the same meaning as "rateable value" under the Rating Ordinance, Cap. 116. The Appellants say it does and the Commissioner says it doesn't.

5. The consequence of this difference is that if the meanings are the same only a nominal rent will be payable by the Appellants. On the other hand if the Commissioner is held to be able to make a separate assessment under the Rent Ordinance a very substantial amount of rent is payable.

6. This is not such a simple issue to resolve as might appear at first sight. There are numerous complications.

7. The various pieces of land can be divided up into three main categories.

1. Development Sites

2. Redevelopment Sites and

3. Agricultural land

8. 33 of the parcels of land are development sites; 23 are redevelopment sites and 2 are agricultural land.

9. All the development sites are held under leases granted since May 1985. All of the redevelopment sites are in the New Territories and are held under extensions of non-renewable leases.

10. After all of the proceedings were consolidated in the Lands Tribunal an agreement was concluded between the parties to frame ten separate questions for the decision of the Tribunal. The main purpose of proceeding in this manner was to endeavour to ensure that all of the problems which could be anticipated to arise from the Rent Ordinance might be resolved in one case thus obviating the necessity for numerous further applications.

11. The Lands Tribunal resolved some of these issues in favour of the Appellants and some in favour of the Commissioner. At the outset of this appeal the parties agreed that the Commissioner who was represented by Mr. Spence, Q.C. should assume the role of Appellants notwithstanding the title of this appeal. It was however agreed that if the need arose the Appellants who were represented by Mr. FitzGerald, Q.C. would be afforded a right of reply.

12. The 1st question is:

"Development sites

1. Whether the Commissioner of Rating and Valuation ('the Commissioner') is required or empowered by section 8 of the Government Rent (Assessment and Collection) Ordinance or section 2 of the Government Rent (Assessment and Collection) Regulation to ascertain the rateable value of leased land before or during development otherwise than in accordance with sections 7 and 7A of the Rating Ordinance (and the rebus sic stantibus rule) whether or not it is liable for assessment to rates under the Rating Ordinance."

13. On this question the Commissioner sought the answer "Yes", and the Tribunal answered it "Yes".

14. It is necessary to consider various statutory provisions in order to determine the answer to this question.

15. The definition of "rateable value" is contained in s 2 of the Rent Ordinance,

"rateable value" (應課差餉租值) means -

(a) the rateable value of the tenement ascertained under Part III of the Rating Ordinance (Cap. 116); or

(b) the rateable value ascertained under this Ordinance;"

16. S 6 provides that the annual rent shall be 3% of the rateable value of the land leased.

17. Ss 7 & 8 provide:

"7. Rateable value of land leased

(1) The rateable value of the land leased under an applicable lease is an aggregate of the rateable values of the tenements comprised in the land leased. The Commissioner may apportion the rateable values in accordance with this Ordinance.

(2) The rateable value of the land leased under an applicable lease or of any tenement comprised in the land leased can be ascertained by reference to the rateable value set out in respect thereof in

(a) the Government Rent Roll, or

(b) if an interim valuation has been made, the notice of interim valuation,

and the rateable value so set out in the Government Rent Roll or the notice of interim valuation, as the case may be, shall, subject to other provisions of this Ordinance, be regarded as the rateable value of the land leased or the tenement, as the case may be.

8. Valuation of land and tenements

(1) The Commissioner may value land held under an applicable lease and any tenement comprised therein at any time to ascertain the rateable value for the purposes of section 7.

(2) The Rating Ordinance (Cap. 116) applies to the ascertainment of rateable values under this Ordinance subject to any specific provisions of this Ordinance.

(3) For the purpose of this Ordinance, where the rateable value of a tenement does not in the opinion of the Commissioner exceed the minimum rateable value, the rateable value of the tenement shall be deemed to be $1."

18. S 34 provides:

"34. Regulations, forms, etc.

(1) The Governor in Council may make regulations for -

(a) ascertaining the rateable value of land, including interests held under applicable leases, parts of lots and tenements, and for maintaining the assessments;

(b) ascertaining the rateable value of classes of interests held under applicable leases and tenements by issuing rules, formulae, statements of principles, assumptions and guidelines;

(c) the manner and timing of collection of Government rent;

(d) the revision of the rateable value and the collection of Government rent as a result of modifications of an applicable lease;

(e) amending rateable values of land held under applicable leases;

(f) ascertaining the rateable value where there has been a development or a partial development or a redevelopment or a partial redevelopment of land held under an applicable lease;

(g) ascertaining the rateable values of new grant lots arising out of an applicable lease;

(h) determining the effective date of a deletion and of an interim valuation;

(i) special provisions for collection of Government rent for tenements and interests held under applicable leases with rateable values not exceeding the minimum rateable value;

(j) making equitable adjustments or apportionments of rateable values on the Government Rent Roll;

(k) submission of certificates, reports and information in connection with eligibility for exemption from liability to pay Government rent;

(l) prescribing any matter or thing which is referred to in this Ordinance as prescribed;

(m) generally the better carrying out of the provisions and purposes of this Ordinance.

(2) The Commissioner may specify the forms for use under this Ordinance."

19. Regulation 2 of the regulations purportedly made pursuant to s 34 provides:

"2. Rateable value of leased land before development

Where any leased land has not been developed after the commencement of the term of the applicable lease under which it is leased, the rateable value of the leased land at any time before any part of it is developed shall be ascertained as if the leased land were a tenement liable for assessment to rates under the Rating Ordinance (Cap. 116)."

20. S 7(2) of the Rating Ordinance, Cap. 116 provides:

"7. Ascertainment of rateable value - general rule

(2) The rateable value of a tenement shall be an amount equal to the rent at which the tenement might reasonably be expected to let, from year to year, if -

(a) the tenant undertook to pay all usual tenant's rates and taxes;

and

(b) the landlord undertook to pay the Government rent, the costs of repairs and insurance and any other expenses necessary to maintain the tenement in a state to command that rent."

21. S 7A(2) of the Rating Ordinance provides:

"7A. Rateable values in new valuation lists

(2) The rateable value of any tenement to be included in a list prepared under section 12 shall be ascertained by reference to the relevant date on the assumption that at that date -

(a) the tenement was in the same state as at the time the list comes into force;

(b) any relevant factors affecting the mode or character of occupation were those subsisting at the time the list comes into force; and

(c) the locality in which the tenement is situated was in the same state, with regard to other premises situated in the locality, the occupation and use of those premises, the transport services and other facilities available in the locality and other matters affecting the amenities of the locality, as at the time the list comes into force."

22. S 9(1) of the Government Leases Ordinance, Cap. 40 provides that subject to subsection 9 the new Government rent payable under a new Government lease shall be an amount equal to 3% of the rateable value of the lot or section held under new Government lease.

23. S 9(6) & (7) of Government Leases Ordinance, Cap. 40 provides:

"(6) Where no rateable value of a tenement has been ascertained under the Rating Ordinance whether by reason of the exemption of such tenement from assessment to rates or otherwise, the Commissioner shall if required by the Director ascertain the rateable value thereof as if the same were assessable to rates under that Ordinance.

(7) Where on the relevant day no rates are payable under the Rating Ordinance in relation to a tenement, otherwise than by reason of any exemption under section 36 of that Ordinance, the rateable value for the purposes of this section, of the lot or section comprising such tenement shall be -

(a) the rateable value of the tenement of which the land comprised in such lot or section formed part as last ascertained by the Commissioner for rating purposes; or

(b) the aggregate of the rateable values of -

(i) such tenements; or

(ii) the tenements which included any interest in such land; or

(iii) both the tenements referred to in sub-paragraph (i) and those referred to in sub-paragraph (ii),

as last ascertained by the Commissioner for rating purposes."

24. In commenting upon these legislative provisions Mr. FitzGerald observed that it was evident from ss 6, 7 & 8 of the Rent Ordinance that the Government could only ascertain the rateable value of land leased under a lease to which the Rent Ordinance applies on the basis laid down in the Rating Ordinance unless there was some specific provision to the contrary in the Rent Ordinance. He submitted that there was none.

25. The starting point was s 8(2). This provided that the Rating Ordinance applies to the ascertainment of rateable values under the Rent Ordinance subject to any specific provisions of that Ordinance. Although that may indicate an alternative route for ascertaining the rateable value it was still necessary for the Commissioner to demonstrate that there was a specific provision empowering him to assess the rateable value under the Rent Ordinance. It was evident from the submissions being advanced by Mr. Spence that he placed reliance upon s 34(1)(a) and (g) of the Rent Ordinance read in conjunction with Regulation 2.

26. As to s 34 Mr. FitzGerald argued that the section was simply the rule making authority and that so far as Regulation 2 was concerned there was simply no empowerment to assess the rateable value under the Rent Ordinance.

27. In this connection he submitted that Regulation 2 did not empower the Commissioner to assess the development for Government rent purposes when there was no rateable occupation. This was clear from the wording of the Regulation which provided that the rateable value shall be ascertained as if the leased land were a tenement liable to assessment to rates under the Rating Ordinance. It was clear and unambiguous that the only basis for ascertaining the rateable value is that contained in ss 7 & 7A of the Rating Ordinance. S 7A(2) embodies the fundamental principle of rebus sic stantibus which provides that the rateable value is based upon its physical condition and the use that is made of it at the material date.

28. It was Mr. Spence's case that a careful perusal of the relevant sections of the Rent Ordinance lead inevitably to the conclusion that the legislature had in its contemplation the assessment of rateable values under the Rent Ordinance which may differ from assessments made under the Rating Ordinance.

29. In particular this was evident from the words "subject to any specific provisions of this Ordinance" contained in s 8(2). It was also highlighted by the definition of "rateable value" in section 2 which by the use of the words "or the rateable value ascertained under this Ordinance" is a clear indication of an alternative method of assessment.

30. He also contended that s 34(1)(a) & (g) supported this approach by providing a power for the making of Regulations for the ascertainment of rateable values and that this constituted the specific provisions referred to in s 8(2).

31. He went on to argue that if Regulation 2 was properly construed it was apparent that the Commissioner was able to ascertain the rateable value of a site which had not been developed otherwise than in accordance with ss 7 & 7A of the Rating Ordinance. In other words it was possible to ascertain a rateable value notwithstanding the fact that there might be no rateable occupation.

32. This approach was consistent with s 9(6) of the Government Leases Ordinance which also contemplated assessments being made as if the land was assessable to rates under the Rating Ordinance.

33. It was necessary when considering the value of land being developed to take into account the price which had been paid for the land or failing that to pay regard to comparable prices. Once the development had been completed the value would be greatly enhanced. This however was a separate issue.

34. Both counsel placed reliance upon Dawkins (Valuation Officer) v. Ash Brothers & Heaton Ltd. [1969] 2 AC 366 in support of their contentions. The main passages referred to were a passage at p.382 of the report of Lord Pearce's speech:

"... So one must assume a hypothetical letting (which in many cases would never in fact occur) in order to do the best one can to form some estimate of what value should be attributed to a hereditament on the universal standard, namely a letting 'from year to year.' But one only excludes the human realities to a limited and necessary extent, since it is only the human realities that give any value at all to hereditaments. They are excluded in so far as they are accidental to the letting of a hereditament. They are acknowledged in so far as they are essential to the hereditament itself. It is, for instance, essential to the hereditament itself that it is close to the sea and that humans will pay more highly for a house close to the sea. One can therefore take that into account in the hypothetical letting. It is, however, accidental to the house that its owner was shrewd or that the rich man happened to want it and that therefore the rent being paid is extremely high. In the same way I think it would be accidental to the hereditament that its owner intended to pull it down in the near future. For the hereditament might have had a different owner who would not pull it down. So the actual owner's intentions are thus immaterial since it is the hypothetical owner who is being considered. But when a demolition order is made by a superior power on a hereditament within its jurisdiction different considerations apply. The order becomes an essential characteristic of the hereditament, regardless of who may be its owner or what its owner might intend. That particular hereditament has had branded on its walls the words 'doomed to demolition whatever hypothetical landlord may own it.'"

35. And then at p. 383:

"This general principle has been accepted and followed in many cases (e.g., Railway Assessment Authority v. Southern Railway Co. [1936] A.C. 266). Moreover, it is clearly right, I respectfully think, as a general principle. But should one append to the principle a gloss that, in particular circumstances where it is essential to the hereditament (and not due to any accident of ownership) that it cannot survive for more than a year, one may take that fact into account? This is what the Lands Tribunal and the Court of Appeal have done. Such a gloss is not inconsistent with any decided case. Nor would it offend against the spirit of the general rule laid down by Lord Esher and others. They did not have their attention directed to such a situation. I find nothing in the judgments to show whether, if attention had been directed to it, such a gloss would or would not have been acceptable. Smith v. Birmingham (Churchwardens), 22 Q.B.D. 703 does not, in my opinion, help on this point.

It is conceded, as I think it must be, that if the state or construction of some hereditament was such that it must predictably collapse in a year, its impermanence would be a relevant fact in estimating the rent, i.e. there could not be imputed to a hypothetical tenant the advantage of contemplating an indefinite continuance of tenancy. If this be right, I find it difficult to see why there should be a difference in principle between demolition by force of gravity (and the elements) and demolition by force of government. Both are superior forces which bear alike on a hereditament. Either may turn out to bear less hardly than was anticipated; but this is no more than saying that any prediction may be falsified by events. On principle, therefore, I think that the Lands Tribunal and the Court of Appeal were right."

36. Also passages from the speeches of Lord Wilberforce and Lord Pearson were referred to. The passage in Lord Wilberforce's speech was at p. 385:

"Let us start from the actual. The principle that the property must be valued as it exists at the relevant date is an old one, certainly older than the Parochial Assessments Act, 1836. It has been spelt out in modern terminology in Poplar Metropolitan Borough Assessment Committee v. Roberts [l922] 2 A.C. 93, 120, and in Robinson Bros. (Brewers) Ltd. v. Houghton and Chester-le-Street Assessment Committee [1937] 2 K.B. 469 in passages which have been cited. The principle was mainly devised to meet, and it does deal with, an obvious type of case where the character or condition of the property either has undergone a change or is about to do so: thus, a house in course of construction cannot be rated: nor can a building be rated by reference to changes which might be made in it either as to its structure or its use.

But it would surely be unreasonable to suppose that the hypothetical tenant is so inescapably imprisoned in the present that no anticipation is permitted of what is to come. Whether the test is what would influence his judgment, or what intrinsic qualities the hereditament possesses, any occupier in real life has to ascertain and to consider whatever may make his tenancy more or less advantageous over the period for which he takes it. I appreciate that the statutory hypothesis as to the length of the tenancy may have a bearing on what the tenant may take into account, and I shall shortly consider this critical point but, apart from this, it would seem clear that any occupier would take into account, not only any immediately actual defects or disadvantages (such as planning restrictions) but disadvantages, or advantages, which he can see coming. If the actual presence of a motorway close to the property depreciates it, or adds to its value, surely he must take account of a motorway whose irresistible progress will bring it alongside in six months - there is no presumption that juggernauts are immobile: and similarly of an airport, an open prison, or an open space. How much allowance ought to be made for the uncertainty, the speed of arrival, or the impact of such events, is no doubt a matter of estimation, but this is well within the expert field of the surveyor or land agent whose evidence he will supply. These persons are well aware that programmes jerk in their progress and can make suitable allowances for erratic movements in county halls."

37. And Lord Pearson at p. 393:

"It was also said on behalf of the appellant that equality of rating requires that each hereditament should be valued as it now is - rebus sic stantibus - and the prospect of a future partial destruction of it must be disregarded. But it seems to me that this point can be turned against the appellant. In the expression rebus sic stantibus which are the res? In other words, which are the factors to be taken into account in order to produce equality of rating? There is, in this case, a present probability of a future happening, and the present probability affects the present value of the hereditament. There is inequality of actual values if of two otherwise identical hereditaments one is likely to have part of it demolished within about a year and the other is likely to remain intact. If they had to be deemed to be of the same value, although in fact one is worth less than the other, there would be artificiality and fiction and unfairness in the valuations."

38. It was Mr. Spence's contention that these speeches supported his argument that it was possible for the Commissioner to take cognisance of the development being a "probable future happening" and that this could be considered independently of what may be the developers' intentions.

39. I have considered these passages and indeed all the speeches very carefully and with respect I do not accept Mr. Spence's argument. If the rebus sic stantibus principle is properly applied it would not be open to the Commissioner to make other than a nominal or nil valuation for land which was being developed.

40. However Mr. Spence also argued that the overall background and history supported his argument that it was clearly the case that it was envisaged that from 1st July 1997 onwards a substantial rent would be payable for Development Sites.

41. He referred to the Conditions under which the land had been acquired so far as the payment of rent was concerned. It was provided:

"Rent Conditions (TYPE 1)(Note)

Rent	1.	(a)	Rent as specified in the Particulars of the Lot shall commence from the date of this Agreement and until the 30th day of June 1997 shall be paid in arrear on the 1st day of July in every year, the first yearly rent or a due proportion thereof becoming due and to be paid on the 1st day of July next following the date of this Agreement.
		(b)	From the 1st day of July 1997 until the expiry of the term hereby granted the rent for the lot shall be calculated and paid with reference to the period commencing on the 1st day of April and ending on the 31st day of March in each year, and the Grantee shall pay and there shall be collected by the Director of Lands (hereinafter referred to as 'the Director') as rent for the lot for each such period an amount equal to 3% of the rateable value from time to time of the lot, the said rent to be paid by four equal quarterly instalments in advance on the 1st day of April, the 1st day of July, the 1st day of October and the 1st day of January in each year, and the first quarterly payment together with all accrued arrears of rent becoming due and to be paid on the 1st day of July 1997.
Rateable value		(c)	For the purposes of this General Condition the rateable value of the lot shall be rateable value as set out from time to time in the list declared or the interim valuation made by the Commissioner of Rating and Valuation (hereinafter referred to as 'the Commissioner') under the Rating Ordinance or any legislation amending or replacing the same, of the tenement, or, if there is more than one tenement, the aggregate of the rateable values and/or interim valuations as so set out or made of all the tenements comprised wholly or partly within the lot."

It was apparent that these conditions had been prepared pursuant to s 3(b) of the Rent Ordinance.

42. A similar approach was adopted in the New Territories Leases (Extension) Ordinance, Cap. 150 although no Regulations had been made under the Ordinance.

43. Government's policy was also manifest from Annex III of the Joint Declaration from which it was apparent that a substantial rent would become payable from the 1st July 1997 onwards.

44. In further support of his contentions Mr. Spence referred to the existence of two different lists namely the Valuation List which contains details of rateable values assessed to rates and the Government Rent Roll which provides details of the rateable values of land assessed for the purposes of Government rent.

45. He went on to submit that all land was capable of being valued by one of the methods known to rating. This may be based upon comparables, profits or the contractors' basis.

46. While all of this may well be true the fact remains that it is necessary to have regard to the wording of the provisions in the Rent Ordinance to ensure that there is authority to proceed in the way referred to by Mr. Spence.

47. Mr. FitzGerald argued that none of this was very helpful. He accepted that substantial rents would become payable once the development had been completed.

48. So far as the Developers were concerned they had paid a very substantial premium to acquire the land. It was illogical that they should be required to pay additional amounts by way of a substantial rent while the land was being developed and they were receiving no income from the land.

49. I do not myself find any of these arguments to be particularly persuasive on what in reality boils down to a question of construction of the relevant legislation.

50. Both counsel argued that their interpretations of the relevant sections were unambiguous and that accordingly it was not permissible adopting the principles laid down in Pepper v. Hart [1993] AC 593 to refer to statements made by the Promoters of the legislation when it was enacted. Notwithstanding this they both contended that if resort was made to relevant speeches this was of assistance to them.

51. They both made good their contentions. This being the case I am satisfied that even if reference is made to this background material it is conflicting and does not take matters further.

52. I have come to the conclusion that Mr. FitzerGerald is correct in the contentions he advances. There is no specific provision in the Rent Ordinance enabling the Commissioner to ascertain the rateable value of relevant land being developed otherwise than in accordance with the Rating Ordinance. This inevitably necessitated the principle of rebus sic stantibus being adhered to which in the present circumstances did not entitle the Commissioner to take into account the intention to develop the land. One of the most compelling reasons bringing me to this conclusion is the fact that the legislation as drafted gives insufficient guidance as to how rateable values can be ascertained in any way other than in accordance with the principles laid down in the Rating Ordinance.

53. In my opinion the answer to the question posited should have been in the negative and this being the case this part of the appeal should be allowed.

54. Question 2 is framed as follows:

"2. If the Commissioner is required or empowered under section 2 of the Government Rent (Assessment and Collection) Regulation to ascertain the rateable value of leased land before or during development otherwise than in accordance with sections 7 and 7A of the Rating Ordinance (and the rebus sic stantibus rule), whether the Chief Executive in Council had power under section 34 of the Government Rent (Assessment and Collection) Ordinance to make regulations to that effect; and accordingly whether section 2 of the Government Rent (Assessment and Collection) Regulation is void to the extent that it was not within the powers of the Chief Executive in Council to make such provision."

55. On this question the Lands Tribunal gave the answer no. The Appellant appealed from this.

56. Having regard to the way in which I believe that question 1 should have been answered it follows that this question becomes redundant. This being the case I do not consider it to be necessary or desirable to comment further.

57. Question 3 is framed as follows:

"3. If the answer to 1 is yes, whether (as the case may be) section 8 or section 2 is in conflict with Article 121 of the Basic Law to the extent that it does require or empower the Commissioner to ascertain the rateable value of leased land before or during development otherwise than in accordance with sections 7 and 7A of the Rating Ordinance (and the rebus sic stantibus rule); and is accordingly to that extent void by reason of Article 11 of the Basic Law."

58. In my view the observations made upon question 2 are equally applicable to this question.

59. Question 4 is framed as follows:

"4. When making a valuation under section 8 of the Government Rent (Assessment and Collection) Ordinance of leased land before or during development what assumptions, whether using the contractors or another basis of valuation, the Commissioner is required or empowered by law to make as to:-

(a) the terms of the hypothetical tenancy of the land;

(b) the state of the land; and

(c) the mode or character of occupation of the land."

60. The Lands Tribunal dealt with this question in paragraphs 22 - 24 of their judgment.

"Point 4: assumptions made in assessment

22. Terms of the hypothetical tenancy of the land:--There is no dispute that they should be as set out in section 7(2) of the Rating Ordinance.

23. State of the land:-- There is no good reason not to adopt what is urged upon the Tribunal on behalf of the appellants, namely, as a vacant building site in its actual existing state. The description is accurate, the Tribunal has been told. The Commissioner wants to value it simply as a building site. The Tribunal is inclined to the suggestion by the appellants as it accurately reflects the truth & mirrors the requirement of section 7A(2)(a). The answer therefore is: As a vacant building site in its actual existing state.

24. The mode or character of occupation of the land - For reasons already given, it is not appropriate to prescribe contractor's test as suggested by the Commissioner as the only basis of valuation. If the Commissioner wants to :ascribe a value to the site above that indicated by the existing mode, he can adduce evidence, direct or indirect. (see para: l4)"

61. Having regard to the reasons given in the earlier part of this judgment I am of the opinion that rateable values should only be ascertained in accordance with the Rating Ordinance and the rebus sic stantibus principle and that there is no justification for any other method. This being the case I consider that the Commissioner's appeal on this part of the judgment should be dismissed.

62. Question 5 is framed as follows:

"Redevelopment Sites

5. Whether the Chief Executive in Council had power under section 34 of the Government Rent (Assessment and Collection) Ordinance to make regulations providing that the rateable value of leased land before redevelopment shall be the aggregate of the last ascertained rateable values of all the tenements comprised in the building immediately before its demolition, rather than its rateable value ascertained in accordance with the Rating Ordinance; and accordingly whether sections 4 and 5 of the Government Rent (Assessment and Collection) Regulation are void to the extent that they do so provide."

63. The Lands Tribunal answered this question in the affirmative and the Commissioner appeals.

64. Mr. Spence submitted that Regulations 4 & 5 of the Regulations made under the Rent Ordinance should be read in conjunction with s 34(1)(f).

65. Regulations 4 & 5 read:

"4. Rateable value of leased land before redevelopment

(1) Where any leased land has been developed after the commencement of the term of the applicable lease under which it is leased but the building that is the subject of the development has been demolished, the rateable value of the leased land at any time before any part of it has been redeveloped shall be the aggregate of the last ascertained rateable values of all the tenements comprised in the building immediately before its demolition.

(2) For the purposes of subsection (1), the last ascertained rateable value of a tenement shall be -

(a) where a rateable value is ascribed to the tenement in the Government Rent Roll, that rateable value;

(b) in any other case -

(i) subject to subparagraphs (ii) and (iii), the rateable value last ascribed to the tenement in the Valuation List;

(ii) subject to subparagraph (iii), where the tenement was immediately before the demolition exempt from assessment to rates under the Rating Ordinance (Cap. 116), the rateable value that the Commissioner would have ascertained immediately before the demolition if the tenement were then liable for assessment to rates under that Ordinance;

(iii) where the tenement was immediately before the demolition comprised partly in the leased land referred to in subsection (1), the rateable value specified in subparagraph (i) or (ii), as the case may be, as apportioned in such manner as it would have been apportioned under section 9 of the Ordinance immediately before the demolition were the tenement then a tenement to which that section applied.

5. Rateable value of leased land partly redeveloped

(1) Where any leased land has been developed after the commencement of the term of the applicable lease under which it is leased but the building that is the subject of the development has been demolished and following the demolition only part but not the whole of the leased land has been redeveloped, the Commissioner may

(a) make an interim valuation of that part of the leased land that has been redeveloped; and

(b) ascertain the rateable value of that part of the leased land that has not been redeveloped as if that part were the land to which section 4(1) applies.

(2) Subject to subsection (3), the rateable value of the leased land referred to in subsection (1) shall be the aggregate of -

(a) the rateable value of that part of the leased land that has been redeveloped, pursuant to an interim valuation made under subsection (1)(a); and

(b) the rateable value of that part of the leased land that has not been redeveloped, as ascertained under subsection (1)(b).

(3) This section shall not apply to any leased land if its effect would be to reduce the rateable value of the leased land to less than it would have been had the interim valuation not been made under subsection (1)(a), unless the Commissioner decides, having regard to the circumstances of the case, to adopt the lower rateable value."

66. S 34(1)(f) which has been cited earlier in this judgment provides that the Governor in Council may make Regulations for ascertaining the rateable value where there has been a development or a partial development of land.

67. Mr. Spence referred to s 3 of the Interpretation and General Clauses Ordinance, Cap. 1 and argued that it was plainly the case that the definition of "Ordinance" included subsidiary legislation made under it.

68. He also placed reliance upon a passage from the speech of Lord Lowry, at p.193 of Hanlon v. The Law Society [1981] AC 124.

"My Lords, when these regulatory provisions are so clearly relevant, it is pertinent to ask how far they are admissible for the purpose of construing section 9 (6).

A study of the cases and of the leading textbooks (Craies on Statute Law, 7th ed. (1971), p. 158, Maxwell on Interpretation of Statutes, 12th ed. (1969), pp. 74-75, Halsbury's Laws of England, 3rd ed., vol. 36 (1961), para. 606) appears to me to warrant the formulation of the following propositions:

(1) Subordinate legislation may be used in order to construe the parent Act, but only where power is given to amend the Act by regulations or where the meaning of the Act is ambiguous.

(2) Regulations made under the Act provide a Parliamentary or administrative contemporanea expositio of the Act but do not decide or control its meaning: to allow this would be to substitute the rule-making authority for the judges as interpreter and would disregard the possibility that the regulation relied on was misconceived or ultra vires.

(3) Regulations which are consistent with a certain interpretation of the Act tend to confirm that interpretation.

(4) Where the Act provides a framework built on by contemporaneously prepared regulations, the latter may be a reliable guide to the meaning of the former.

(5) The regulations are a clear guide, and may be decisive, when they are made in pursuance of a power to modify the Act, particularly if they come into operation on the same day as the Act which they modify.

(6) Clear guidance may also be obtained from regulations which are to have effect as if enacted in the parent Act.

The affirmative aspect of proposition (2) is strongly supported by the observations of Mellish L.J. in In re Wier, Ex parte Wier (1871) L.R. 6 Ch. App. 875, 879 (which indeed seem to go further than I should like to do, having regard to the warning of Upjohn L.J. in Stephens v. Cuckfield Rural District Council [1960] 2 Q.B. 373, 381: see also Mills v. Mills [1963] P. 329, per Diplock L.J., at p. 336).

Hales v. Bolton Leathers Ltd. [1950] 1 K.B. 493 exemplifies proposition (3), per Somervell L.J., at p. 505, and, in the House of Lords [1951] A.C. 531, per Lord Normand, at p. 544.

For proposition (4) I would cite Neill v. Glacier Metal Co. Ltd. [1965] 1 Q.B. 16, in which section 14 (l) of the Legal Aid and Advice Act 1949 fell to be construed. Sachs J. pointed out that the Act's provisions were of a type sometimes referred to as streamlined, enacting general principles and leaving the machinery to be embodied in regulations. He continued, at p. 27:

'When interpreting the provisions of a streamlined statute it is, to my mind, permissible to look at those initial regulations made under it which must have been in preparation contemporaneously and the broad potential effect of which was likely to have been the subject of Parliamentary discussion during the passage of the Bill.'"

69. From all of this it was clear that the Regulations have to be read in conjunction with the sections in the Rent Ordinance.

70. Over and above this Mr. Spence repeated the references which he had previously made concerning the history and background of the case.

71. The practice of using last ascertained rateable values ("LARV") had been adopted for many leases and indeed had been incorporated in s 9(7) of the Crown Leases Ordinance now the Government Leases Ordinance.

72. LARV was the formula adopted when imposing conditions in leases granted or extended since 1985. It had also been adopted when New Territories leases had been extended by s 6 of the New Territories Leases (Extension) Ordinance.

73. He went on to argue that as s 37 of the Rent Ordinance referred to Conditions 1(d)(v) & (vi) of the rent conditions it must also be void if Regulations 4 & 5 are so held. I regret that the logic of this submission is not apparent to me.

74. Mr. FitzGerald's reply to all of this was in a similar vein to the submissions he made on Question 1 on the subject of whether or not there was a specific provision in s 8 of the Ordinance. He argued that there was no authority for the enactment of Regulations 4 and 5.

75. Whatever practices may or may not have been adopted by the Commissioner this did not have any real bearing on the subject. In this connection he referred to a passage appearing at p. 658 of McEldowney v. Forde [1971] AC 632:

"The division of functions between Parliament and the courts as respects legislation is clear. Parliament makes laws and can delegate part of its power to do so to some subordinate authority. The courts construe laws whether made by Parliament directly or by a subordinate authority acting under delegated legislative powers. The view of the courts as to whether particular statutory or subordinate legislation promotes or hinders the common weal is irrelevant. The decision of the courts as to what the words used in the statutory or subordinate legislation mean is decisive. Where the validity of subordinate legislation made pursuant to powers delegated by Act of Parliament to a subordinate authority is challenged, the court has a threefold task: first, to determine the meaning of the words used in the Act of Parliament itself to describe the subordinate legislation with that authority is authorised to make, secondly, to determine the meaning of the subordinate legislation itself and finally to decide whether the subordinate legislation complies with that description."

76. It appears to me that the submissions which have most helpfully been advanced by Mr. FitzGerald are unanswerable. There are no specific provisions in the Rent Ordinance which provide an alternative to rateable value being ascertained in accordance with the provisions contained in the Rating Ordinance. Regulations 4 & 5 are departures from the principles set out in sections 7 and 7A(2) of the Rating Ordinance and so the determination of the Lands Tribunal on this question was correct and this part of the Commissioner's appeal must fail.

77. Question 6 is framed as follows:

"6. Whether section 4 and section 5 of the Government Rent (Assessment and Collection) Regulation are in conflict with Article 121 of the Basic Law in providing that the rateable value of leased land before redevelopment shall be the aggregate of the last ascertained rateable values of all the tenements comprised in the building immediately before its demolition, rather than its rateable value ascertained in accordance with the Rating Ordinance; and whether they are accordingly void by reason of Article 11 of the Basic Law."

78. The Lands Tribunal found in favour of the Appellants on this question.

79. Having regard to observations made in relation to Question 5 it is not necessary to comment further on its subject.

80. Question 7 is framed as follows:

"7 If sections 4 and 5 are void, when the Commissioner makes a valuation under section 8 of the Government Rent (Assessment and Collection) Ordinance of leased land where that land has been developed but the building which is the subject of the development has been demolished, what assumptions, whether using the contractors or another basis of valuation, he is required or empowered by law to make as to:-

(a) the terms of the hypothetical tenancy of the land;

(b) the state of the land; and

(c) the mode or character of occupation of the land."

81. This question was also resolved in favour of the Appellants.

82. It is apparent from the earlier part of this judgment that the basis for the valuation of such land should be based upon the principle of rebus sic stantibus. Having regard to the way in which I consider Dawkins' case should be interpreted it would be wrong to impute into valuations made the intention to redevelop the land. The Commissioner's appeal on this question should also be dismissed.

83. Question 8 is framed as follows:

"8. Whether the Commissioner is required or empowered by section 8 and/or section 18(3) of the Government Rent (Assessment and Collection) Ordinance to ascertain the rateable value of land that is exempt from assessment to rates under section 36 of the Rating Ordinance."

84. This question was resolved in favour of the Commissioner and the Appellants appeals.

85. Although Mr. Spence accepted that s 36 of the Rating Ordinance exempted Agricultural Land he submitted that he was by s 8(1) of the Rent Ordinance able to ascertain the rateable value of the land. He pointed out that such assessments were made to exempted land by virtue of s 9(6) of the Government Leases Ordinance and that there was no reason why a similar situation should not obtain.

86. It is however clear that s 8(1) is qualified by s 8(2) that the Rating Ordinance and rebus sic stantibus are the routes which must be followed. This part of the appeal should in my opinion be allowed.

87. Question 9 is framed as follows:

"9 If the answer to 8 is yes, whether section 8 and/or section 18(3) is/are in conflict with Article 121 of the Basic Law to the extent that either requires or empowers the Commissioner to ascertain the rateable value of land that is exempt from assessment to rates under section 36 of the Rating Ordinance; and is/are accordingly to that extent void by reason of Article l1 of the Basic Law."

88. Having regard to the observations which have already been made it is neither necessary nor desirable to comment further on this.

Keith, J.A.:

Introduction

89. I have had the advantage of reading in draft the judgments of Mayo J.A. and Ribeiro J. For the reasons given by Ribeiro J., I agree with him and Mayo J.A. that

(i) the answer to Point 1 should be No (with the result that the Lands Tribunal's answer to this Point should be set aside),

(ii) the answer to the ultimate question posed in Point 5 - i.e. whether regs. 4 and 5 of the Rent Regulations are void to the extent that they provide for the last ascertained rateable values to determine the rateable value of leased land before redevelopment - should be Yes (with the result that the Lands Tribunal's answer to this Point should be upheld),

(iii) the answer to Point 8 should be No (with the result that the Lands Tribunal's answer to this Point should be set aside).

As for those issues which Mayo J.A. did not regard it necessary to address, I agree with Ribeiro J., for the reasons which he gives, that

(i) the answer to the ultimate question posed in Point 2 - i.e. if reg. 2 of the Rent Regulations provides for the rateable value of leased land before or during development to be ascertained otherwise than in accordance with sections 7 and 7A of the Rating Ordinance (which in my view it does not), whether reg. 2 is void to that extent - should be Yes (with the result that the Lands Tribunal's answer to this Point should be set aside),

(ii) the answer to the ultimate question posed in Point 3 - i.e. whether section 8 of the Rent Ordinance and/or reg. 2 of the Rent Regulations are void by reason of Art. 8 of the Basic Law - should be No (with the result that the Lands Tribunal's answer to this Point should be upheld),

(iii) the answer to the ultimate question posed in Point 6 - i.e. whether regs. 4 and 5 of the Rent Regulations are void by reason of Art. 8 of the Basic Law - should be No (with the result that the Lands Tribunal's answer to this Point should be set aside),

(iv) the answer to the ultimate question posed in Point 9 - i.e. whether sections 8 and/or 18(3) of the Rent Ordinance are void by reason of Art. 8 of the Basic Law, should be No (with the result that the Lands Tribunal's answer to this Point should be upheld).

Points 4 and 7 were formulated in such a way as to prevent them from being answered with a simple Yes or No. I wish to express my views on those points in my own words.

Point 4

90. Point 4 is in the following terms:

"When making a valuation under section 8 of the Government Rent (Assessment and Collection) Ordinance of leased land before or during development, what assumptions, whether using the contractors or another basis of valuation, the Commissioner is required or empowered by law to make as to:-

(a) the terms of the hypothetical tenancy of the land;

(b) the state of the land; and

(c) the mode or character of occupation of the land."

91. As for (a), the Lands Tribunal thought that it was common ground between the Commissioner and the Appellants that the Commissioner was entitled or bound to assume that "the terms of the hypothetical tenancy" should be those prescribed under section 7(2) of the Rating Ordinance. It was not contended in the Court of Appeal that the Lands Tribunal was mistaken in thinking that that was common ground, and I therefore say no more on the topic. As for (c), the Lands Tribunal reserved its decision on what assumption the Commissioner was entitled or bound to make on "the mode or character of occupation of the land" in the light of the evidence to be adduced at the full hearing of the Appellants' appeals. I shall return to this topic later.

92. As for (b), the Lands Tribunal held that the assumption which the Commissioner was entitled or bound to make as to "the state of the land" was that the land was "a vacant building site in its actual existing state". That reflected the view which the Lands Tribunal had expressed when answering Point 1, namely that, however the rateable value was to be assessed for the purpose of determining the Government rent which the Appellants had to pay, the fact that they intended to develop the land was not a factor which could be taken into account. Since

(1) the rateable value has to be assessed in accordance with the provisions of the Rating Ordinance, and

(2) section 7A(2) of the Rating Ordinance embodies the common law principle of rebus sic stantibus,

the question is whether the principle of rebus sic stantibus allows for an intention to develop the land to be taken into consideration.

93. The principle of rebus sic stantibus is a principle of valuation which requires the rent which the hypothetical tenant might reasonably be expected to pay for the land to be ascertained by reference to the actual state of the land at the date of valuation. But that does not mean that future events must be ignored in their entirety. In Dawkins (Valuation Officer) v. Ash Brothers and Heaton Ltd. [1969] 2 A.C. 366, Lord Wilberforce said at p.386A that:

"... it would surely be unreasonable to suppose that the hypothetical tenant is so inescapably imprisoned in the present that no anticipation is permitted of what is to come."

A similar sentiment was expressed by Lord Pearson at p.393F:

"There is, in this case, a present probability of a future happening, and the present probability affects the present value of the hereditament."

They, together with Lord Pearce, constituted the majority, who decided that the fact that it was reasonably anticipated that a factory (which was on land which had been compulsorily acquired by the local planning authority) would be demolished to permit a road-widening scheme to go ahead was a factor which should be taken into account in determining what rent a hypothetical tenant might reasonably be expected to pay for the land.

94. However, the problem is where to draw the line. There may be considerable uncertainty as to whether a particular event will occur. That was recognised by Lord Pearson, whose dictum suggests that only future events which would "probably" occur could be taken into account. And even if a particular event will probably occur, the time when it will occur may be so far in the future that it is hardly likely to affect the present value of the land. It was these imponderables which no doubt prompted Lord Pearce to formulate a different test for determining which future events could be taken into account. At p.382A-E, he said:

"So one must assume a hypothetical letting (which in many cases would never in fact occur) in order to do the best one can to form some estimate of what value should be attributed to a hereditament on the universal standard, namely a letting 'from year to year'. But one only excludes the human realities to a limited and necessary extent, since it is only the human realities that give any value at all to hereditaments. They are excluded in so far as they are accidental to the letting of a hereditament. They are acknowledged in so far as they are essential to the hereditament itself. It is, for instance, essential to the hereditament itself that it is close to the sea and that humans will pay more highly for a house close to the sea. One can therefore take that into account in the hypothetical letting. It is, however, accidental to the house that its owner was shrewd or that the rich man happened to want it and that therefore the rent being paid is extremely high. In the same way I think it would be accidental to the hereditament that its owner intended to pull it down in the near future. For the hereditament might have had a different owner who would not pull it down. So the actual owner's intentions are thus immaterial since it is the hypothetical owner who is being considered. But when a demolition order is made by a superior power on a hereditament within its jurisdiction different considerations apply. The order becomes an essential characteristic of the hereditament, regardless of who may be its owner or what its owner might intend. That particular hereditament has had branded on its walls the words 'doomed to demolition whatever hypothetical landlord may own it'. Thus the demolition order, by being a fact which is essential to and not accidental to the hereditament itself, prima facie cannot be excluded as irrelevant or shrouded by any necessary cloud of fiction." (Emphasis supplied.)

95. The distinction which Lord Pearce drew was between the accidental and essential characteristics of the land. The essential characteristics of the land are those characteristics of the land which are "not due to any accident of ownership" (p.383F). What he meant by that was that, if the happening of a future event is going to depend on what the owner of the land for the time being intends to do with it, that future event is an accidental characteristic of the land. The obverse is that if the future event will occur irrespective of who the owner of the land for the time being happens to be, that future event will be regarded as an essential characteristic of the land. The distinction which Lord Pearce drew, therefore, is not between those future events which are within the control of the owner of the land and those which are not, but between those future events which are bound to occur (whoever the owner of the land for the time being may be) and those which are not.

96. The effect of the distinction drawn by Lord Pearce is that the intention of the owner of the land for the time being is immaterial, because a subsequent owner of the land may have something very different in mind. I therefore agree with the Lands Tribunal that the fact that the Appellants intend to develop the 59 lots of land to which this appeal relates is not a factor which may be taken into account.

97. Since it is the nature of the land rather than the intention of its owner which has to be considered, I return to (c). The Lands Tribunal thought that the assumption to be made about "the mode or character of occupation of the land" was a matter for evidence. The mode or character of the occupation of the land is, of course, a matter for evidence, but whether a particular assumption should be made raises an important question of law. What if the land cannot fairly be described as anything other than development land? What if the land is going to be developed whoever the owner of the land for the time being may be? And what if the premium paid for the land and accepted by the Government only makes commercial sense on that footing? The land would then be the equivalent of land with planning permission (even if the nature of that planning permission had not yet been approved). If proposals were put forward for the development of the land (whoever the owner of the land for the time being might be) which satisfy all relevant planning considerations, it would be inconceivable for approval not to be granted. In these circumstances, the development of the land would be bound to occur. Although, therefore, the intention of the owner of the land for the time being to develop the land is irrelevant, could it not be said that the fact that the land would be certain to be developed is highly relevant? Is it not the case that in that sense the land would be "doomed to be developed" just as the factory in Dawkins was "doomed to demolition"?

98. Not without considerable hesitation, I have concluded that there is a critical difference between land on which buildings are to be demolished and land which is to be developed. That difference, as Ribeiro J. has demonstrated, is that in the case of the former, the land is susceptible to beneficial occupation until the demolition occurs, whereas in the case of the latter, the land is normally not susceptible to beneficial occupation before or during the development. I say "normally" because the evidence may be that, until the development gets under way, the land may be put to a temporary, but nevertheless valuable, use, e.g. as a car park. But in the absence of evidence of the suitability of the land for temporary use of that kind, the fact that the land is not susceptible to beneficial occupation removes it from liability for rating. The certainty that the land is to be developed is an "essential" characteristic of the land, but the distinction between accidental and essential characteristics has no role to play where the land is not susceptible to beneficial occupation.

99. The rationale for distinguishing between land which is susceptible to beneficial occupation and land which is not is that land which is not susceptible to beneficial occupation cannot be characterised as land capable of being let to a hypothetical tenant as envisaged by the regime of the Rating Ordinance. True, as Lord Pearce pointed out at p.382A:

"In practice, sewage works, portions of railway lines, shops and factories where heavy and valuable machinery is installed are not let from year to year."

But the fact that certain land is not let from year to year does not prevent the land from having a hypothetical tenant, provided that the land is susceptible to beneficial occupation. What there can be no hypothetical tenant of is land which is not susceptible to beneficial occupation. That explains the comment made by Lord Wilberforce at p.385H - namely, that "a house in course of construction cannot be rated." Such a house would not be capable of having a hypothetical tenant. In summary, therefore, not only is the Appellants' intention to develop the land irrelevant: so too is the fact that the land is development land which is certain to be developed, unless prior to its development it is capable of being put to temporary use.

Point 7

100. Point 7 is in the following terms:

"If sections 4 and 5 are void, when the Commissioner makes a valuation under section 8 of the Government Rent (Assessment and Collection) Ordinance of leased land where that land has been developed but the building which is the subject of the development has been demolished, what assumptions, whether using the contractors or another basis of valuation, he is required or empowered by law to make as to:-

(a) the terms of the hypothetical tenancy of the land;

(b) the state of the land; and

(c) the mode or character of occupation of the land."

101. The Lands Tribunal gave the same answers as it did for Point 4. For the reasons which I have given, I too would give the same answers as I have given for Point 4.

Ribeiro, J :

A. The parties

102. The parties to this Appeal from the Lands Tribunal are the Commissioner of Rating and Valuation ("the Commissioner") on the one hand, and 59 companies, which are lessees of Government leases, on the other. The 59 companies are in each case subsidiaries or associated companies of well known land developers in Hong Kong. These developers comprise nine groups of companies, namely the Cheung Kong, Chinachem, Hang Lung, Henderson, Nan Fung, Sino, Sun Hung Kai, Swire and Wheelock Groups.

103. Because the 59 companies were Appellants from assessments to Government rent made by the Commissioner, they were referred to both in the Lands Tribunal and at the hearing in this Court as "the Appellants". However, the Appellants and the Commissioner were each successful in part, as indicated later in this Judgment, and at the hearing of the appeal, the Commissioner addressed the Court as Appellant and the developers as Respondents. I will continue to refer to the developers as "the Appellants" and to the Commissioner as "the Commissioner".

B. The land in question

104. The Appellants are respectively lessees and occupiers of 59 sites which, because of the nature of the relevant statutory provisions considered later, require to be divided into three categories, namely (i) development sites (ii) redevelopment sites and (iii) sites on agricultural land.

105. The development sites were all acquired by the Appellants after 1985 (when the Sino-British Joint Declaration was ratified) and before 1 July 1997 (when Chinese sovereignty over Hong Kong was resumed). Such acquisitions were of vacant sites by way of new Government grants, surrenders and regrants, or of land exchanges for development purposes.

106. The redevelopment sites consist of land acquired by the relevant Appellants with a view to redevelopment, the old structures on the land in each case having been demolished pending the redevelopment.

The sites on agricultural land were also lots acquired with a view to future development.

107. All of the sites were therefore vacant at the time of the Commissioner's assessment, pending development or redevelopment. On most of them, construction activities representing various stages of development, were in progress. However, in some cases, the lessees had done no more than to erect hoardings around the site.

C. The subject-matter of the dispute

108. On 30 May 1997, the Government Rent (Assessment and Collection) Ordinance (Cap. 515) ("the Rent Ordinance") came into operation. Its stated object was "to provide for the assessment and collection of rents on certain Government leases extending past 30 June 1997".

109. On 6 June 1997, the Government Rent (Assessment and Collection) Regulation ("the Rent Regulations") purporting to be made under section 34 of the Rent Ordinance, came into force.

110. Section 3 of the Rent Ordinance provides as follows: -

"This Ordinance applies to interests in land held under

(a) a lease extended by the operation of section 6 of the New Territories Leases (Extension) Ordinance (Cap. 150);

(b) a lease under which there is an express obligation to pay an annual rent of an amount equal to 3% of the rateable value from time to time of the land leased."

111. It is not in dispute that by virtue of either section 3(a) or 3(b), the Rent Ordinance applies to the Government grants under which all of the sites in question are held. Accordingly, such grants all constitute "applicable leases" for the purposes of section 2 of the Rent Ordinance.

112. At the end of June or early July 1997, each of the Appellants received demand notes from the Commissioner, claiming Government rents in respect of each of the sites on the basis of the abovementioned new legislation. Previously, the Appellants had been paying a nominal or nil Government rent, typically in the sum of $1,000, for each of the development sites. The Commissioner was however now assessing the Government rent for each of the same sites in substantial amounts. The Appellants challenge these assessments.

113. None of the Appellants had been assessed for rates in respect of the relevant sites before June 1997 and it was common ground that these sites were not rateable under the Rating Ordinance (Cap 116). This is because, while under construction, the sites were able to derive no income and were not regarded, for rating law purposes, as being under rateable occupation.

114. The Rent Ordinance employs the concept of "rateable value" as the basis upon which Government rent is assessed. Moreover, it expressly applies the Rating Ordinance as the principal means for ascertaining rateable value for rent purposes.

115. The fundamental issue between the Commissioner and the Appellants is whether, in the case of the sites in question, Government rent is properly payable notwithstanding that such sites, while under construction or pending development, do not attract liability to rates. Obviously, the Appellants contend that rent is not payable while the Commissioner contends otherwise.

D. The preliminary points of law

116. Each of the Appellants had separately challenged the Commissioner's assessment. However, the matter came before the Lands Tribunal in the form of a consolidated hearing of the Appellants" Government Rent Appeals, pursuant to the Tribunal's order dated 16 September 1998. The parties agreed to a formulation of 10 preliminary points of law covering the three types of site in question. These 10 points are annexed to the judgment of the Lands Tribunal and were the subject-matter of that judgment. On appeal to this Court, only Points 1 to 9 were argued, Point 10 having been disposed of by agreement.

117. An examination of the 9 remaining points shows that Points 1 to 4 concern the development sites, Points 5 to 7 concern the redevelopment sites and Points 8 and 9, the sites on agricultural land.

118. While in the Rent Regulations themselves and also in the Preliminary Points as formulated, individual provisions of the Rent Regulations are referred to as "sections" rather than the "regulations", in argument before this Court, they were referred to, for the avoidance of confusion, as "regulations". This judgment continues such usage. Thus, section 2 of the Rent Regulations will in this judgment be referred to as "regulation 2".

E. The development sites

119. Point 1 raises a question of statutory construction, principally regarding the combined effect of sections 2, 6, 7, 8 and 34 of the Rent Ordinance, regulation 2 of the Rent Regulations and sections 7 and 7A of the Rating Ordinance.

120. It will be convenient to set out these provisions, so far as material, as follows.

Rent Ordinance section 2

"In this Ordinance, unless the context otherwise requires ....... 'rateable value' means -

(a) the rateable value of the tenement ascertained under Part III of the Rating Ordinance; or

(b) the rateable value ascertained under this Ordinance."

Rent Ordinance section 6(1)

"[Subject to an immaterial exemption] ....... the lessee of an applicable lease is liable to pay by way of Government rent to the Commissioner in accordance with this Ordinance an annual rent of 3% of the rateable value of the land leased."

Rent Ordinance section 7

"(1) The rateable value of the land leased under an applicable lease is an aggregate of the rateable values of the tenements comprised in the land leased. .......

(2) The rateable value of the land leased under an applicable lease or of any tenement comprised in the land leased can be ascertained by reference to the rateable value set out in respect thereof in

(a) the Government Rent Roll .......

and the rateable value so set out in the Government Rent Roll ....... shall, subject to other provisions of this Ordinance, be regarded as the rateable value of the land leased or the tenement, as the case may be."

Rent Ordinance section 8

"(1) The Commissioner may value land held under an applicable lease and any tenement comprised therein at any time to ascertain the rateable value for the purposes of section 7.

(2) The Rating Ordinance (Cap. 116) applies to the ascertainment of rateable values under this Ordinance subject to any specific provisions of this Ordinance.

(3) For the purpose of this Ordinance, where the rateable value of a tenement does not in the opinion of the Commissioner exceed the minimum rateable value, the rateable value of the tenement shall be deemed to be $1."

Rent Ordinance Section 34(1)(a), (f) and (g)

"The Governor in Council may make regulations for .......

(a) ascertaining the rateable value of land, including interests held under applicable leases, parts of lots and tenements, and for maintaining the assessments;

(f) ascertaining the rateable value where there has been a development or a partial development or a redevelopment or a partial redevelopment of land held under an applicable lease;

(g) ascertaining the rateable values of new grant lots arising out of an applicable lease."

Rent Regulations regulation 2

"Where any leased land has not been developed after the commencement of the term of the applicable lease under which it is leased, the rateable value of the leased land at any time before any part of it is developed shall be ascertained as if the leased land were a tenement liable for assessment to rates under the Rating Ordinance ..."

Rating Ordinance section 7

"(1) [Subject to immaterial exceptions] ....... the rateable value of a tenement shall be ascertained in accordance with this section and section 7A.

(2) The rateable value of a tenement shall be an amount equal to the rent at which the tenement might reasonably be expected to let, from year to year, if -

(a) the tenant undertook to pay all usual tenant's rates and taxes; and

(b) the landlord undertook to pay the Government rent, the costs of repairs and insurance and any other expenses necessary to maintain the tenement in a state to command that rent."

Rating Ordinance section 7A(2)

"The rateable value of any tenement ....... shall be ascertained by reference to the relevant date on the assumption that at that date -

(a) the tenement was in the same state as at the time the list comes into force;

(b) any relevant factors affecting the mode or character of occupation were those subsisting at the time the list comes into force; and

(c) the locality in which the tenement is situated was in the same state, with regard to other premises situated in the locality, the occupation and use of those premises, the transport services and other facilities available in the locality and other matters affecting the amenities of the locality, as at the time the list comes into force."

E.(a)(ii) The construction adopted by the Commissioner and the Lands Tribunal

121. The Lands Tribunal construed the provisions bearing on the development sites to reach the answer "Yes" to Point 1. That was the answer sought by the Commissioner. The main argument of construction advanced in support of this conclusion is encapsulated in the written submissions of Mr. Malcolm Spence QC and Mr Johnny Mok, appearing on the Commissioner's behalf, as follows:-

"6.1 Section 8(2) of the Rent Ordinance makes it entirely clear by the use of the words 'subject to any specific provisions of this Ordinance' that the ascertainment of the rateable values for the purposes of the Rent Ordinance may in some cases be different from the ascertainment thereof for the purposes of the Rating Ordinance. This distinction is highlighted by the definition of 'rateable value' in section 2 of the Rent Ordinance, which by the use of the words 'or the rateable value ascertained under this Ordinance' is saying expressly that the rateable value may be different from that ascertained under the Rating Ordinance. This is borne out further by paragraphs (a), (f) and (g) of section 34(1) which give power for the making of regulations for the ascertainment of rateable values, which power would be wholly unnecessary if the provisions of the Rating Ordinance were intended to prevail in every case. These are 'specific provisions.'

6.2 With those sections of the Rent Ordinance fully in mind, when one construes regulation 2, it is apparent on the face of the language used that in the case of a site which has not been developed the rateable value shall be ascertained as if it was liable for assessment to rates under the Rating Ordinance, meaning principally sections 7 and 7A, that is to say, even if it were not liable for assessment to rates for the purposes of the Rating Ordinance - for whatever reason, e.g., that it was not capable of beneficial occupation. Accordingly it is clear that for the purposes of the Rent Ordinance the rateable value of the leased land is in appropriate cases to be ascertained otherwise than in accordance with section 7 and 7A of the Rating Ordinance, the application of which may in a given case result in a nil or nominal assessment for the purposes of the Rating Ordinance."

E.(a)(iii) The question of construction - the Rating Ordinance prima facie applicable

122. With respect, I do not accept this construction of the provisions in question. In my judgment, on their true construction, the answer to Point 1 is "No".

123. One may take as a starting point section 8 of the Rent Ordinance. By section 8(1), the Commissioner is given the task of valuing "land held under an applicable lease and any tenement comprised therein" to "ascertain the rateable value" for the purposes of determining the Government rent payable. One therefore sees at once that the legislature has chosen to adopt the concept of "rateable value" as the basis upon which rent is to be levied.

124. Section 8(2) goes on to prescribe how the Commissioner is to determine rateable values, providing as follows :-

"The Rating Ordinance (Cap. 116) applies to the ascertainment of rateable values under this Ordinance subject to any specific provisions of this Ordinance."

125. This leaves one in no doubt that the legislature primarily intended the range of concepts and principles encompassed by the Rating Ordinance, as clarified and developed by extensive judicial interpretation, to be used for determining "rateable value" for rent purposes.

126. It is of course true that section 8(2) provides that the machinery of the Rating Ordinance is to be applied "subject to any specific provisions of this Ordinance." The crucial question on this aspect of the case is whether any such "specific provisions" have been enacted, this being a matter to which I shall return. However, it remains clear that in the absence of any other means for ascertaining rateable value for rent purposes being laid down by a specific provision or provisions in the Rent Ordinance, it is to the Rating Ordinance that the Commissioner must look when valuing properties with a view to ascertaining their rateable values for Rent Ordinance purposes.

127. The essential concepts of the Rating Ordinance which are brought into play for these purposes are those contained in sections 7(2) and 7A(2) of that Ordinance (hence the way Point 1 has been formulated).

128. Section 7(2) of the Rating Ordinance requires the Commissioner to determine hypothetically "the rent at which the tenement might reasonably be expected to let, from year to year" on prescribed assumptions about the tenant paying all usual tenant's rates and taxes; and the landlord paying the Government rent and for repairs, insurance and other expenses necessary to maintain the tenement in a state to command such rent.

129. Section 7A(2) lays down further principles to guide this valuation exercise. Of primary importance for present purposes are the provisions which require the valuation factors used to be the factors as they exist at the material date. Such provisions embody the principle of rebus sic stantibus, which is a basic and fundamental principle of rating law. It requires the rateable value of land to be ascertained in terms of the physical condition and the use that is made of such land at the material date and not on the basis of its previous condition or of its intended future state, for example, after completion of its intended development or redevelopment.

130. Thus, where the Commissioner applies the Rating Ordinance in accordance with section 8(2) of the Rent Ordinance, he values the land leased as the aggregate of the rateable values of the tenements comprised in such land, as required by section 7 of the Rent Ordinance. He also applies the abovementioned principles of rating law as embodied in sections 7(2) and 7A of the Rating Ordinance.

131. Mr Michael Fitzgerald QC and Mr Johannes Chan, appearing for the Appellants, submitted that no "specific provisions" exist requiring development sites to be valued in any different way. If they are correct, this being a matter discussed further below, the Rating Ordinance must be applied in relation to such development sites. This means that their rateable value must be ascertained on the basis of a hypothetical tenancy from year to year on each such site taking into account its actual physical state and its actual use.

132. Since, factually, each of the development sites was at the material time in the process of being developed and therefore incapable of beneficial occupation (and with no other use being made of them) the rateable value and resultant Government rent for each such site must, applying the adopted rating law principles, be nil or nominal.

133. The Appellants cited Arbuckle Smith & Co. Ltd. v. Greenock Corporation [1960] AC 813 at 821, 826, 828 in support of the rebus sic stantibus principle. They also cited Lord Wilberforce in Dawkins (Valuation Officer) v. Ash Brothers and Heaton Ltd. [1969] 2 AC 366 who stated at 385, as follows:-

"The principle that the property must be valued as it exists at the relevant date is an old one, certainly older than the Parochial Assessment Act 1836. It has been spelt out in modern terminology in Poplar Metropolitan Borough Assessment Committee v Roberts [1922] 2 AC 93, 120 and in Robinson Bros (Brewers) Ltd v Houghton and Chester-le-Street Assessment Committee [1937] 2 KB 469 in passages which have been cited. The principle was mainly devised to meet, and it does deal with, an obvious type of case where the character or condition of the property either has undergone a change or is about to do so; thus, a house in course of construction cannot be rated; nor can a building be rated by reference to changes which might be made in it either as to its structure or its use."

134. It is not in dispute that Lord Wilberforce was dealing with English legislation which is in terms substantially similar to section 7 of the Rating Ordinance. The Appellants argued that :-

"If 'a house in the course of construction' cannot be rated, so must a site under construction, whether under development or redevelopment."

135. Although Mr Spence relied on other features of the House Lords decision in Dawkins, in particular, its acceptance that certain classes of imminent change to the land may be taken into account as part of the res within the rebus sic stantibus principle (a matter discussed further in relation to Point 4), he did not dispute the proposition that as a matter of rating law, the development sites would not be rateable. Where he did differ with the Appellants was as to the applicability of the Rating Ordinance to development sites when assessing Government rent, contending that in respect of such sites, specific provision had been enacted taking them outside the scope of the Rating Ordinance and of the rebus sic stantibus principle.

E.(a)(iv) The question of construction - no specific provision otherwise applicable

136. Before examining the provisions relied upon by the Commissioner, I should state that I fully accept that the language of the Rent Ordinance admits of the possibility of there being a "rateable value" ascertained under the Rent Ordinance which may differ from the "rateable value" ascertained under Part III of the Rating Ordinance. This appears to me to be recognized by the definition of "rateable value" in section 2.

137. Similarly, as I have already indicated, I accept that while section 8(2) of the Rent Ordinance prescribes the application of the Rating Ordinance as the principal machinery for ascertaining rateable value for rent purposes, that subsection expressly provides that such Ordinance is to apply "subject to any specific provisions of" the Rent Ordinance.

138. The key question is therefore whether for the purposes of section 8 (2), any "specific provisions" of the Rent Ordinance have been enacted to provide an alternative basis for assessing rateable value in respect of development sites in place of the provisions of the Rating Ordinance which are otherwise prima facie applicable.

139. Mr Spence argued that regulation 2 is precisely the "specific provision" in question. It was made pursuant to section 34 of the Rent Ordinance which, by subsection (1)(g) expressly empowered the Governor (or Chief Executive) in Council to make regulations for :-

"ascertaining the rateable values of new grant lots arising out of an applicable lease."

140. Regulation 2, he argued, fits perfectly within this regulation-making power and results in development sites having to be valued in a manner outside the ambit of the Rating Ordinance and ignoring the rebus sic stantibus principle.

141. I have indicated in italics, that part of the argument which I reject. While I am content to accept for present purposes that regulation 2 was made pursuant to and within the regulation-making power of section 34(1)(g), I cannot accept that, as a matter of construction, that regulation establishes any basis for assessing rateable values other than by reference to the Rating Ordinance.

142. In the first place, it seems to me, with respect, that Mr Spence's argument flies in the face of the language of regulation 2 itself. It states that the rateable value of undeveloped leased land :-

"shall be ascertained as if the leased land were a tenement liable for assessment to rates under the Rating Ordinance ......."

143. To my mind, this can only mean that the method of valuation prescribed by regulation 2 for a development site is the same method as would be applied for valuing a tenement liable for rates under the Rating Ordinance. Therefore, the rating principles embodied in sections 7(2) and 7A of the Rating Ordinance, discussed above, including the principle of rebus sic stantibus, are to be given effect. Regulation 2 does not purport to be a "specific provision" laying down an alternative principle, but expressly points the Commissioner in the direction of the Rating Ordinance.

144. The second major obstacle to accepting Mr Spence's construction is as follows. If, as the Commissioner contends, regulation 2 was intended to constitute a "specific provision" under section 8(2) requiring rateable values of development sites to be ascertained on a non-Rating Ordinance basis, one is compelled to ask what such alternative basis consists of. What principles should he apply if he is not to follow the well-trodden rating path?

145. When Mr Spence was asked at the hearing what guidance the Regulations gave as to how the Commissioner should perform his task if rating principles did not apply, he stated that they gave none. To my mind, this is a strong indication that the construction contended for cannot be correct. It seems highly implausible that the legislature should exclude the well-known Rating Ordinance methodology from development sites without spelling out what principles should apply in their place. It cannot have been the legislative intention to permit the Commissioner arbitrarily to adopt whatever approach he might choose in relation to such sites.

146. In practice, the Commissioner has sought essentially to apply a formula based on the capital value of the development sites in question. For example, there was in evidence a sample valuation done on a Sino Group development site on Electric Road in North Point. The property was intended for development into a 36 storey building of shops and offices. The developer had paid a premium of $760 million for the site at a public auction on 11 December 1996 and Government rent of $1,000 p.a. had been assessed on it up to 30 June 1997. To calculate its rateable value and Government rent after that date, the Commissioner took the site's alleged market value of $741 million as at 1 July 1997, applied a "decapitalization rate" of 4% to that market value to obtain a rateable value of $29.64 million. Rent was then assessed at 3% of that figure. The indication was that the decapitalization rate would depend on the type of development: 3.5% for domestic, 4% for office/commercial and 5% for industrial/godown developments.

147. I have been unable to discover anything in regulation 2 to authorize this or any similar approach. Nor do I see how can it be said that in determining rateable value in this way, the Commissioner was ascertaining that value "as if the leased land were a tenement liable for assessment to rates under the Rating Ordinance" within the meaning of regulation 2. In my view, the Commissioner's approach, as illustrated by the sample valuation, is wholly inconsistent with the Rating Ordinance and ignores basic rating principles including the requirement that there be rateable occupation of the land and that the rebus sic stantibus principle should govern any method of valuation adopted.

E.(a)(v) The question of construction - The supporting arguments

148. In rejecting the Commissioner's construction, I have not lost sight of some of the subsidiary arguments relied upon by him in support. However, in my judgment, none of those arguments overcomes the fundamental difficulties which the language of regulation 2 itself poses for the Commissioner. I will therefore only touch briefly on some of the points made.

149. In my view, the most cogent subsidiary argument deployed was that the construction contended for by Mr Fitzgerald and which I have accepted, inevitably results in regulation 2 producing merely a nil or nominal rent and therefore is a construction that may be thought unlikely to be correct. Why, the rhetorical question goes, should the Chief Executive in Council bother to promulgate subsidiary legislation singling out development sites for treatment only to have that regulation produce a nil or nominal rent? If that was the intended objective, they could have simply refrained from making any regulation about development sites and achieved the same result through the straightforward application of rating principles via section 8(2) of the Rent Ordinance. On the contrary, section 6 of the Rent Ordinance levies a rent comprising 3% of the rateable value. The object of the regulation was therefore likely to be the production of a substantial and not a nominal rent. If this could not be achieved under the Rating Ordinance, then (so the argument ran) the regulation ought to be construed as authorising an alternative basis for assessing rateable value.

150. I acknowledge that regulation 2 as I have construed it does not generate any substantial rent for the Government and indeed, that such a result may well not have been what officers of the Government had in mind for development sites. However, the Court is concerned to give effect to the legislative intention as manifested in the words used in the legislation where the meaning of such words is clear. McEldowney v. Forde [1971] AC 632 at 658, cited by the Appellants in a different context, contains the apt comment of Lord Diplock as follows:-

"The view of the courts as to whether particular statutory or subordinate legislation promotes or hinders the common weal is irrelevant. The decision of the courts as to what the words used in the statutory or subordinate legislation mean is decisive."

151. In my judgment, the meaning of regulation 2 is indeed clear, as discussed above. Its language not only fails to lay down any alternative basis for assessing rateable value, it expressly refers to the principles embodied in the Rating Ordinance as the basis for such assessment.

152. Mr Spence also sought to argue, by reference to provisions of the Government Leases Ordinance (Cap 40), the New Territories Leases (Extension) Ordinance (Cap 150) and the covenants relating to rent contained in Government grants that the Rent Ordinance as construed by the Commissioner merely continues a previously existing regime which permitted rateable values to be assessed for rent purposes using principles other than rating law principles.

153. I accept, for instance, that the wording of regulation 2 is not dissimilar to the wording of section 9(6) of the Cap 40 which provides as follows:-

"Where no rateable value of a tenement has been ascertained under the Rating Ordinance (Cap 116) whether by reason of the exemption of such tenement from assessment to rates or otherwise, the Commissioner shall if required by the Director ascertain the rateable value thereof as if the same were assessable to rates under that Ordinance."

154. Moreover, in relation to redevelopment sites, the language of regulations 4 and 5 of the Rent Regulations is similar to that used in section 9(7) of Cap 40.

155. However, I am unable to see how such similarities provide any assistance in the construction of the relevant provisions of the Rent Ordinance and the Rent Regulations. Furthermore, by sections 37, 57 and 58 respectively of the Rent Ordinance, the rent covenants referred to by Mr Spence and the relevant provisions of the New Territories Leases (Extension) Ordinance were overridden or repealed. The focus, for the purposes of construction, therefore is and can only be on the material provisions of the Rent Ordinance and Rent Regulations.

E.(a)(vi) Hansard

156. Both parties adopted Lord Browne-Wilkinson's formulation of the principle in Pepper v. Hart [1993] AC 593 at 640C, as follows :-

".... the exclusionary rule should be relaxed so as to permit reference to Parliamentary materials where (a) legislation is ambiguous or obscure, or leads to an absurdity; (b) the material relied upon consists of one or more statements by a Minister or other promoter of the bill together if necessary with such other Parliamentary material as is necessary to understand such statements and their effect; (c) the statements relied upon are clear."

157. The primary position adopted by both the Commissioner and the Appellants was that the relevant provisions admit of no ambiguity or obscurity and lead to no absurdity so that the Pepper v. Hart principles do not come into play. However, the Commissioner adopted as his fall back position, the submission that if examined, the relevant speeches in the Legislative Council would be seen to support his construction. The Appellants submitted, in line with the view of the Lands Tribunal, that the extraneous legislative materials suffer from ambiguity and lack the clarity necessary to provide assistance.

158. In my judgment, for the reasons already given, the meaning of the relevant provisions is clear and the Pepper v. Hart principle does not operate.

159. On the basis of the answer which I have given in relation to Point 1, Point 2 does not arise. Since, on my construction, regulation 2 does not depart from the Rating Ordinance scheme, there is no question of that regulation being ultra vires.

160. However, if I am wrong as to my construction and if regulation 2 does require or empower the Commissioner to adopt some alternative means for ascertaining the rateable value of the development sites under appeal, then in my judgment, for the reasons advanced by Mr Fitzgerald on the Appellants' behalf, regulation 2 so construed is ultra vires and void.

161. The Commissioner's view is of course to the contrary. Mr Spence submitted that the ultra vires question fell away once one accepted his construction of regulation 2. As already indicated in the foregoing discussion, Mr Spence argued that sections 2 and 8(2) of the Rent Ordinance recognize the possibility of an assessment of rateable value under its own terms rather than under the Rating Ordinance. He submitted that section 34(1)(g) specifically empowered the Chief Executive in Council to make regulation 2, so that no question of that regulation being ultra vires arises.

162. In McEldowney v. Forde [1971] AC 632 at 658, Lord Diplock provided helpful guidance on the correct approach to considering the vires of subsidiary legislation, as follows:-

"Where the validity of subordinate legislation made pursuant to powers delegated by Act of Parliament to a subordinate authority is challenged, the court has a threefold task: first, to determine the meaning of the words used in the Act of Parliament itself to describe the subordinate legislation which that authority is authorised to make, secondly, to determine the meaning of the subordinate legislation itself, and finally to decide whether the subordinate legislation complies with that description."

163. For the purposes of the present argument, I am assuming, contrary to the construction which I have upheld, that "the meaning of the subordinate legislation itself" is that ascribed to it by the Commissioner. In other words, I am assuming that regulation 2 is to be construed as empowering or requiring the Commissioner to adopt a basis other than the Rating Ordinance for ascertaining the rateable values of development sites.

164. In my judgment, the Commissioner is nevertheless faced with crucial difficulties in relation to the first and the third tasks referred to in the citation from McEldowney above. "The meaning of the words used in the [Rent Ordinance] itself to describe the subordinate legislation which [the Chief Executive in Council] is authorised to make" is such that regulation 2, construed as aforesaid, does not comply with that description.

165. The Commissioner submitted that section 34 was a typical regulation-making power whereby the legislature enabled the regulation-making authority to "fill in the details" of the Ordinance by regulations and that regulation 2 was such a provision. By empowering the Commissioner to assess rateable values on a non-Rating Ordinance basis, it "filled in" the details of such alternative scheme contemplated by sections 2 and 8(2). In support, the Commissioner relied on Elvira Vergara v. Attorney General [1988] 1 WLR 919. That was a case in the Privy Council on appeal from Hong Kong involving the Immigration Ordinance and regulations made thereunder. I agree with the Appellants" submission that it was a case involving a very different legislative scheme and one where the regulations were intended to flesh out details of how broad powers were to be exercised.

166. The legislative scheme is quite different in the present case. Under the Rent Ordinance, the manner in which the Commissioner is to assess rateable value is prescribed by section 8(2) primarily by adoption of the existing mechanisms of the Rating Ordinance but "subject to any specific provisions of" the Rent Ordinance. It is therefore not a section giving a broad power to be filled in by regulations. On the contrary, the Rating Ordinance is to provide the detail unless a "specific provision" in the Ordinance prescribes an alternative. I would accept that given sufficiently clear wording, it may be possible for the necessary "specific provision" to be made by way of subsidiary legislation. However, in my view, section 8(2) requires any such regulation-making power to be conferred with clarity and specificity.

167. The Commissioner relies on section 34, read together with regulation 2, as constituting such "specific provisions". However, nothing in the language of section 34(1)(a), (f) or (g) specifically gives the Chief Executive in Council power to make regulations for ascertaining rateable value otherwise than in accordance with the Rating Ordinance. Those paragraphs are, in my view, capable of being construed as empowering the Commissioner to make any regulations required to facilitate assessments for rent purposes carried out within the Rating Ordinance framework. Since section 8(2) makes it clear that only "specific provision" can override the prima facie applicability of the Rating Ordinance, the absence of clear language designed to achieve this in section 34 indicates, in my view, that section 34 is not to be construed as a specific provision authorizing the making of regulations for alternative assessments. The subordinate legislation purportedly made thereunder accordingly went beyond what was authorised by section 34.

168. In Point 3 as originally formulated, the reference was to Article 11 rather than Article 8. However, the parties are agreed that Article 8 should properly be substituted.

169. Once again, on the basis of my construction of regulation 2, Point 3 does not arise. I will however deal with the argument in case I am held to be wrong as to that construction and also wrong in holding that regulation 2 is ultra vires. In my judgment, on the hypothesis set out in Point 3 and contrary to the Appellants' submissions, a properly enacted provision permitting the Commissioner to assess rateable values for rent purposes applying principles other than those contained in the Rating Ordinance is not rendered void by the Basic Law.

170. Article 121 of the Basic Law provides as follows:-

"As regards all leases of land granted or renewed where the original leases contain no right of renewal, during the period from 27 May 1985 to 30 June 1997, which extend beyond 30 June 1997 and expire not later than 30 June 2047, the lessee is not required to pay an additional premium as from 1 July 1997, but an annual rent equivalent to 3 per cent of the rateable value of the property at that date, adjusted in step with any changes in the rateable value thereafter, shall be charged."

171. Article 8 provides:-

"The laws previously in force in Hong Kong, that is, the common law, rules of equity, ordinances, subordinate legislation and customary law shall be maintained, except for any that contravene this Law, and subject to any amendment by the legislature of the Hong Kong Special Administrative Region."

172. The Appellants contend that even if the Commissioner is right on his construction of regulation 2 and right in contending that regulation 2 is intra vires, the attempt to empower the Commissioner to ascertain a rateable value otherwise than pursuant to the Rating Ordinance falls foul of Article 121, making that regulation a law which contravenes the Basic Law and accordingly void by reason of Article 8.

173. The key proposition on which this argument rests is that the words "rateable value" used in the phrase "an annual rent equivalent to 3 per cent of the rateable value of the property" in Article 121 must be construed to mean "rateable value" within the meaning only of the Rating Ordinance. Accordingly, so the argument must run, adoption of any other statutory definition of rateable value, however clearly drafted and otherwise unobjectionable, is to be struck down as contrary to Article 121.

174. This is a construction which I find quite unacceptable. As the Commissioner pointed out, at the time of the promulgation of the Basic Law, there were already in existence on the Hong Kong statute book, examples of legislation outside the Rating Ordinance adopting concepts of "rateable value" which may be viewed as additions or exceptions to the concept of rateable value as determined under the Rating Ordinance. Sections 9(6) and 9(7) of the Government Leases Ordinance and sections 8(b) and 11(j) of the New Territories Leases (Extension) Ordinance are instances.

175. If, for the sake of argument, one assumes that the framers of the Basic Law were aware of the existence of such exceptions or additions in other Ordinances, it is hard to see why one should construe the language of Article 121 as confining the meaning of "rateable value" to the meaning contained in the Rating Ordinance and excluding the term as used in other pieces of legislation. If, on the other hand, one assumes that the framers never considered in which Ordinances the concept of "rateable value" could be found, one is equally left without any good reason to infer that they intended Article 121 to receive the restrictive construction contended for by the Appellants.

176. In my view, Article 121 is referring to "rateable value" as a legal concept arising in the context of any duly enacted Ordinance. To hold otherwise would be to attribute to the framers of the Basic Law an intention to discriminate among legal concepts at an excessively detailed level, importing an approach to construction inappropriate for a basic constitutional document. As the Court of Final Appeal stated in Ng Ka Ling & Others v. Director of Immigration [1999] 1 HKLRD 315 at 339-340, an approach to construing the Basic Law must begin by recognising and appreciating the character of the document.

"As is usual for constitutional instruments, it uses ample and general language. It is a living instrument intended to meet changing needs and circumstances. It is generally accepted that in the interpretation of a constitution such as the Basic Law a purposive approach is to be applied. The adoption of a purposive approach is necessary because a constitution states general principles and expresses purposes without condescending to particularity and definition of terms. Gaps and ambiguities are bound to arise and, in resolving them, the courts are bound to give effect to the principles and purposes declared in, and to be ascertained from, the constitution and relevant extrinsic materials. So, in ascertaining the true meaning of the instrument, the courts must consider the purpose of the instrument and its relevant provisions as well as the language of its text in the light of the context, context being of particular importance in the interpretation of a constitutional instrument."

177. The Appellants argued that, viewed purposively, Article 121 was intended to provide certainty as to the level of Government rent to be charged. They argued that this was demonstrated by the Basic Law's condescending to the particularity of specifying a 3% figure for Government rent. Accordingly, they argued, such certainty was to be served by confining "rateable value" to that concept as determined under the Rating Ordinance alone.

178. To my mind, the certainty argument is specious. When the Basic Law states that "an annual rent equivalent to 3 per cent of the rateable value of the property" shall be payable, it was certainly being specific as to the applicable percentage. However, by adopting rateable value as the base figure upon which 3% was to be calculated, the Basic Law was consciously adopting a concept which applies, and is intended to apply, with flexibility from tenement to tenement and with a capacity for adjustment to match changing conditions. Thus, Article 121 itself expressly states that such 3% rent is to be "adjusted in step with any changes in the rateable value thereafter". Approached purposively, the Basic Law regards "rateable value" as the flexible and adjustable product of a process of assessment applying a legally sanctioned methodology. I see no reason to impute to the Basic Law an intention to confine such methodology solely to that prescribed by the Rating Ordinance and to strike down all else.

179. Although the Lands Tribunal found in the Commissioner's favour on Point 1, holding that regulation 2 entitled him to assess development sites on a non-Rating Ordinance basis, it is of interest to note that when the Lands Tribunal came to deal with Point 4, it held (at paragraphs 22 to 24 of its judgment) that the assumptions to be adopted were (a) that the terms of the hypothetical tenancy of the land ought to be those prescribed under section 7(2) of the Rating Ordinance; (b) that the state of the land should be regarded "as a vacant building site in its actual existing state", on the basis that this "mirrors the requirement of section 7A(2)(a)" of the Rating Ordinance. Argument as to (c) "the mode or character of occupation of the land" was reserved for further consideration by the Lands Tribunal in the light of evidence to be adduced and needs no further mention in this judgment.

180. The Lands Tribunal's decision on Point 4 is telling. As I have already indicated, it is, in my view, a serious flaw in the Commissioner's construction of regulation 2 that he is unable to point to any guidance in the Rent Ordinance or the Rent Regulations as to how the alleged alternative basis for assessing rateable value in relation to development sites is to operate. This poses not merely a legal difficulty for the Commissioner, but a serious practical problem which was faced by the Lands Tribunal when dealing with Point 4. They had to ask themselves what assumptions ought to be made for the purposes of carrying out the valuation on the postulated alternative basis. Their answers show that they found themselves gravitating back to the Rating Ordinance scheme, including the application of the rebus sic stantibus principle and the concomitant rejection of the Commissioner's submission that they should value the site taking into account its intended post-development state. They held that such intention was irrelevant. On this footing, it would be likely to follow that even using the postulated alternative basis for assessing rateable value, the result would be a nil or nominal rent.

181. Therefore, by their answers to Point 4, the Lands Tribunal effectively took away from the Commissioner the benefit, in money terms, of the Commissioner's success on Point 1.

182. In my judgment, the Lands Tribunal's responses to Point 4 are wholly consistent with the construction I have favoured. Since I have held that regulation 2 keeps sites under development within the orbit of the Rating Ordinance, the assumptions made when assessing their rateable values are the usual rating assumptions, including rebus sic stantibus and a rejection of the fact of intended development as irrelevant. I would therefore uphold the approach of the Lands Tribunal in this context.

183. Before leaving this point, one further argument requires to be dealt with. The Commissioner relied on Dawkins (Valuation Officer) v. Ash Brothers and Heaton Ltd [1969] 2 AC 366 for the submission that even applying the rebus sic stantibus principle, it was appropriate to factor in the developers" intentions as a part of the res, so as to enable the valuation to take into account the site's valuable development potential, producing a substantial liability to Government rent. In Dawkins, the House of Lords held by a majority that a site's reduction in value due to likely demolition following upon a compulsory purchase order was a factor to be taken into account for rating valuation purposes.

184. The point developed by the Commissioner is put as follows in Mr Spence's written submission:-

"6.4 The Commissioner is supported in this approach by the speeches in the House of Lords in Dawkins (VO) v Ash Bros and Heaton Ltd [1969] 2 AC 366 (though no support is needed from rating as distinct from Government Rent), thus per Lord Wilberforce at page 386:

'But it would surely be unreasonable to suppose that the hypothetical tenant is so inescapably imprisoned in the present that no anticipation is permitted of what is to come'

and per Lord Pearson, with whom Lord Pearce agreed, at page 393:

'There is, in this case, a present probability of a future happening, and the present probability affects the present value of the hereditament.'

In Dawkins the effect on value would be downwards; here it would be upwards.

6.5.1 Under the Dawkins principle, the fact that the land is undergoing construction and indeed may be near completion cannot be ignored as a 'probable future happening'. The Tribunal is therefore wrong in holding, at the end of para 13, that 'the intention of the developer to develop the sites is irrelevant'."

185. It was accordingly suggested that where the land is purchased with development in mind and at a premium which can only be commercially justified on the basis of an intended development, the land should be regarded, as it were, as "doomed to be developed" and so brought within the Dawkins approach.

186. In my view, the Dawkins case does not support the Commissioner's contention. It must be borne in mind that what the Court is concerned with in the present case is whether a site under construction is liable to Government rent, applying rating principles. While it may be said that such a site is "doomed to development", the status of such land for rating purposes is not truly analogous to the status of a site which is "doomed to demolition" because it has been made the subject of a compulsory order.

187. The Dawkins decision was concerned with valuation. The debate was as to the factors which should or should not be taken into account in the process of assessing the value of land for rating purposes. Where a site is made subject to a compulsory order with demolition likely to take place in the future, the fact of that order has an immediate effect on the value of the site for rating purposes. In other words, the value of that site to a hypothetical tenant with likely demolition hanging over it, is certainly going to be less than the value of the site without such any compulsory order having been made. In this sense, the making of the order forms part of the res when applying the rebus sic stantibus principle in the valuation. However, it must be borne in mind that in the Dawkins type of case, one is throughout concerned with a site which is presently susceptible to beneficial occupation by the hypothetical tenant although affected by the impending demolition.

188. This, in my judgment, is where the analogy with a site presently under development falls down. As Lord Wilberforce stated in Dawkins itself, "a house in course of construction cannot be rated" (at p. 385). This is because a site being developed is not regarded as susceptible to beneficial occupation. True it is that such site will, as a matter of commonsense and commercial reality, on completion of the development, become one bearing a much higher rateable value. However, during the period when it is under construction, it is not susceptible to beneficial occupation and so is not rateable. There is, in other words, no hypothetical tenant. Accordingly, the Dawkins arguments concerning the factors which may or may not be taken into account as part of the res when valuing the site for the purposes of the hypothetical tenancy do not arise. More particularly, the predictable fact that development will, sooner or later, be completed is irrelevant.

189. At the hearing and before the Lands Tribunal, the issue based on the Dawkins decision was sometimes framed in terms of whether the developers" "intention" to develop the land was relevant. Thus, Lord Pearce (at pp. 381-382) drew a distinction between factors which are accidental to the hereditament (which are irrelevant to the valuation) and factors which are essential to the hereditament (which are relevant), placing the owner's intentions within the category of irrelevant "accidental" factors. However, in my judgment, that discussion proceeded throughout on the footing that the land was, in the first place, susceptible to beneficial occupation and rateable. If that premise was established, one would go on to admit "essential" factors but exclude "accidental" factors (including in the latter category, the accidents of ownership and the intentions of a particular owner) when deciding what to take into account as part of the res in the process of valuation. As that premise is not established in the case of a site under development, the essential/accidental debate has no relevance to the present case.

F. The redevelopment sites

F.(a)(i) The regulations in question

190. It is convenient to set out the relevant provisions of the Rent Regulations as follows.

Regulation 4 Rateable value of leased land before redevelopment

"(1) Where any leased land has been developed after the commencement of the term of the applicable lease under which it is leased but the building that is the subject of the development has been demolished, the rateable value of the leased land at any time before any part of it has been redeveloped shall be the aggregate of the last ascertained rateable values of all the tenements comprised in the building immediately before its demolition.

(2) For the purposes of subsection (1), the last ascertained rateable value of a tenement shall be-

(a) where a rateable value is ascribed to the tenement in the Government Rent Roll, that rateable value;

(b) in any other case-

(i) subject to subparagraphs (ii) and (iii), the rateable value last ascribed to the tenement in the Valuation List;

(ii) subject to subparagraph (iii), where the tenement was immediately before the demolition exempt from assessment to rates under the Rating Ordinance (Cap 116), the rateable value that the Commissioner would have ascertained immediately before the demolition if the tenement were then liable for assessment to rates under that Ordinance;

(iii) where the tenement was immediately before the demolition comprised partly in the leased land referred to in subsection (1), the rateable value specified in subparagraph (i) or (ii), as the case may be, as apportioned in such manner as it would have been apportioned under section 9 of the Ordinance immediately before the demolition were the tenement then a tenement to which that section applied."

Regulation 5Rateable value of leased land partly redeveloped

"(1) Where any leased land has been developed after the commencement of the term of the applicable lease under which it is leased but the building that is the subject of the development has been demolished and following the demolition only part but not the whole of the leased land has been redeveloped, the Commissioner may-

(a) make an interim valuation of that part of the leased land that has been redeveloped; and

(b) ascertain the rateable value of that part of the leased land that has not been redeveloped as if that part were the land to which section 4(1) applies.

(2) Subject to subsection (3), the rateable value of the leased land referred to in subsection (1) shall be the aggregate of-

(a) the rateable value of that part of the leased land that has been redeveloped, pursuant to an interim valuation made under subsection (1)(a); and

(b) the rateable value of that part of the leased land that has not been redeveloped, as ascertained under subsection (1)(b).

(3) This section shall not apply to any leased land if its effect would be to reduce the rateable value of the leased land to less than it would have been had the interim valuation not been made under subsection (1)(a), unless the Commissioner decides, having regard to the circumstances of the case, to adopt the lower rateable value."

F.(a)(ii) No issue of construction

191. As indicated in Section B of this judgment, the redevelopment sites under appeal are sites on which buildings previously stood but which have since been demolished in line with the Government lessee's intention to redevelop the land in question. As with the development sites, those within this category were, at the date of the Commissioner's assessment, pending or in the course of development. Accordingly, if Rating Ordinance principles were used to assess their rateable values, nil or nominal rateable values would result, as in the case of the development sites.

192. Unlike Point 1, there is, in relation to Point 5, no issue of statutory construction. The words used in regulations 4 and 5 make it clear that in the case of redevelopment sites, there is intended to be an alternative method of ascertaining rateable value for Government rent purposes, a method which would not be used under the Rating Ordinance.

193. The method chosen by the Rent Regulations in cases falling within regulation 4, is to deem the rateable value of the site to be "the aggregate of the last ascertained rateable values of all the tenements comprised in the building immediately before its demolition". This "last ascertained rateable values" formula was referred to at the hearing as the "LARV" formula.

194. The point of principle is the same in relation to regulation 5, which deals with partly redeveloped sites and applies the LARV formula to the undeveloped portion.

195. Plainly, by adopting the LARV formula, these regulations operate outside the scope of the Rating Ordinance. They consciously ignore the rebus sic stantibus since they do not value the site in terms of the physical condition and the use that is made of the land at the material date. Instead, they fix a rateable value on the basis of its previous condition, prior to demolition.

F.(a)(iii) Are the regulations ultra vires?

196. The Appellants attack the regulations as ultra vires with the same arguments deployed against regulation 2 and discussed in Section E.(b) of this judgment. For the same reasons as there indicated, I hold that regulations 4 and 5 are ultra vires. I will briefly summarise those reasons here for convenience.

197. The Commissioner's support of these regulations as intra vires depends on his argument that sections 2 and 8(2) of the Rent Ordinance recognize possible alternative bases for assessing rateable value and that, in the case of redevelopment sites, section 34(1)(f) specifically empowers the Chief Executive in Council to make regulations 4 and 5, so that no question of such provisions being ultra vires can arise.

198. I would accept that given sufficiently clear wording, it may be possible for the "specific provision" required under section 8(2) to be enacted in a form authorizing the promulgation of regulations to devise an alternative means of assessment. However, on its proper construction, section 34 lacks the specificity to constitute such a provision. Accordingly, regulations 4 and 5, purportedly made thereunder, go beyond what was authorised by section 34 especially when read together with section 8(2) and so are ultra vires the Rent Ordinance.

199. This was the conclusion reached by the Lands Tribunal, which I would uphold, dismissing the Commissioner's appeal on this Point.

200. As with Point 3, Article 8 has replaced Article 11 in the Point as now formulated.

201. For the reasons given in relation to Point 3, as set out in Section E.(c) of this judgment and contrary to the decision of the Lands Tribunal, my answer to the question put in Point 6 is "No".

202. I have held for the purposes of Point 5 that regulations 4 and 5 are void on the ground that they are ultra vires the Rent Ordinance and not because they offend against the Basic Law. On this basis, the LARV formula purportedly laid down by regulations 4 and 5 having been rendered inapplicable, the Commissioner is confined to assessment on the basis of the Rating Ordinance pursuant to section 8(2).

203. Accordingly, the assumptions made when assessing the rateable values of redevelopment sites are the usual rating assumptions, including rebus sic stantibus and a rejection of the developers' intentions on redevelopment as irrelevant. I would therefore uphold the approach of the Lands Tribunal on this Point.

G. The agricultural land

G.(a)(i) The statutory provisions

204. Section 8 has been set out in Section E.(a)(i) of this judgment. The other relevant provisions are as follows:-

Rent Ordinance, section 18: Corresponding entries in Valuation List and Government Rent Roll

"(1) If the Commissioner makes an alteration in the rateable value of an identical tenement included in the Valuation List as a result of a correction, deletion, interim valuation, objection, proposal or appeal made under the Rating Ordinance (Cap 116), he must make the same alteration in the Government Rent Roll.

(2) For alterations, other than rateable value, made in respect of an identical tenement in the Valuation List, the Commissioner may, having regard to the circumstances of the case, cause the same alterations to be made in respect of the identical tenement in the Government Rent Roll.

(3) If a tenement is deleted from the Valuation List, the tenement may still be included in the Government Rent Roll for Government rent purposes.

(4) The Commissioner may make an appropriate amendment to the Government Rent Roll where he has altered the entry of a corresponding tenement, which is not an identical tenement, in the Valuation List as a result of a correction, deletion, interim valuation, objection, proposal or appeal under the Rating Ordinance (Cap 116)."

Rating Ordinance, section 36(1)

"The following tenements or parts thereof, shall be exempt from assessment to rates -

(a) agricultural land, and any building, other than a dwelling house, thereon used wholly or mainly in connection with such land ......."

G.(a)(ii) No "specific provision", agricultural land not liable to Government rent

205. There is no doubt that sites on agricultural land are exempt from assessment to rates by virtue of section 36 of the Rating Ordinance. Accordingly, if, by virtue of section 8(2), the Rating Ordinance were to be applied to ascertain the rateable value of such a site for Government rent purposes, the exemption would apply leading to a nil rent assessment.

206. The only provisions that the Commissioner is able to put forward to justify assessing agricultural land to Government rent on an alternative basis are sections 8 and 18(3) of the Rent Ordinance. In my judgment, these sections clearly fail to provide any such justification.

207. Section 8 is a familiar section. By its subsection (2), it prescribes the Rating Ordinance as the framework for ascertaining rateable values under the Rent Ordinance "subject to any specific provisions of" the Rent Ordinance. There can accordingly be no doubt that section 8 is itself not the "specific provision" providing a basis for assessing otherwise exempt agricultural land.

208. Looking at section 18(3) in the context of section 18 as a whole, it is in my view clear that section 18(3) is part of a section concerned with the administrative harmonisation of the Valuation List and the Government Rent Roll maintained under the Rating and Rent Ordinances respectively. It certainly does not constitute a "specific provision" of the Rent Ordinance required by section 8(2) to exist before any alternative basis of assessment can be invoked in relation to agricultural land.

209. It would be an error to think that when section 18(3) speaks of deleting a tenement from the Valuation List while retaining the same on the Government Rent Roll it is envisaging a situation where a tenement is exempt from assessment to rates but liable for Government rent. An exempt tenement would never be entered on the Valuation List in the first place.

210. Accordingly, I would reject the Commissioner's submission and reverse the finding of the Lands Tribunal on this Point. In my judgment, the answer to the question put in Point 8 is "No".

211. As my answer to Point 8 is "no", Point 9 does not arise. On the construction which I have adopted of sections 8 and 18(3), no question of conflict with Article 121 arises.

Mayo, J.A.:

212. It will be seen that we are all of the same view on the answers to be given to questions 1, 4, 5, 7, 8 and 9. I declined to answer questions 2, 3 and 6 but Keith, J.A. and Ribeiro, J. are in agreement in their answers.

213. It is accordingly the case that the Appellants have succeeded on this appeal. We make an order nisi that the Appellants will have the costs of this appeal.