CHEUNG SHING SCRAP METALS RECYCLING LTD v. DIRECTOR OF LANDS

HCAL54/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO. 54 OF 2008

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j u d g m e n t

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A.      Introduction

1.  The applicant runs a scrap metal recycling business on a site in Yau Tong under a government tenancy dated 1 April 2004 (“the Applicant’s Tenancy”), which imposes various special conditions and requirements for the operation there. 

2.  Fairwind Mid-Stream Services Company Limited (“Fairwind”) is a tenant under a government tenancy dated 4 October 2006 (“the Fairwind Tenancy”) in respect of a site in Tsing Yi (“the Site”), which contains this user clause :

(1)     consolidation and handling of container cargoes (excluding fumigation treatment of container cargoes); or

(2)      loading, unloading and storage of containers from land or sea; or

(3)     logistics and freight forwarding activities including freight management, inventory control, storage, packaging, labelling, consolidation and distribution of goods (excluding dangerous goods) and such ancillary offices; or

(4)     all or any combination of the above. 

It does not include any of the special conditions or requirements found in the Applicant’s Tenancy for recycling of waste metal. 

3.  On 23 November 2007, the applicant’s solicitors wrote to the District Lands Office for Tsuen Wan and Kwai Tsing (“DLO”), complaining that in breach of the Fairwind Tenancy, Fairwind operated a business of recycling waste metal on the Site and urging the DLO to take “immediate lease enforcement action”.  The DLO then carried out investigations.  Fairwind advised the DLO that it conducted a logistics business on the Site in respect of scrap metal, which included consolidation, warehousing, packaging, sorting and breaking down, and assembling of the metal.  It employed one He Tai Steel Company Limited (“He Tai”) as contractor for the logistics business. 

4.  By letter dated 27 February 2008 (“the Letter”), the DLO replied to the applicant’s solicitors thus :

“… Having considered the explanation from the tenant and the advice from Environmental Protection Department and out legal advisor, this office accepts that the tenant’s activities on site are merely taking in, consolidating and transferring of scrap metal but not recycling and processing of scrap metal.  This office will continue to monitor the [Site] situation so as to ensure that the user restriction of [the Fairwind Tenancy] is complied with.” 

5.  The applicant took the DLO’s reply as a decision not to take any enforcement action for the alleged breaches of the Fairwind Tenancy.  It then commenced the present proceedings against the Director of Lands (“the Director”), seeking an order of certiorari to quash the said decision and an order of mandamus to oblige the Director to act upon the fact that Fairwind was in breach of the user clause of the Fairwind Tenancy.[1]

B.      Grounds for review

6.  The applicant raised two grounds why the court should intervene by way of judicial review :

(1)     The Director had made a material error of fact in deciding that Fairwind’s present use on the site is not a breach of the user clause of the Fairwind Tenancy.  The decision not to take or considering taking enforcement against Fairwind, which is based on this error of fact, is wrong. 

(2)     The applicant has a legitimate expectation, inter alia, that the Director would not allow Fairwind to carry on a business of recycling and processing of scrap metal in breach of the Fairwind Tenancy.  Contrary to this expectation, the Director has failed to enforce the Fairwind Tenancy. 

7.  Stripped down to its crux, the applicant’s case is that absent any enforcement of the Fairwind Tenancy by the Director, Fairwind is allowed to run the same recycling business as the applicant does but without the same stringent restrictions and at a cheaper monthly rent,[2] which constitutes an unfair competitive disadvantage against the applicant. 

C.      Is the decision judicially reviewable?

8.  In opposing the application, Ms Cheng, for the Director, took the preliminary point that the decision not to take any enforcement action against Fairwind is not judicially reviewable as it was a decision made by the Government qua private landlord.[3]  Mr Cooney, for the applicant, submitted that the Director’s decision involved the exercise of a public law function and is hence amenable to judicial review. 

9.  If Ms Cheng is correct, this application must fail in limine. 

C.1.  The principles

10.  I derive the following principles from the authorities cited by counsel. 

11.  First, in determining if a decision is judicially reviewable, the courts look at the nature of the functions of the decision-maker pertaining to that decision.  See R v. Take-over Panel, Ex p. Datafin Plc [1987] QB 815, per Lloyd LJ at p. 847A-C; Hong Kong and China Gas Co. Ltd v. Director of Lands [1997] HKLRD 1291, per Keith J (as he then was) at p. 1295J; Anderson Asphalt Ltd v. Secretary for Justice, HCAL28/2006 & HCAL98/2007, unreported, 16 March 2009, per A Cheung J at para. 39. 

12.  Second, in connection with tenancies, the Government may, depending on the circumstances of the case, act in the private domain as landlord or in the public domain as protector of public interest.  See Hang Wah Chong Investment Co. Ltd v. A-G of Hong Kong [1981] HKLR 336; Anderson Asphalt Ltd v. Secretary for Justice, supra, at para. 57(vi). 

13.  Third, when the Government’s decision is directly related to its interests as landlord, economic and otherwise, it acts as a private landlord and its decision is not susceptible to judicial review : See Hang Wah Chong, supra, at p. 341.  Applying this principle, the courts had held that the Government acted as a private landlord in the following situations :

(1)     imposing a premium as a condition of grant of permission to erect building higher than that permitted under the lease : Hang Wah Chong, supra;

(2)     deciding whether to approve master layout plan under the lease : Canadian Overseas Development Co. Ltd v. Attorney General [1991] 1 HKC 288;

(3)     deciding whether to grant lease modification, and if so, setting the price and conditions : Rank Profit Industries Ltd v. Director of Lands [2009] 1 HKLRD 177;

(4)     deciding whether to grant short-term waivers of user clauses in leases : Anderson Asphalt Ltd v. Secretary for Justice, supra. 

In his written submissions, Mr Cooney seemed to have suggested that the principle derived from Hang Wah Chong applies to modifications of lease only.  With respect, I do not think that is correct.  The authorities clearly show that the principle has a much wider scope of application. 

14.  Fourth, when the Government acts in its capacity of a landlord, it is entitled to exercise its powers for the public’s benefits : Ying Ho Co. Ltd v. Secretary for Justice [2005] 1 HKLRD 135, per Ribeiro PJ at para. 102; Rank Profit Industries Ltd v. Director of Lands [2009] 1 HKLRD 177, per Tang VP at para. 47.  The mere presence of some public elements, like e.g., town planning consideration, may not be sufficient to render the Government’s decision a public law decision : see Rank Profit, ibid; Anderson Asphalt Ltd v. Secretary for Justice , supra, at para. 57(viii)-(xi). 

15.  Fifth, the Government acts in the public domain when it looks beyond its interests as landlord and takes into account a host of public interests : Hong Kong and China Gas Co. Ltd v. Director of Lands [1997] HKLRD 1291; or when it acts pursuant to a published policy : Kam Lan Koon v. Secretary for Justice [1999] 3 HKC 59l.[4]  Both cases concerned the Government’s policy contained a policy statement published in 1987 on extension on leases for special purposes in the New Territories due to expire upon the change of sovereignty in 1997 to 30 June 2047.   Keith J (as he then was) in Hong Kong and China Gas and the Court of Appeal in Kam Lan Koon held that the Government’s refusal to extend the lease concerned was a decision made in the exercise of its public functions. 

16.  Sixth, whether or not the additional public elements are of sufficient weight to turn an otherwise commercial decision of the Government under a lease into a public decision is a question of degree, depending very much on individual cases.  No hard and fast rule can be laid down.  In a borderline case, it is very much a matter of overall impression and one of degree : Anderson Asphalt Ltd v. Secretary for Justice, supra, at para. 57(v) and (xi)-(xii). 

17.  With these principles in mind, I turn to consider if the Director’s decision is a public law decision amendable to judicial review. 

C.2.  Is it a public law decision?

18.  Mr Cooney submitted that it is the Government’s land allocation policy to identify and lease suitable short-term tenancy sites exclusively to the waste recycling industry at affordable rent with the aim to promoting waste recycling activities to help achieve waste reduction as a matter of environmental policy.  The policy also aims to lower operation costs to help promote local recycling activities in Hong Kong.  In this regard, he relied on :

(1)     Waste Reduction and Recovery Factsheet No.1 prepared by the Environmental Protection Department dated August 2008;

(2)     EEC Paper IN 7/04 prepared by the Environment, Transport and Works Bureau dated December 2004 for the fourth meeting of the Economic and Employment Council; and

(3)     Environmental Report 2007 prepared by the Lands Department. 

He argued that the Director’s decision not to take enforcement action under the Fairwind Tenancy is related to the said land allocation policy and is clearly a function in the public domain. 

19.  I disagree.  The said land allocation policy, as its name suggests, covers land allocation and grant of short-term tenancies for the recycling industry only.  None of the supporting materials relied on by counsel deals with breach or enforcement of tenancy granted by the Government under the policy.  The policy has nothing to do with those matters.  Put simply, it is not a policy on or about enforcement of short-term tenancies at all.  So I fail to see how the Director’s decision not to take enforcement action against Fairwind is related to that policy. 

20.  Mr Cooney next submitted that the Director, in deciding whether Fairwind had breached the Fairwind Tenancy and if so whether to take action against any breach, had to have regard to a host of competing interests :

(1)     the land allocation policy as aforesaid and the effect on it of a breach by Fairwind;

(2)     the interests of the community (and in particular the interests of the neighbourhood of the site) in having a recovery and recycling plant there;

(3)     the interests of other lessees who might be performing the same user as Fairwind’s but subjected to more stringent technical requirements and higher rent level both generally and in respect of the policy of providing affordable land to reduce costs to encourage waster reduction; and

(4)     the interest of other lessees whom the Director refused to tolerate, grant a waiver or a change of user in relation to a breach of user. 

He further submitted that the Director had to decided whether these considerations justified a departure from the clear statement in his letter to the applicant dated 24 December 2007 that a short-term tenant is not allowed to use the premises for other purposes.  The decision by the Director as to whether there was a breach of the Fairwind Tenancy and whether to take action was made by him in the exercise of his public functions. 

21.  However, the Director as a matter of fact did not take into account the above matters in determining if Fairwind had breached the Fairwind Tenancy and if so what action should be taken as they were, the Director thought, irrelevant.[5]  Mr Cooney then countered by submitting that the Director ought to have taken them into account. 

22.  In my view, whether there is a breach of the Fairwind Tenancy is purely a matter of private contract between the Government as landlord and Fairwind as tenant.  The Government simply looks at the relevant provisions in the Tenancy and the acts complained of to see if there is a breach.  The Government need not look at the matters relied on by counsel.  If there is a breach, various options are available to the Government in deciding what action should be taken.  It may in an extreme case terminate the Tenancy and re-enter the Site.  It may at the other end of the scale forebear the breach with or without condition or payment of fees.  The Government needs to consider the options carefully and decide which is the most suitable one in the circumstances.  I do not think the matters identified by counsel are relevant to that exercise save and except that the Government may well have to take into account the impact on the environment on and near the Site when considering the seriousness of the breach.  But that is not sufficient to turn it into a public law decision.  For as noted, the Government is, as landlord, entitled to exercise its powers for public benefits.  Its ultimate decision plainly relates directly to its interests as landlord, be it economic or otherwise.  It thus remains a private law decision and does not involve the exercise of any public law function. 

23.  For the above reasons, I hold that the Director’s decision not to enforce the Fairwind Tenancy is not amendable to judicial review.  On this ground alone, this application must fail. 

24.  For completeness, I will briefly deal with the two grounds of review raised by the applicant.  To recap, the grounds are :

(1)     the Director made a material error of fact; and

(2)     the applicant had a legitimate expectation. 

D.      Did the Director make any error of fact?

D.1.  The principles

25.  It is settled law that if a decision-maker makes an error of fact then that error may vitiate the decision if there is a real likelihood that, if the truth had been known, a different decision would or might have been reached : Christian Bulao Palmis v. Director of Immigration, HCAL2104/2001, unreported, 19 February 2003, per Hartmann J (as he then was) at para. 60. 

26.  A fuller statement of the law can be found in R v. Director of Immigration and the Refugee Status Review Board, ex p. Do Giau and Others [1992] 1 HKLR 287, per Mortimer J (as he then was) at pp. 301-302.  It can be expressed thus : if it is demonstrated that a decision-maker made a material and decisive error of fact, which not actually known or available to him but was then easily available, generally known and unquestionably true, so that it must be assumed to have been within his knowledge, then if there is a real likelihood that the decision-maker would have come, or might have come, to a different conclusion if the error had not been made, that decision will be vitiated. 

D.2.  Was there any error of fact?

27.  It is the applicant’s case, which the Director does not seriously dispute, that recovery or recycling scrap metal involves :

(1)     purchasing scrap metal;

(2)     transporting it to a processing site;

(3)     processing the scrap metal to add value to it by using a shearing machine to compress and cut the scrap metal; and

(4)     selling the scrap metal and loading it onto vessels for transport as directed by the buyers. 

28.  Mr Cooney submitted that the Director is mistaken in two aspects, namely, (a) there are purchasing and sale of scrap metal on the Site by He Tai and (b) the admission in He Tai’s website that it operates a scrap metal business on the Site.  I disagree.  I will explain why.  

29.  The applicant relied on the affirmations of two suppliers of scrap metal, Mr Lai Kwok Fai and Mr Ng Wai Lun, filed on 3 September 2008.  Mr Lai said that on 2 July and 19 August 2008, he delivered scrap metal to the Site and later collected the payments by cheque from He Tai’s office in Yau Tong.  Mr Ng said on 18 and 19 August 2008, he delivered scrap metal to the Site and later collected the cheques for payment in He Tai’s office.  Both said that they had supplied scrap metals to the Site in the same manner since the end of 2007. 

30.  Plainly, the Director was not aware of such activities in February 2008.  In fact, according to the various site inspections carried out by the DLO’s staff, no sale and purchase was seen to have taken place on the Site.  The Director should not be fixed with constructive knowledge of the same either because as rightly submitted by Ms Cheng, for the Director, such activities cannot be said to have been “easily available, generally known and unquestionably true” as at February 2008.  On the evidence before me, even the applicant, who had carried out investigations and is engaged in the same industry and had actual dealings with Mr Lai and Mr Ng, was not aware of such activities at the time. 

31.  According to the applicant’s director, Mr Chan Kin Hung, one of the applicant’s customers told him that He Tai, through its mother company in Shanghai sold more than 10,000 tons of processed scrap metal directly from Tsing Yi, (which must mean the Site) to Taiwan.  But Mr Chan did not mention when the purported sale took place and when the customer told him so.  It is not evidence that He Tai had been engaging in sales on the Site before February 2008.  Even if it is, the same cannot be imputed to the Director’s knowledge because there is no evidence to suggest that it is “easily available, generally known and unquestionably true” as at February 2008.

32.  It is not clear from the evidence when it was first stated on He Tai’s website that it operates a scrap metal business on the Site.  Absent such evidence, it cannot be said that the Director was to be fixed with the knowledge that as at February 2008, He Tai was operating a scrap metal recycling business on the Site. 

33.  Mr Cooney referred to the DLO’s letter dated 5 December 2007 addressed to Fairwind, in which the DLO, after referring to the applicant’s complaint and a site inspection thereafter, said “it appears that you are in breach of the user restriction as stipulated in the First Schedule of the tenancy agreement”.  He submitted that the Director cannot now say that Fairwind had not breached the Tenancy.  But the letter must be read in the entire context.  In December 2007, the DLO was carrying out initial investigation.  The statement in the letter is, in my view, no more than a tentative observation based on the materials then available to the DLO.  It is wrong to suggest that the Director is now estopped from coming to a different view after thorough investigation, mature consideration and legal advice. 

34.  In any event, as rightly submitted by Ms Cheng, even if the Director should have taken the view that there was a breach of the Fairwind Tenancy because He Tai was operating a recycling business on the Site, it does not necessarily follow that he must bring enforcement proceedings.  It really depends on the exact nature of the breach, the seriousness of the breach, the circumstances of the breach and the reasons for the breach.  Depending on the circumstances, the Director may tolerate the breach or grant a waiver or a change in the user. 

35.  For the above reasons, this ground fails. 

E.      Was there any legitimate expectation?

36.  The applicant must show that the Director had make a clear and unambiguous representation supporting the legitimate expectation as contented : see Ng Siu Tung & ors. v. Director of the Immigration (2002) 5 HKCFAR 1, at para. 103. 

37.  In Form 86A, the applicant said :

“17. Further, the Applicant had legitimate expectation that the Respondent would not allow any land users to carry on business of recycling and processing of scrap metal not in accordance with the purpose assigned by the Respondent.  This is especially the case when the Respondent assigned land for usage for the purpose of operation of a business in connection with the recovery and/or recycling of scrap metals, various technical conditions must follow.  These include, but not limited to, amount of monthly output of metals and/or periodical reports to the Director of Environmental Protection.  See Short Term Tenancy No. 1404, a tenancy agreement between the Respondent and Takco Limited, a sister company of the Applicant, where the purpose of land includes operation of a business in connection with recovery and/or recycling of scrap metals.  

18.  Further, the Respondent District Lands Officer, Kowloon East issued letter dated 24^th December 2007 to the Applicant to remind the Applicant must use the premises as assigned.  Therefore, the Applicant would have legitimate expectation that land use clause would be strictly enforced by the Respondent.”

38.  Mr Cooney first sought to rely on the land allocation policy referred to in paragraph 18 above and submitted that the Director would not tolerate the use of land for recycling or processing scrap metal, if such was not permitted expressly by the lease and in the absence of requirements similar to those contained in the Applicant’s Tenancy.  I disagree.  I do not think any legitimate expectation as contended can possibly arise from the policy, which deals with land allocation and no more. 

39.  The applicant’s reference to Short Term Tenancy No. 1404 was made as part of its assertion that short term tenancies for the recycling industry had been let out on similar terms, which means that Fairwind should only be allowed to run a recycling business on the Site with the same restrictions laid down in the Applicant’s Tenancy.  That assertion is factually incorrect.  For the evidence adduced by the Director shows that the terms of the short-term tenancies for scrap metal recycling business vary.  So does the average monthly rent per square metre.  Accordingly, there can be no legitimate expectation that Fairwind should only be allowed to operate a recycling business with similar terms and rent as contained in the Applicant’s Tenancy. 

40.  The applicant’s reliance on the Director’s letter of 24 December 2007 does not advance it case.  That letter reminded the applicant that a short-term tenant is not allowed to use his premises for any purpose not permitted by the lease.  Mr Cooney submitted that applicant is reasonably entitled to expect that the Director would not tolerate the use of land for a purpose which was not permitted by the lease.  I disagree.  I do not think the letter can possibly give rise to any representation on the Government’s lease enforcement policy generally or on short-term tenancies for recycling scrap metal specifically. 

41.  This ground fails as well. 

F.       Does the applicant have any locus standi?

42.  Finally, I need to deal with the Director’s contention that the applicant does not have standing in bringing the present application. 

43.  Mr Cooney principally relied on three matters to argue that the applicant has sufficient standing. 

44.  He first referred to the said land allocation policy and argued that the applicant, as a short-term tenant operating a recycling business, has a real interest in the operation of the policy.  But as I have observed, the land allocation policy is irrelevant to the question of enforcement of the Fairwind Tenancy.  Whatever interest the applicant may have in the operation of the policy will not confer any standing. 

45.  Mr Cooney next argued that the applicant has a real commercial and economic interest in seeing that Fairwind should not be able to gain an economic advantage over it by saving costs in tendering for a site on the grounds that it will be used for logistics and not for recycling.  He relied on Anderson Asphalt Ltd v. Town Planning Board [2007] 3 HKLRD 18 in support.  That caseconcerned a challenge against decisions made in the town planning context in which it is well recognized that a person whose real interest in the matter is commercial and economic should be allowed to raise objection.  That was the basis upon which the Court of Appeal ruled that the applicant there had sufficient standing : see paras. 66-68, at pp. 31H-32C.  In the present context, I do not think mere commercial and economic interest as competitor in the same trade is sufficient to confer standing : Anderson Asphalt Ltd v. Secretary for Justice, supra, at para. 133. 

46.  Mr Cooney finally argued that the applicant has standing because the DLO had entertained and acted upon its complaints.  I do not agree : see Anderson Asphalt Ltd v. Secretary for Justice, supra, at para. 139. 

47.  For the above reasons and given the lack of merits in the grounds of review, I hold that even if the Director’s decision not to enforce the Fairwind Tenancy is amenable to judicial review, the applicant does not have sufficient standing to mount this application. 

G.      Conclusion

48.  I dismiss this application.  I also make an order nisi that the Director shall have the costs, including all costs reserved, to be taxed if not agreed. 

[1]    In the Form 86A, the applicant also sought a declaration that Fairwind’s activities were not merely taking in, consolidating and transferring of scrap metal but was recycling and processing of scrap metal.  But it was not pursued at the hearing on 21 April 2009.

[2]    HK$11.08 per square metre as compared to HK$14.44 per square metre under the Applicant’s Tenancy.

[3]    Ms Cheng also took another preliminary point that the application for judicial review is premature because the Letter was not a decision that the DLO would not sue Fairwind.  It was a mere response to the applicant’s complaints.  In the course of submissions, I observed that the Letter, when properly read in context, must mean that the DLO did not accept that on the materials then available Fairwind was in breach of the Fairwind Tenancy and hence decided not to take any enforcement action.  Ms Cheng did not press this point any further.

[4]    See the explanation of the two cases by Hartmann J (as he then was) in the first instance judgment in Rank Profit Industries Ltd v. Director of Lands [2007] HKEC 390 at paras.59-61 and quoted by Tang VP in Rank Profit, supra, at para.36.

[5]    See para. 3 of the 3^rd affirmation dated 17 April 2009 of Mr Kwok Sui Cheong, Senior Land Executive/Special Duty of the DLO.