DELUXE ASCENT LTD v. DIRECTOR OF LANDS

HCAL 2442/2018

[2021] HKCFI 811

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 2442 OF 2018

________________________

________________________

________________________

J U D G M E N T

________________________

INTRODUCTION

1.  This is an application for judicial review of the decision (“Decision”) of the Director of Lands (“Director”) made by letter dated 3 August 2018 that:

“in making a compensation offer pursuant to the Government’s policy on ex gratia compensation for private building land resumed in the New Territories pursuant to the Lands Resumption Ordinance (Cap 124) (‘LRO’), for section A (portion) of Lot No.1941 in Demarcation District 95 (Area 29 of Kwu Tung North New Development Area) resumed by the Government of the Hong Kong Special Administrative Region pursuant to … Gazette Notice No.4571 (‘Resumed Land’), ex gratia compensation should be limited by the site coverage restriction applicable to the Resumed Land”.

BASIC FACTS

2.  The Applicant was the registered owner of 50% of Section A of Lot No 1941 in Demarcation District No 95 (“Lot 1941A”) in Kwu Tung, New Territories, which was a building lot of approximately 59,752 m² in size.  The remaining 50% interest of Lot 1941A was held by the Executors of Fok Ying Tung Henry, deceased (“the Fok Estate”).

3.  Lot 1941A is located on the northern side of Castle Peak Road - Chau Tau section, in Kwu Tung, New Territories.  Part of the land is zoned Government, Institution or Community under the Kwu Tung North Outline Zoning Plan No S/KTN/2.

4.  In addition to Lot 1941A, the Applicant and the Fok Estate also co-owned, as tenants-in-common with 72% and 28% interests respectively, Section B of Lot 391 in Demarcation District No 95 (“Lot 391B”).

5.  Pursuant to GN 4571 dated 5 August 2016, (i) a portion of Lot 1941A (ie the Resumed Land) of approximately 12,858.8 m² in size, and (ii) Lot 391B, were resumed for a public purpose, namely, for a “purpose-built complex of residential care homes for the elderly in Area 29 of Kwu Tung North New Development Area”, under the LRO, and reverted to the Government at midnight on 12 November 2016.

6.  On 9 December 2016, the Lands Department wrote to the Applicant and the Fok Estate requiring them to submit within 42 days their claim for compensation in respect of the Resumed Land.  On 21 March 2017, the Applicant, through M Y Wan and Associated Limited, submitted a claim in the total sum of HK$930,497,000, made up of HK$778,107,000 as land value plus HK$152,390,000 by way of ex gratia compensation, to the Lands Department as compensation for the resumption of both Lot 391B and the Resumed Land.  Further discussion between the parties ensued, the details of which it is not necessary to set out in this judgment.

7.  Eventually, on 3 August 2018, the Lands Department made the Decision the subject matter of the present application for judicial review, whereby the Director offered to the Applicant and the Fok Estate compensation for the Resumed Land comprising: (i) statutory valuation of the Resumed Land at HK$164,274,000, and (ii) ex gratia compensation of HK$60,955,764.

8.  The Applicant disputes both components of the offer, but the present application concerns only the offer of ex gratia compensation, the details of which I shall further explain below.

9.  On 11 October 2018, the Applicant applied to the Lands Tribunal for statutory compensation under s 6(3) of the LRO (in LDLR 9/2018, “the Lands Tribunal Application”).

THE DIRECTOR’S POLICY ON COMPENSATION FOR PRIVATE LAND IN THE NEW TERRITORIES RESUMED BY THE GOVERNMENT

10.  The Director’s policy on payment of ex gratia compensation for private land in the New Territories resumed by the Government is set out in a document titled “How to Receive Compensation for Private Land Resumed in the New Territories by the Government (Revised Version) – May 2006” (“the Policy”) published by the Lands Department, the relevant parts of which state as follows:

“1  Purpose

This pamphlet briefly explains the procedures involved in compensation payment for private land resumed in the New Territories so as to assist landowners to get compensation as soon as possible.

2  Land Acquisition

Government may acquire private land by resumption for public purposes such as a road scheme, a flood protection, a drainage improvement project, a new market, an open space, a fire station, a public housing development or any item in the Public Works Programme. Resumption proceedings may be instituted mainly under the provisions of:-

(a)  the Lands Resumption Ordinance, Chapter 124;

…

4  Offer of Compensation

After the affixing of the Government Notice on the land, a standard offer letter for compensation will be sent to you as the registered owner of the land or person who has an interest in the land. The letter offers you a sum of money by way of compensation for the land to be resumed …

5  Statutory and ex-gratia compensation

When land is resumed or otherwise adversely affected by the actions of Government, the Ordinance under which the legal interest is extinguished or affected provides for the payment of compensation. The compensatable interest is limited by the provisions of the Ordinances, some of which are listed in paragraph 2 hereof. Statutory compensation is assessed on an open market value basis. However, it is the general Government practice to make compensation offers based upon ex-gratia rates in full and final settlement of all claims arising out of the provisions of the Ordinance. In this connection, agricultural land resumed in the New Territories will usually be offered compensation according to the ex-gratia compensation rates shown on the Zonal Plan for Calculation of Compensation Rates which may be inspected at all the DLOs and owners of building land will usually be offered statutory compensation based on professional valuation plus ex-gratia compensation at the standard zonal rate. The rate applicable to a resumption is that prevailing as at the date of reversion. The basic rate is revised half-yearly on 1st April and 1st October.

6  If you do not accept the Government’s offer

If you do not accept the amount of compensation offered, you may make a claim for compensation in writing to the DLO or CES/RD stating the amount of your claim with evidence to support your claim.  This means that you will have to follow the requirements laid down in the relevant Ordinance for making a claim.  A claim for compensation usually includes the nature of your estate or interest in the land and the amount which you seek to recover.  In the event that your claim is not agreed, it may be referred by you or by the Government to the Lands Tribunal for the amount of compensation to be determined.  The figure awarded will then be binding on both you and the Government.  In the event of a claim being referred to the Lands Tribunal, the offer of ex-gratia compensation will be immediately withdrawn and a re-assessment on a market value basis made.  Once an award is made by the Lands Tribunal, irrespective of whether it is higher or lower than the original ex-gratia offer, it is the maximum compensation payable.” [emphasis added]

11.  The background to the Policy was explained in the judgment of Hartmann J (as he then was) in Funco Limited v Secretary for Justice, HCAL 106/1999 (unreported, 6 April 2001):

[12]  If land is resumed by Government under the Railways Ordinance or the Lands Resumption Ordinance and compensation is assessed in terms of those statutes, no provision may be made for the assessment to include what is called the ‘hope value’ of the land. The ‘hope value’ may be described as that portion of the value which acknowledges the inherent potential of the land for a more valuable use. If, for example, agricultural land in the New Territories carries with it a real expectation that permission will be granted for it to be exploited for urban use, the price placed on that expectation is its ‘hope value’. Essentially, therefore, the ‘hope value’ is part of a property’s market value.

[13]  In the 1960s when, in order to meet the needs of Hong Kong’s burgeoning population, the Government began to develop new towns in the New Territories, it recognised that the statutory restrictions on what factors may influence the quantum of compensation often impeded the efficient and fair resumption of land. As a result, an administrative system of compensation was developed. Initially, this system involved an exchange of land[1]. When agricultural land was resumed for urban use, a letter of exchange was issued giving land owners the right to receive a certain amount of land in the new towns calculated according to the amount of agricultural land which they had been forced to surrender. It was accepted that this land exchange scheme gave an opportunity to land owners to participate in the profits of urban development. In short, the scheme encompassed the ‘hope value’ of land that had to be resumed.

[14]  However, for reasons which are not relevant to this judgment, the system was found to be unworkable. As a result, in 1978 a working group under the chairmanship of Sir Y K Kan recommended a revised system which would allow for ex gratia cash compensation. The recommendations were accepted by Government and, as I understand it, today (in almost all cases) cash compensation is offered rather than land exchange.

[15]  This new system of monetary compensation was founded on a basic rate of compensation which was re-assessed from time to time, there being one basic rate for agricultural land and one for building land. But so that the land owners who were forced to surrender their land could share in the enhanced use of that land, an adjustment was made to the basic rate calculated according to whatever was the intended use of the land. The intended uses were divided into categories and, as they were to be applied across the New Territories, they were called compensation zones. These zones were identified alphabetically. Zone A - in the main being land required for the development of the new towns - has always offered the highest rate of compensation.

[16]  In addition to this incorporation of a hope value into the calculation of ex gratia compensation, the working party recommended a set of principles in terms of which the scheme should be administered. These principles have not been disavowed by Government and it can be taken that the scheme is governed in accordance with those principles. The principles include the following:

(i)  The scheme must be fair and acceptable to those affected by it;

(ii)  it must be capable of reasonably easy administration and explanation;

(iii)  it must provide for a system of continuous review of the compensation rate;

(iv)  it must provide for uniform rates of compensation for land acquired at any given time in any urban layout in the New Territories.

[17]  In order to put the new scheme into effect, all land in the New territories has been classified into compensation zones. These zones have been recorded onto maps or plans called zonal compensation plans which are periodically updated to take account of the changing intended use of land. It is apparent that in planning matters the need to respond to changing socio-economic imperatives is a well accepted principle.

[18]  Originally, the land in the New Territories was divided into one of 7 compensation zones. However, in 1986 the number of zones was reduced to 4 and there was some adjustment to the rates of compensation. In 1996, the Executive Council authorised certain further modifications to the classifications. There remained just 4 compensation zones but the definition of Zone A was, to use the term then employed, ‘refined’. The 1986 definition had read simply: ‘New Town Development’. However, with the 1996 amendments the 4 zones are today defined (in respect of agricultural land in the New Territories) as follows…”

12.  As mentioned in §18 of the judgment of Hartmann J in Funco, lands in the New Territories are currently divided into 4 compensation zones, each with a different compensation rate.  Details of the 4 compensation zones and the corresponding zonal rates are set out in LC Paper No CB(1)1909/01-02(01), titled “Ex-gratia Zonal Compensation System for Land Resumption in the New Territories”, prepared by the Planning and Lands Bureau dated May 2002 (“the Legco Paper”):

Zone	Definition	Compensation Rate
A	New Town Development Areas (namely areas within the New Town boundaries as shown on gazetted outline zoning plans for new towns), and those areas that are affected by essential projects with territory-side significance.	For agricultural land: 120% of basic rate. For building land: valuation + 120% of basic rate.
B	Areas which may be brought under urban development in the near future, either by extensions to the adjoining layout areas due to their proximity to such areas or by reason of their known potential for urban development.	For agricultural land: 75% of basic rate. For building land: valuation + 75% of basic rate.
C	Areas in which no urban development is planned and which are unlikely to be affected by later extension to layout areas, but where resumption are required sometimes for purposes directly connected with urban layout development and sometimes for local improvement schemes.	For agricultural land: 50% of basic rate. For building land: valuation + 50% of basic rate.
D	Areas not included in other zones.	For agricultural land: 30% of basic rate. For building land: valuation + 30% of basic rate.

13.  Further, as mentioned in §15 of the judgment of Hartmann J in Funco, there are two basic rates of ex gratia compensation, one for agricultural land and the other for building land, under the Policy, and the two rates are re-assessed from time to time.  It is common ground that the applicable rates for the purpose of the present case are those set out in GN 1841 dated 24 March 2016[2], which states as follows:

“Notice is hereby given that as from 1 April 2016 the following ex-gratia compensation rates may apply:-

(a)  For agricultural land a basic rate of $927 per square foot.

(b)  For building land a basic rate of $1,835 per square foot.

Owners of agricultural land in the New Town Development Areas (namely areas within the New Town boundaries as shown on gazetted outline zoning plans for new towns), and those areas that are affected by essential projects with territory-wide significance of the New Territories (Zone A) and the urban areas of Hong Kong and Kowloon may be offered ex-gratia compensation at $1,112.4 per square foot.

Owners of building land in the New Town Development Areas (namely areas within the New Town boundaries as shown on gazetted outline zoning plans for new towns), and those areas that are affected by essential projects with territory-wide significance of the New Territories (Zone A) may be offered compensation based on professional valuation plus ex-gratia compensation at $2,202 per square foot.

The following ex-gratia compensation rates for agricultural and building land resumed/acquired outside Zone A Areas in the New Territories may apply:-

Ex-gratia Compensation Rates (per square foot)

Zone	Agricultural Land	Building Land
B	75% of Basic Rate	Valuation + 75% of Basic Rate
C	50% of Basic Rate	Valuation + 50% of Basic Rate
D	30% of Basic Rate	Valuation + 30% of Basic Rate

These ex-gratia compensation rates are shown on the Zonal Plan for Calculation of Compensation Rates and may be inspected at the District Lands Offices of North, Yuen Long, Tuen Mun, Sha Tin, Tsuen Wan and Kwai Tsing, Tai Po, Sai Kung and Islands.” [emphasis added]

14.  In summary, under the Policy, the compensation to be offered by the Director for the resumption of building land in the New Territories consists of two elements, namely, (i) the value of the land (as assessed), and (ii) ex gratia compensation (based on a fixed percentage, depending on its zoning, of the basic rate, which is reviewed half-yearly[3]). For the resumption of building land within Zone A where the applicable rates are those as set out in GN 1841, the compensation to be offered should be the total of (i) the value of the land (as assessed), and (ii) ex gratia compensation at the rate of HK$2,202 per square foot (being 120% of the basic rate of HK$1,835 per square foot).

15.  In the present case, it is common ground that:

(1)  Lot 1941A (including the Resumed Land) was building land;

(2)  Lot 1941A (including the Resumed Land) was situated within Zone A under the Policy[4]; and

(3)  the Resumed Land has an area of 12,858.8 m² (equivalent to about 138,411 ft²).

16.  Hence, under the Policy, read together with GN 1841, the ex gratia compensation to be offered by the Director for the Resumed Land should be calculated at the rate of HK$2,202 per square foot.  The question is whether that rate should be applied to the whole area of the Resumed Land, or only a portion of that area.

17.  Essentially, the dispute between the parties boils down to this:

(1)  The Applicant contends, taking into account the fact that it was the owner of only 50% of the Resumed Land, that it should be offered ex gratia compensation of HK$2,202 x 138,411 x 50% = HK$152,390,511 (in other words, the compensation rate of HK$2,202 per square foot should be applied to the whole area of the Resumed Land).

(2)  On the other hand, the Director takes the view that because the Resumed Land was subject to a site coverage restriction of 20%, the compensation rate of HK$2,202 per square foot should be applied only to 20% of the area of the Resumed Land.  According to Mr Cheung Ka Lok, Assistant Director (Specialist 3) of the Lands Department:

“the ex gratia compensation should be assessed based on the building rate (which was $2,202 for Zone A, as set out in G.N. 1841 …) for the covered percentage (i.e 20%) of the Resumed Land and based on agricultural rate for the remainder (i.e. 80%) of the Resumed Land.”[5]

On this basis, the ex gratia compensation to be offered to the Applicant should comprise two parts: (i) building rate of HK$2,202 per square foot for 20% of the Resumed Land, and (ii) agricultural rate (for Zone A, at HK$1,112.4 per square foot[6]) for 80% of the Resumed Land.

(3)  It will be recalled that the ex gratia compensation offered by the Director was HK$60,955,764 (for both the Applicant and the Fok Estate).  It is the evidence of Mr Cheung that:

“As a matter of mathematical calculation, the sum of HK$60,955,764.00 as ex-gratia compensation for the building land portion divided by the rate of HK$2,202 per square foot gives an area of 27,682 square feet, which is about 20% of the area of the Resumed Land (i.e. 138,411 square feet).”[7]

(4)  Pausing here, it may be noted that the ex gratia compensation of HK$60,955,764 offered by the Director did not include the second element mentioned by Mr Cheung (ie agricultural rate for Zone A, at HK$1,112.4 per square foot, for 80% of the Resumed Land).  I shall come back to the relevance of this omission later.

(5)  The difference between the parties, in so far as ex gratia compensation is concerned, is therefore -

(a)  on the Applicant’s case, HK$152,390,511; and

(b)  on the Director’s case, HK$30,477,882 (50% of HK$60,955,764).

APPLICATION FOR JUDICIAL REVIEW

18.  On 1 November 2018, the Applicant made the present application for leave to apply for judicial review of the Decision.  On 5 November 2018, leave to apply for judicial review was granted by the court.

19.  In the Applicant’s Amended Form 86 dated 1 November 2019, four grounds of judicial review are raised:

(1)  non-adherence with own policy or misapplication of policy (Ground 1);

(2)  failure to give effect to legitimate expectation (Ground 2);

(3)  taking into account irrelevant considerations (Ground 3); and

(4)  alternative ground - non adherence with the 1991 Instructions (Ground 4).

NO EVIDENCE THAT LOT 1941A (INCLUDING THE RESUMED LAND) WAS SUBJECT TO 20%, OR ANY, SITE COVERAGE RESTRICTION

20.  It is common ground that the original land grant for Lot 1941 cannot now be found, although there is evidence that it was first granted in 1922 or 1923.  The only documents available to the public relating to the land grant in respect of Lot 1941A are (i) the “A” rent roll, which mentions that Lot 1941A was first demised as “3^rd class padi”; and (ii) a modification letter dated 27 September 1965 (“the Modification Letter”), which permitted the erection of a building(s) on Lot 1941A subject to a height restriction of 2 storeys (25 ft).  Neither document mentions any site coverage restriction applicable to Lot 1941A.

21.  The evidence before the court further discloses the following:

(1)  In February 1961, the former owners of Lot 1941A and Lot 375 in DD 95 (“Lot 375”) applied to the District Office for the surrender of those lots in exchange for a piece of land of approximately 636,650 sq ft (“the 1961 Application”).

(2)  On 11 March 1961, the 1961 Application was considered at a Lands Conference, which approved the application subject to, inter alia, “permitted B.O. area of 20%” (ie built over or roofed over area of 20%).

(3)  By a letter dated 20 March 1961, the District Officer, Tai Po made an offer to the agent of the owners (Harriman Realty Co Ltd).  One of the conditions of the proposed surrender and exchange was stated to be “Restriction on User: Residential purposes only, with flatted development permitted subject to a roofed over area of 20% of the site and a height restriction of 25 ft.”.

(4)  By a letter dated 22 November 1962, Harriman on behalf of the owners accepted the District Officer’s offer contained in the said letter of 20 March 1961 and a further letter dated 10 October 1962.

(5)  However, the 1961 Application was eventually not pursued[8].

(6)  In around April 1965, the former owners of Lot 375 and Section A of Lot 391 in DD 95 (“Lot 391A”) made another, different, application (“the 1965 Application”) to the District Commissioner, NT to surrender and exchange those lots together with Lot 1941A for a new grant of land which the District Commissioner proposed would comprise Lot 1941A and an extension thereto (with a total area of 649,500 sq ft).

(7)  In a draft, or unsigned, Memo from the District Commissioner, NT to the Colonial Secretary dated 23 April 1965, it was recommended that the proposed surrender and exchange be approved upon certain terms and conditions.  There was no suggestion, however, that the land to be granted would be subject to any site coverage restriction.

(8)  Some further correspondence ensued, but they have not been produced as evidence before the court.  It is, however, clear that the 1965 Application was not proceeded with, as shown by the fact that:

(a)  on 27 September 1965, the Modification Letter was issued which, as earlier mentioned, permitted buildings to be erected on Lot 1941A with no site coverage restriction but a height restriction of 2 storeys (25 ft); and

(b)  on 22 October 1965, Lot 375 and Lot 391A were surrendered and exchanged for Lot 2054 in DD 95 (“Lot 2054”) under New Grant No 9594, which contained a built-over, or site coverage, restriction of up to 30% of the area of a portion of Lot 2054 (shown coloured red on Plan I annexed to the grant).

(9)  On 12 January 1978, Messrs Tsang, Chan & Tam, Architects and Engineers, wrote to the District Officer, Tai Po, stating that their clients were desirous of redeveloping Lot 1941A and Lot 2054 into a residential estate comprising detached, semi-detached and/or terraced houses of 7.62 m (25 ft) high with a maximum site coverage of 20%, and asked the District Officer to confirm whether the tentative proposals (“the 1978 Proposals”) were acceptable.

(10)  By a letter dated 12 June 1978, the District Officer, Tai Po replied to Messrs Tsang, Chan & Tam that the 1978 Proposals did not infringe any lease conditions and were, subject to approval by other Government departments, acceptable to him.

(11)  Again, it would appear that the 1978 Proposals were not subsequently proceeded with.

22.  In short, none of the 1961 Application, 1965 Application and 1978 Proposals came to fruition.  The only concluded deal affecting Lot 1941A was that contained in the Modification Letter, which did not impose any site coverage restriction.  In Mr Cheung’s 3^rd Affirmation, at §§47-53, he reasons, in view of the fact that (i) the premium that was charged for the conversion approved under the Modification Letter, namely, $4,806 or approximately ¾ȼ per sq ft, was the same premium that was approved at the Lands Conference on 11 March 1961 in respect of the 1961 Application and also the premium recommended to be offered in respect of the 1965 Application, and (ii) the subsequent view taken the 1978 Proposals (with a maximum site coverage of 20%) did not infringe any lease conditions, that “it is clear … that the conversion then approved under the Modification Letter … was subject to a built-over area (and thus, site coverage) of 20% of the Land”[9]. This reasoning of Mr Cheung is, in my view, speculative.  The Lands Conference held on 15 March 1961 was in relation to the 1961 Application.  The 1961 Application, 1965 Application, 1965 Modification Letter and 1978 Proposals were separate or distinct transactions or proposed transactions.  There is no evidence to show that the premium of $4,806 (or ¾ȼ per sq ft) decided to be imposed by the Government under the 1965 Modification Letter was based on a site coverage restriction of 20% for Lot 1941A.

23.  In all, on the materials before the court, there is no evidence to support the view that Lot 1941A was subject to any site coverage restriction, whether of 20% or otherwise, or that the former owners of Lot 1961A had ever entered into any binding agreement with the Government for the imposition of a site coverage restriction, whether of 20% or otherwise, on Lot 1941A.  For this purpose, “[n]o evidence does not mean only a total dearth of evidence.  It extends to any case where the evidence, taken as whole, is not reasonably capable of supporting the finding; or where, in other words, no tribunal could reasonably reach that conclusion on that evidence” (see Dr Chan Sze Lai Jacqueline v Dental Council of Hong Kong [2014] 1 HKLRD 77, at §26).  The above conclusion also disposes of the Director’s arguments concerning contractual interpretation or rectification of the Government lease in respect of Lot 1941A, or estoppel by convention, as well as the further argument that the present application for judicial review should not be entertained because the legal issues arising therefrom should best be resolved in the Lands Tribunal Application.

NON-ADHERENCE WITH OR MISAPPLICATION OF POLICY

24.  The principles for the proper construction of an administrative policy are well settled.  In particular:

(1)  the true meaning and effect of the policy is a matter of law for the court to determine;

(2)  the court’s task is to ascertain the intention as expressed in the language of the policy objectively; and

(3)  when interpreting the policy, the court should adopt a purposive approach, having regard to the document’s context and purpose.

See Shiu Wing Steel Ltd v Director of Environmental Protection (2006) 9 HKCFAR 478, at §§23-25 & 28; Law Mei Mei v Airport Authority [2018] 4 HKLRD 312, at §§52-54; and In re McFarland [2004] 1 WLR 1289, at §24.

25.  In the present case, the Policy states, relevantly for the present purpose, that “owners of building land will usually be offered statutory compensation based on professional valuation plus ex-gratia compensation at the standard zonal rate”.  The meaning of this statement of the Policy is, in my view, perfectly plain: the offer of ex gratia compensation for building land will be at the standard zonal rate, which is expressed in terms of a fixed sum per square foot.  There is nothing in the Policy to suggest that the standard zonal rate would be applied only to a portion of the building land, or that a percentage only of the standard zonal rate would be applied to the building land, if it is subject to a site coverage restriction, whether imposed by the terms of the relevant Government lease, or the Buildings Ordinance (Cap 123), or otherwise.  There is also no exception in the Policy which is relevant to the present case.  The word “usually” in the above statement in the Policy does not, in my view, make any difference to the proper construction of the Policy.

26.  Mr Benjamin Yu, SC (for the Applicant) and Mr Ambrose Ho, SC (for the Director) have made extensive references to various historical or background documents leading to the current Policy in support of their respective contentions regarding the proper construction of the Policy, including (i) an ExCo Memorandum on “The Land ‘Problem’ in the New Territories” dated 27 August 1977 and Annex A thereto, (ii) the Report of the Working Group on New Territories Urban Land Acquisition dated 20 April 1978 (“the 1978 Report”), (iii) an ExCo Memorandum on “Working Group on New Territories Urban Land Acquisition Report” dated 8 June 1978, and (iv) an ExCo Memorandum on “New Territories Resumption Policy” dated 27 October 1978. Reference was also made to a subsequent ExCo Memorandum on “New Territories Land Exchange System” dated 28 January 1983 relating to (inter alia) an enhancement of the ex-gratia compensation rates for land resumed in the New Territories and the abolition of the Letter B system.  It is not with disrespect to counsel that I do not propose to refer to or analyse the aforesaid documents in detail in this judgment, for while those documents are relevant to ascertain the purpose and context of the Policy, there is nothing that I can see in them which affects what I regard as the plain meaning and effect of the Policy, or supports any contention that for building land which is subject to a site coverage restriction, the zonal rate should apply only to a portion of the area of the building land resumed by the Government.  On the contrary, so far as relevant, I consider that they tend to support the view that the relevant zonal compensation rate should be applied to the whole area of the building land resumed by the Government, regardless of whether the land is subject to some site coverage restriction (or other development constraints).  In particular, the 1978 Report, accepted by the ExCo and based on which the present Policy was formulated, set out the “main principles which must guide the choice of any new land acquisition system”, including that (i) “[i]t must be capable of reasonably easy administration and explanation to those affected”[10], (ii) “[a]ny offer of cash compensation or exchange rights must be the same for land acquired at a given time in any New Territories urban layout”[11], and (iii) “[t]he principles, which the Working Group considered must be adhered to, would produce a common rate for all and no room for individual variation”[12].

27.  I consider it to be clear, upon an ordinary reading of the Policy, that the standard zonal rate of HK$2,202 per square foot ought to be applied to the whole area of the Resumed Land (12,858.8 m², equivalent to about 138,411 ft²) for the purpose of calculating the ex gratia compensation that should be offered to the Applicant and the Fok Estate for the resumption of the Resumed Land.

28.  The Director seeks to justify the application of the zonal rate of HK$2,202 per square foot to only 20% of the area of the Resumed Land by reference to “the 1991 Instructions”, which were a set of “internal instructions” of the Lands Department[13] and which Mr Ho argues “reflected the proper construction of the Policy and serve as [the Lands Department’s] internal guidelines to ensure a consistent approach in the application of the Policy”[14]. The 1991 Instructions state, so far as relevant, as follows:

“Assessment of Ex-gratia Compensation for Building land taken in N.T. when only a portion of the lot is affected

1. Land taken - With Site Coverage Stipulation

(i)  Where an existing building on site is unaffected by the resumption but because of the land taken is in breach of the lease; either

(a)  Building rate calculated in relation to the coverage percentage of the land taken and agricultural rate for the remainder plus an annual waiver, at a fee to be assessed, to permit the existing building to remain until redevelopment takes place; or

(b)  Agricultural rate for land taken plus a premium free modification to permit the retention of the existing building area both now and in a future redevelopment situation.

(ii)  Where an existing building on site is unaffected by the resumption and is still within the coverage requirements after the land has been taken apply (b) first, the modification will be to permit the original maximum permitted area on redevelopment: if this method does not properly compensate the loss then apply (a) noting that a waiver may not always be required.

(iii)  Where there is no building existing on the lot then it is suggested that compensation be assessed at the building rate for the covered percentage of land taken plus agricultural rate for the remainder.”

29.  The Director’s evidence is that in cases falling under paragraph 1(iii) of the 1991 Instructions, “ex-gratia compensation should be assessed based on building land rate for the permitted site coverage of the area taken and on agricultural land rate for the rest of the area taken.”[15]

30.  In view of my conclusion that there is no evidence that Lot 1941A was subject to any site coverage restriction, the question of whether, for building land which is subject to a site coverage restriction, the applicable zonal building rate should be applied only to the covered percentage of the land when determining the correct amount of the ex gratia payment to be offered under the Policy does not strictly arise for consideration.  For the sake of completeness, I shall nevertheless consider the position assuming that, contrary to my view, Lot 1941A was subject to a 20% site coverage restriction.

31.  As earlier mentioned, I consider the meaning of the Policy to be clear, and am unable to see how paragraph 1(iii) of the 1991 Instructions can be said to reflect the proper construction of the Policy.  In this regard, it is important to appreciate that a piece of land which is subject to a site coverage restriction does not mean that it is divided into a “building portion” and a “non-building portion”.  The application of the site coverage restriction is not specific to any part of the land in question.  In other words, a building(s) may be erected upon any part of the land, provided that the total covered area does not exceed the specified site coverage percentage.

32.  As a matter of principle, subject to the giving of proper notice and other public law constraints (such as Wednesbury unreasonableness and procedural unfairness), the Director may change or amend an existing administrative policy.  However, the Director has not suggested that the Policy was changed or amended by the 1991 Instructions.  Further, the 1991 Instructions were internal documents which were not made known to the public[16].  That being the position, I do not consider that the Director is entitled to rely on the 1991 Instructions which amount, in substance, to a secret or hidden policy (see R(Lumba) v Secretary of State for the Home Department [2012] 1 AC 245, at §26 per Lord Dyson JSC).

33.  In his 3^rd Affirmation, Mr Cheung refers to 17 previous cases where the relevant lands immediately prior to resumption were subject to some site coverage restrictions, and says that in the majority of those cases, ex gratia compensation was offered by applying the 1991 Instructions, but in 3 of them, “for reason unknown from the available file records, it appears that the 1991 Instructions were not strictly followed”[17]. The ex gratia compensation offered to land owners of resumed lots is not information within the public domain[18]. The cases relied upon by Mr Cheung cannot therefore be regarded as notice to the public of the Director’s secret or hidden policy.  The fact that the Director has, on occasions, acted contrary to the Policy cannot be used to justify his departure from the Policy in the present case.  Anyhow, even on Mr Cheung’s evidence, the Director has not acted consistently with the 1991 Instructions in all 17 cases referred to.

34.  The Director relies on an internal memo dated 22 November 2003 (“the 2003 Memo”), titled “Procedures in Offering Compensation and Policy on Ex-gratia Payment in the New Territories”, in particular §9 thereof, which states: “Note that sometimes a mixed lot may be made up of a non-building land portion and a building land portion which is subject to GN 364, etc.  In that case the ‘building portion’ may be 2/3 only of the ‘building land portion’.  Building land ex-gratia applies to the ‘building portion’, and not the whole ‘building land portion’”[19]. The comments in §32 above apply equally to the 2003 Memo.

35.  The Director also relies on an Advisory Circular No 153 dated 15 June 1977, and a further Advisory Circular No 283 dated 11 February 1981 which superseded the earlier Advisory Circular.  Those circulars concerned the exchange rate for building land under the Letter A/B system in different situations, including (i) new grant lots subject to the standard conditions of sale contained in G N 364 published on 10 April 1934, which imposed a 2/3 site coverage restriction under Special Condition 2(b)(2) thereof, and (ii) building and garden lots.  I do not see that those documents inform the proper construction of the Policy, save to note that even under the Letter A/B system, building land which was subject to a 2/3 site coverage restriction was still entitled to be exchanged at the ratio of 1 to 1.

36.  In all, I am of the view that the Director has either misconstrued, or departed from, the Policy in making the Decision.  The Decision is therefore defective, and liable to be quashed in an application for judicial review (see Hong Kong Television Network Ltd v Chief Executive in Council [2016] 2 HKLRD 1005, at §§48 and 50).

THE DIRECTOR HAS IN ANY EVENT FAILED TO ACT CONSISTENTLY WITH THE 1991 INSTRUCTIONS OR HIS INTERPRETATION OF THE POLICY

37.  If, contrary to my view, the Director is correct in his submission that the 1991 Instructions properly reflect the true construction of the Policy such that where building land resumed by the Government is subject to a site coverage restriction, ex gratia compensation should be assessed at “the building rate for the covered percentage of land taken plus agricultural rate for the remainder”, it is nonetheless clear that the Director departed from the Policy, in that he did not offer any ex gratia compensation for the “remainder” (80%) of the Resumed Land at the applicable zonal agricultural rate (namely, $1,112.4 per square foot).  No good justification has been given by the Director for such departure from the Policy.  The Director has offered a convoluted argument that “the non-building portion of a building land should attract ex gratia payment at agricultural rate only if it has restriction for user as garden or for agricultural purposes.  In other words, where the non-building portion of a building land does not have any restriction for user as garden or for agricultural purposes, compensation will be offered based on the [open market value] of the entire building land (including both building and non-building portions) together with ex-gratia payment at building rate for the building portion, but no ex-gratia payment at agricultural rate for the non-building portion would be offered”[20].  Quite apart from the fact that this further qualification does not appear anywhere in the Policy, or the 1991 Instructions, it is contrary to the evidence of Mr Cheung, who states in §61(2) of his 3^rd Affirmation:

“According to the 1991 Instructions, as the Land was with site coverage stipulation, and there were only temporary structures but no building existing on the Land, the ex-gratia compensation should be assessed based on the building rate (which was $2,202 for Zone A, as set out in G.N. 1841 …) for the covered percentage (i.e.20%) of the Resumed Land and based on agricultural rate for the remainder (i.e. 80%) of the Resumed Land.” [emphasis added]

For the avoidance of doubt, I do not, in any event, accept this argument of the Director.  I fail to see why ex gratia compensation should be payable if the so-called “non-building portion” of the building land has some restriction for user as garden or for agricultural purposes, but not if it is not subject to any such user restriction.

38.  In my view, the failure of the Director to apply the Policy (even assuming that the 1991 Instructions properly reflect its true construction as he contends) renders the Decision defective and liable to be quashed in an application for judicial review.

39.  In conclusion, I am of the view that the following grounds of judicial review raised in the Amended Form 86 are well-founded:

(1)  Ground 1 - misinterpretation of the Policy or departure from the Policy;

(2)  Ground 3 - taking into account irrelevant considerations, namely, whether the land being resumed was subject to a site coverage restriction, and/or mistake of fact, namely, that the Resumed Land was subject to a 20% site coverage restriction; and

(3)  Ground 4 - non adherence with the Director’s understanding of the Policy (assuming that his understanding of the Policy is the correct one), and/or the 1991 Instructions (assuming that they properly reflect the proper construction of the Policy).

40.  The above conclusions make it unnecessary to consider Ground 2 (failure to give effect to legitimate expectation), which is advanced on the basis “if [the] court were to find that the Respondent was entitled to rely on the 1991 Instructions in coming to the Decision”[21]. As earlier mentioned, I do not consider that the Director is entitled to rely on the 1991 Instructions in making the Decision.

WHETHER DECISION NOT AMENABLE TO JUDICIAL REVIEW

41.  Mr Ho argues that the offer of ex gratia payment by the Director is not amenable to judicial review and, if there should be disagreement, the matter should proceed for adjudication by the Lands Tribunal[22].  I do not accept the submission that an offer of ex gratia payment by the Director is, as a matter of principle, not amenable to judicial review, see

(1)  In re McFarland [2004] 1 WLR 1289, per Lord Scott of Foscote -

“[40]  In making ex gratia payments the Home Secretary is disbursing public money. But he is not doing so pursuant to any statutory duty or statutory power. There is no statute to be construed. He is exercising a Crown prerogative. He is accountable for what he does with public money to Parliament and, in particular, to the House of Commons. The making of ex gratia payments is lawful, if, but not unless, there is Parliamentary authority for disbursements (see Auckland Harbour Board v The King [1924] AC 318 per Viscount Haldane at pp 326/7). Your Lordships have, not surprisingly, not been addressed on this aspect of the ex gratia scheme but presumably the ex gratia payments in wrongful conviction cases are authorised by some provision in the annual Appropriation Act.

[41]  So, on the footing that the requisite Parliamentary authority exists, the ex gratia payments are lawfully made under the prerogative of the Crown.  It is now well established that the Crown prerogative origin of the power to make ex gratia payments does not exclude the scheme under which the payments are made from judicial review (see R v CICB Ex parte Lain [1967] 2 QB 864 and R v CICB Ex parte P [1995] 1 WLR 845 ). But the scope of the courts' powers of intervention are, in my opinion, limited by the nature of the prerogative power in question. The Secretary of State for the time being is not bound by the statement of policy made by his predecessor. He is not bound to make an ex gratia payment to a person whose case falls within the current statement of policy and he is not bound to refuse a payment to a person whose case falls outside it. Provided the Secretary of State avoids irrationality in his decisions about who is and who is not to receive ex gratia payments, and provided the procedure he adopts for the decision making process is not unfair, I find it difficult to visualise circumstances in which his decision could be held on judicial review to be an unlawful one.”

(2)  Wong Kam Wah v Fishermen Claims Appeal Board, HCAL 96/2011 (unreported, 11 May 2012), per Reyes J -

“[39]  Mr. Suen submits that a decision to grant or refuse an allowance is not amenable to judicial review because the scheme is ex gratia. This, too, is untenable.

[40]  The making of ex gratia payments is a Government prerogative at common law.  Provided (as here) the scheme has been sanctioned by the legislature and (as here) funds have been authorised for the scheme, the decision to grant or refuse an allowance must be amenable to judicial review.  The Government is accountable for the use of public monies. The Court must therefore have jurisdiction to ensure that the scheme is not administered in an irrational manner and that the decision-making process adopted is fair.  See In re McFarland [2004] 1 WLR 1289 (HL), at paras. 40-41 (Lord Scott).”

42.  I note that Lord Scott said at §41 of his judgment in Re McFarland that the Secretary of State “is not bound to make an ex gratia payment to a person whose case falls within the current statement of policy”.  That statement, however, is subject to the qualification that the Secretary of State “avoids irrationality in his decisions about who is and who is not to receive ex gratia payments, and provided the procedure he adopts for the decision making process is not unfair”.  Translated to the present case, on the basis that the Director is under no strict legal duty to make (or offer) ex gratia compensation to the Applicant in accordance with the Policy, he must nevertheless avoid irrationality and procedural unfairness.  Failing to act in accordance with a published policy, taking into account irrelevant considerations, and acting on the basis of a mistake of fact giving rise to unfairness, can all be regarded as cases of irrationality.

43.  Neither of the two cases relied upon by Mr Ho, namely, Wong Tak Woon v Secretary for Planning, Environment and Lands, CACV 339 of 1999 (unreported, 11 January 2000); and Kaisilk Development Ltd v Urban Renewal Authority [2004] 1 HKLRD 907, supports the broad proposition that an offer of ex gratia payment by the Director is not amenable to judicial review.

WHETHER THE COURT SHOULD DECLINE TO ENTERTAIN THE APPLICATION OR GRANT ANY RELIEF BECAUSE THE JUDICIAL REVIEW IS ACADEMIC

44.  Mr Ho argues that the present judicial review is academic because:

(1)  the Applicant did not accept the Offer, and instead made a claim in the Lands Tribunal, as a result of which the Offer automatically lapsed and was deemed to be withdrawn, and the Applicant’s only remedy is to pursue the Lands Tribunal Application; and/or

(2)  having regard to the huge difference between the parties in respect of the open market valuation of (inter alia) Lot 1941A, it is clear that the Applicant would have proceeded with the Lands Tribunal Application in any event even if the Director had made an offer of ex gratia compensation in accordance with the Policy (as properly construed and applied).

45.  The approach that the court should adopt in the exercise of its discretion whether to entertain an application for judicial review which it is said has become academic can be found in the judgment of the Court of Appeal in Chit Fai Motors Co Ltd v Commissioner for Transport [2004] 1 HKC 465, at §20 per Ma CJHC (as he then was, with whom the other two members of the Court of Appeal agreed):

“Where it is contended, as the Commissioner has maintained in the present appeal, that the question before the court is academic or hypothetical, the following factors will feature in the court’s approach (they are by no means exhaustive since this question can arise in a number of different contexts):-

(1)  Where a question is purely hypothetical or academic in the sense that there are simply no events that have occurred that form the basis for the question to be answered, a court will not entertain it. However relevant or even important the question may be, the court will not give an advisory opinion on hypothetical facts. There are principally two reasons for this: first, the court’s function is to adjudicate on real disputes, not imaginary ones and secondly, to decide on points of law or principle when there are no facts before the court is not only undesirable, it can have unfortunate or even dangerous consequences. In this situation, the court will not have any jurisdiction to determine the question.

(2)  Sometimes, however, and the present case is one, the question before the court is said to be hypothetical or academic only because the real dispute that drove the parties to litigation (sometimes called the lis) happens no longer to be in existence at the time of the hearing, even though the relevant facts giving rise to the dispute were real and had actually taken place…

(3)  In the type of situation referred to in the previous paragraph, the court does have jurisdiction to hear and determine the question in issue. However, in deciding whether or not to do so (and this can be said to be a matter of discretion), the court will closely examine the relevance or utility of any decision. In the public law sphere, this may be easier to demonstrate than in relation to private rights. This is because very often in public or administrative law cases, the duties of public bodies fall to be exercised on a continuing basis not only in relation to the parties before the court but also perhaps to others in the future…

(4)  In other public law contexts, the court may consider determining issues where, for example, there are conflicting decisions…”

46.  I accept, on the facts of the present case, that the Applicant would unlikely have accepted the Director’s offer even if the ex gratia payment had been calculated in accordance with the Policy (as properly construed and applied), and would have made a claim in the Lands Tribunal in any event.  On this footing, the present case may be regarded as falling under sub-paragraph (2) above.  It is therefore one which the court has jurisdiction to hear and determine the question in issue.  I consider that the court should nevertheless entertain the present application because:

(1)  It raises an important point of construction of the Policy which is of general application, and not of relevance to the Applicant only.

(2)  The resolution of the issue concerning the true construction of the Policy is, as submitted by Mr Yu, relevant to various other lots belonging to the Applicant which it is contemplated will soon be, or have been, resumed by the Government[23].

47.  In passing, I should mention that there is a further argument by Mr Ho that, because on the Applicant’s case, Lot 1941A was not subject to any site coverage restriction, Grounds 1 and 2 of judicial review are not engaged.  As I see it, the Applicant’s position is that it should be offered ex gratia compensation at the applicable zonal building rate for the whole area of the Resumed Land.  It is the Director who argues that the zonal building rate should be applied to only 20% of the area of the Resumed Area because Lot 1941A was subject to a 20% site coverage restriction.  The Applicant disputes the latter contention.  If the Director is correct that Lot 1941A was subject to a 20% site coverage restriction, the question will arise whether, upon the true construction of the Policy, the applicable zonal building rate should be applied to only 20% of the area of the Resumed Area.  In these circumstances, I do not see how it can be said that Grounds 1 and 2 of judicial review, which are based upon the true construction of the Policy, are not engaged.

DISPOSITION

48.  The application for judicial review of the Decision is allowed.  The court grants an order of certiorari to remove into the High Court and to quash the Decision, and remits the question of the amount of ex gratia compensation to be offered to the Applicant for the resumption of the Resumed Land to the Director for fresh consideration in accordance with this judgment.

49.  The court further makes an order that the Director shall pay the costs of the Applicant (including all reserved costs), to be taxed if not agreed, with certificate for 2 counsel.