SECRETARY FOR JUSTICE v. LIU WING KWONG

[English Translation - 英譯本]

HCA 5120/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 5120 OF 2001

____________

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JUDGMENT

I. Introduction

1. Pursuant to sections 21 and 22(1), (2) and (2A) of the Rating Ordinance (Cap.116)(“the Ordinance”), the plaintiff, on behalf of the Rating and Valuation Department (“the Department”), seeks recovery from the defendant of a sum of HK$41,058.00 being accrued rates and surcharge due and payable from 1 August 1994 to 31 December 2007 in respect of No. 5, 5^th lane, Mun Hau Village (“the Village”), Sheung Shui (“the Property”), together with interest on the said sum.

2. The late father of the defendant, Mr Liu Chu Ping (transliteration) (“Liu Sr”) was the owner of the Property which was located at Lot No. 1627 of Demarcation District 52 (“the Lot”). Liu Sr acquired the Lot, in exchange for an old lot which he surrendered to the Government on 11 July 1967. He died on 8 November 1996. Ms Ng, counsel for the plaintiff, does not dispute that the Village was founded in 1898, that the defendant was an indigenous villager of the New Territories, and that the male line descendants of the family had for generations lived in the Village. [1] The defendant testified that he used the Property for self-occupation upon his return from overseas in 1995 or 1996. [2] The plaintiff therefore considers that the defendant was the occupier of the Property and hence the ratepayer under section 21 of the Ordinance.

II.   The defence case

3. The defendant contests the plaintiff’s claim. He argues that, although the government had since the 1940s been levying rates in the New Territories, the village houses self-occupied by NewTerritories indigenous villagers had all along been granted exemption from rates. Such exemption had since become “part of the lawful traditional rights and interests and customary right” of New Territories indigenous villagers, and it was in this spirit that the provisions for exemption from rates under section 36(1)(c) and (4) of the Ordinance was enacted. The Home Affairs Department(“HAD”), which enforced the Ordinance for and on behalf of the Governor, had acknowledged and confirmed that the Village belonged to a“Designated Area of the New Territories” (“Designated Village Area”). The Property was located within the boundaries of a Designated Village Area,and the defendant, being an indigenous villager and an immediate family member of the owner of the Property,occupied the Property in compliance with the exemption requirements and the provisions of section 36(1)(c) and (4) of the Ordinance and Article 40 of the Basic Law, and therefore had all along enjoyed exemption from rates with no condition attached thereto.

4. The defendant contends that, by signing a policy document on 29 July 1994 which revoked the lawful designated village status of the Village, the Secretary for the Treasury no longer recognized that the self-occupied village house (“the Village House”) built on the site of the Property in 1973[3] was protected by section 36(1)(c) and (4) of the Ordinance. It is submitted that the attempt by the Department to override the laws of Hong Kong by means of an administrative measure in the form of this document, as well as the purported deprivation by Government policy of the lawful traditional rights and interests and the right to exemption from rates which had been vested in the defendant as an indigenous villager, were unlawful and unconstitutional, went againstthe defendant’s “nature of rights”, and also contravened the provisions of the International Covenant on Civil and Political Rights (“ICCPR”), the International Covenant on Economic, Social and Cultural Rights (“ICESCR”), the Hong Kong Bill of Rights and the Basic Law.

5. The defendant also refers to other villages such as Hang Tau Village, Tong Fong Village and Hang Mei Village, which are still within the boundaries of Designated Village Areas protected by section 36(1)(c) of the Ordinance, and all village houses within which are still exempted from paying rates. It is submitted that the unequal treatment given by the Department contravened the provisions of the Hong Kong Bill of Rights, the ICCPR, the ICESCR and the Basic Law which protected the defendant’s right to exemption from rates.

6. The defendant submits that it is clear from the correspondence between him and the plaintiff that since 1998the plaintiff had been fully aware of the background of the whole matter and had also been fully aware that the defendant’s case met the statutory requirements for exemption from rates. Therefore, it is submitted that there is no legal basis for the plaintiff’s claim for rates against the defendant.

III.  The plaintiff’s reply

7. The plaintiff submits that, pursuant to the Rating (Amendment) Ordinance 1954, the rating system then in force in the urban areas was to be extended phase-by-phase to the New Territories, but the extension scheme met with considerable opposition. It was not until 1973 that the Government enacted legal provisions and then demarcated, phase-by-phase, various Designated Village Areas in the New Territories. Subsequently, in light of the changes to the New Territoriesas a result of development and urbanization, the Government held discussions and consultations with Heung Yee Kuk (“HYK”) in early 1990s. In July 1992, with the consent of the HYK and on the recommendation of the Executive Council, the then Governor made orders for the rates exemption policy and the revocation of the designated village procedure, including an order thatonly those village areas whichretained the essential character of New Territories villages were to be demarcated as Designated Village Areas. Therefore, where the essential character of a Designated Village Area had changed as a result of NewTerritories development and urbanization, that area would no longer be demarcated as a Designated Village Area and the authority in charge would proceed to determine the rateable value of village type houses in that area.

8. The plaintiff further submits that, with the development of Sheung Shui town in mid-1980s, the supporting transport facilities in the surrounding areas were enhanced, and the villages, including the Village, in Designated Village Area 612 (“Village Area 612”) had undergone the changes brought about by urbanization and no longer retained the essential character of a New Territories village. Consequently, on 29 July 1994 the Government formally “de-designated” 56 Designated Village Areas (i.e. removed the “Designated” status of those areas), including Village Area 612, and began to assess the rateable value of the properties in those areas. As the Village House ceased to be within the boundaries of a Designated Village Area as at 29 July 1994, rates had to be assessed and levied thereon.

9. The plaintiff submits that in 1995 the Department completed the assessment for rates on the Village. However, pursuant to section 36(3) of the Ordinance, the Governor/Chief Executive was empowered to exempt any tenement or part thereof (including village houses outside the Designated Village Areas) from the payment of rates. Therefore, as from 1 August 1994, village houses occupied by indigenous villagers and/or their immediate family members in areas other than the Designated Village Areas which met the prescribed specifications as to area, height and type couldapply for exemption from payment of rates pursuant to section 36(3) of the Ordinance. The defendant applied for exemption from payment of rates in 1996 and 1998 respectively, but both applications were rejected by the HAD pursuant to section 36(3) of the Ordinance, the reasons being that the Village House comprised more than 3 storeys and the penthouse at the rooftop rendered the overall height of the house in excess of the limit for granting the exemption, and that the Village House itself was in breach of the building restrictionsin the Conditions of Exchange (“the Conditions of Exchange”) of Land Grant No. 9924 dated 11 July 1967 in respect of the Lot. The Village House should therefore be subject to assessment and collection of rates. Even if Village Area 612 had remained a Designated Village Area, the Village House could not have met the requirementsfor exemption from rates because section 36(1)(c) stipulated that only the village houses within the Designated Village Areas “being” compliant with the requirements of section 36(1)(c)(i), (ii) or (iii) would be exempted from assessment for rates, and the Village House did not meet those requirements and should be subject to assessment for rates.

10. As for the villages referred to by the defendant, namely Tong Fong Village, Hang Tau Village and Hang Mei Village, all of which were located in Ping Shan, the plaintiff submits that as they were geographically rather remote, and they were not included in the rates collection areas until 1988. These villages, which were occupied by indigenous inhabitants, were demarcated as Designated Village Areas 437 and 438 (“Village Areas 437/438”) on 1 March 1988. They were not adjacent to new towns and had by and large retained the essential character of a New Territories village, and they could not be mentioned in the same breath with Village Area 612. However, the Government would regularly review these Designated Village Areas.

11. The plaintiff further submits that the “de-designation” of Village Area 612 did not in any way contravene the Hong Kong Bill of Rights, the ICCPR, the ICESCR and the Basic Law.Further, as the exemption from payment of rates for village houses within the Designated Village Areas only came into effect after the legislative amendment in 1973,it was not a traditional interest of indigenous villagers to be granted exemption from assessment of rates by reason of the Village House being located in what had been made a Designated Village Area. Therefore, the “de-designation” of Village Area 612 was not in breach of Article 40 of the Basic Law.

IV.  Witnesses

12. The plaintiff called two witnesses: Mr Ko Wai Hang(transliteration) (“Mr Ko”) and Mr Lee Tat King (transliteration) (“Mr Lee”). Mr Ko, currently a Senior Valuation Officer at the Department, had since April 2006 been responsible for making recommendations on applications made by New Territories indigenous villagersto the HAD pursuant to section 36(3) of the Ordinancefor exemption from rates in respect of New Territories village houses which those villagers themselves occupied. Mr Lee, currently an acting Chief Valuation Officer at the Department, had since November 2008 been responsible for dealing with matters in respect of rating valuation in the New Territories, including those regarding exemption from rates which indigenous villagers might enjoy pursuant to section 36(1)(c) and (3) of the Ordinance in respect of New Territories village houses. The defendant testified in person without calling any other witnesses.

13. The defendant takes the view that Mr Ko and Mr Lee have made false statements and fabricated evidence by design in an attempt to mislead the court. In fact, the plaintiff and the defendant have no major disputes over the factual background to this action. The main issues are set out in paragraph 14 below. As regards the factual discrepancies in the case, having assessed the credibility and reliability of the evidence, and taking into account the testimony of the witnesses, the documents produced in court and the submissions made by both parties, I am of the view that the testimony of Mr Ko and Mr Lee was on the whole reliable and credible. They gave lucid accounts of what they knew and had heard without being shaken by cross-examination. I do not believe they made false statements intentionally. On the contrary, the defendant indicated during cross-examination that he knew nothing about a number of matters, and his testimony regarding the height of the Village House was at times unreasonable. Having carefully listened to his evidence in court and observed his demeanour in giving evidence, I do not consider the defendant a reliable witness. Heappeared evasive and not forthcoming in the evidence he gave. I am unable to accept his testimony in so far as it is in conflict with the evidence given by the plaintiff.

V.   Issues

14. As confirmed by him in his evidence, the defendant does not take issue with the designation by the Government of rates collection areas and/or Designated Village Areas in the New Territories. His only complaint is that the Government should not have “de-designated”Village Area 612 and/or assessed and levied rates on the Property. Therefore, the issues in dispute are:

(1)  Were the “de-designation” of Village Area 612 and the assessment and collection of rates on the Property inconsistent with (a) Article 40 of the Basic Law, (b) “customary right”, and/or (c) the right to equal protection guaranteed by the Hong Kong Bill of Rights, the ICCPR and the Basic Law?

(2)  Was the ICESCRapplicable?

(3)  If so, were the “de-designation” of Village Area 612 and the assessment and collection of rates on the Propertyinconsistent with theICESCR?

(4)  Did the Government have the power to “de-designate” Designated Village Areas(including Village Area 612)?

(5)  If it did not have such power, did the Propertysatisfy the requirements under section 36(1)(c) of the Ordinance so that it could be exempted from rates?

(6)  If the Government did have such power, did the Property satisfy the conditions under section 36(1)(c) of the Ordinance so that it could be exempted from rates?

(7)  Is the action brought by the plaintiff out of time?

15. As regards issue (7) above, the defendant argues that the allegedly outstanding rates the plaintiff is claiming had fallen into arrears since 1 August 1994, but since 2001 when the matter was first heard the plaintiff has not taken further steps in the proceedings, and now the 5-years limitation period for making civil claims has expired. Therefore, it is submitted that the plaintiff’s claim is time-barred.

16. Section 37 of the Limitation Ordinance (Cap.347) provides that the Ordinance shall apply to the Crown “[p]rovided that this Ordinance shall not apply to any proceedings by the Crown for the recovery of any tax or duty or interest thereon ...”. Rates, an indirect tax levied on the use of property, are an important source of revenue with which the government uses to meet public expenses.[4]  Therefore, the limitation period under the Limitation Ordinance is not applicable.

17. Even if the limitation period under the Limitation Ordinance is applicable to this action, the defendant has not explained why the claim could only be made within 5 years. Section 22(1) of the Ordinance provides as follows:

“(1) Subject to this Ordinance, rates shall be payable-

(a) quarterly in advance to the Commissioner [of Rating and Valuation] in the first month of each quarter; or

(b) at such other frequency as the Commissioner may determine,

and the date on or before which, the place at which and the manner in which, a payment is to be made may be notified by the Commissioner -

(i) quarterly in the Gazette;

(ii) at such other frequency in the Gazette as the Commissioner may determine; or

(iii) by the issue of a demand therefor, made in writing by the Commissioner.” (emphasis added)

The Commissioner has “cause of action” against any person who fails to pay rates and surcharge on or before the due date. It can be seen from section 22(1) of the Ordinance that the due date for payment specified in the Demand for Rates and Surcharge is the date on which the cause of action arises, and it is at this point that time begins to run for the purpose of the Limitation Ordinance.

18. The Department had all along demanded Liu Sr, as the owner of the Property, to pay the outstanding rates. On 8 October 1999, on behalf of the Department, the Secretary for Justice commenced civil proceedings in the District Court against Liu Sr seeking recovery of (inter alia) the arrears of rates and surcharge (DCCJ 19038/1999),[5]but the court process was returned for the reason that Liu Sr had passed away. It was only on 25 August and 1 September 2000 that the Department issued a Replacement Demand for Rates and/or Government Rent, and on 8 September 2000, a Warning (to Owner) before Legal Action on Outstanding Rates and/or Government Rent to the defendant demanding him to pay (inter alia) the overdue rates and surcharge. The Department also wrote to the defendant on 3 May 2001 explaining the above situation and stating that, as he had applied for exemption from payment of rates in the capacity of the occupier of the Property, he as the occupier was under an obligation to pay rates. On 23 May 2001 (i.e. the year after the Department had issued the Demand for Rates to the defendant), the Department brought a claim against him in the Small Claims Tribunal (SCTC 23691/2001), seeking recovery of (inter alia) the outstanding rates on the Property from 1 June 1995 to 31 March 2001. That claim was transferred to the High Court on 30 November 2001 and became the present action. This action was, therefore, brought within time.

19. The parties filed their respective pleadings in this action in 2002, but neither of them had taken any further steps in the proceedings since 2003. It was only in 2011, when the plaintiff applied to amend the Statement of Claim,that the action was set in motion again. Ms Ng of counsel concedes that there has been delay in this action but points out that the defendant has never applied to strike out or set aside the plaintiff’s claim on the ground of delay pursuant to the Rules of the High Court (Cap.4A); instead, both parties have, in accordance with the directions of the court, filed amended pleadings and supplemental witness statements and have also set the case down for trial. In my view, the defence put forward by the defendant in this action involves mainly arguments on points of law, and the said delay has not rendered witnesses unable to attend court or weakened their recollection of what had happened or caused any prejudice to the defendant. The trial can still proceed in a fair manner.

20. The defendant argues that it has not been proved that the sum claimed by the plaintiff is payable. Insofar as the defendant is challenging the amount claimed by the plaintiff, I am unable to accept this particular ground of defence, as section 22(3A) of the Ordinance provides that:

“In proceedings under this section for the recovery of rates in default or any sum payable in addition to rates under subsection (2) or (2A) the court shall not entertain any plea that the rates assessed are excessive, incorrect, subject to a proposal or an objection, or under appeal.”

21. Although the defendant has put forward a “public law” defence in this action, he has not appealed or applied for judicial review of the decision of the HAD refusing his application for exemption from rates pursuant to section 36(3) of the Ordinance and/or its decision dismissing his application for review. Nor has he applied for judicial review of the Government’s decision to “de-designate” Village Area 612. Nonetheless, Ms Ng has no objection to the defendant putting forward a “public law” defence to the Department’s claim in this action.

VI.  The rating system in Hong Kong

(1)  The issue

22. The New Territories was incorporated as part of Hong Kong as from 9 June 1898.[6] Article 40 of the Basic Law provides that: “The lawful traditional rights and interests of the indigenous inhabitants of the ‘New Territories’ shall be protected by the Hong Kong Special Administrative Region.” The defendant argues that exemption from rates is a “lawful traditional right and interest” of the indigenous villagers, and therefore it was a breach of Article 40 of the Basic Law to “de-designate” Village Area 612 so that the Property became subject to assessment and collection of rates.

23. The defendant further contends that, according to the statements previously made by Liu Sr and the village elders, ever since the Government started to levy rates in the New Territoriesthe 1940s, all village houses in the Village had been exempted fromrates because the Government provided no communal facilities (no toilet ducts, sewage and drainage disposal pipes, saline water, scavengers and patrolling police officers etc), which meant that each and every household in the Village had to build its own septic tank and sewage disposal facilities and pay for its own security — a situation which has not improved even now. Therefore, exemption from rates had become a “customary right” of the indigenous villagers, and against the above unreasonable background, it was reasonable for the government to legislate to protect the right of the indigenous villagers to be exempted from rates.

24. The plaintiff argues that, according to 36(1)(c) of the Ordinance, only village houses within the boundaries of Designated Village Areas and “being” compliant with the specifications prescribed in section 36(1)(c)(i), (ii) or (iii) should be exempted from assessment for rates. As Village Area 612 was “de-designated” on 29 July 1994, the Property should be subject to assessment for rates. The defendant has not provided any information to show that exemption from assessment of rates on NewTerritories village houses could be traced back to 1898 if not even earlier. Therefore, it was not inconsistent with Article 40 of the Basic Law or in breach of any “customary right” for the Government to “de-designate” Village Area 612 and for the Department to demand rates from the defendant on the ground that the Property was not within the boundaries of a Designated Village Area.

(2)  The evolution of the Rating Ordinance

25. For the purpose of dealing with the above issue, I shall review the lengthy history of the rating system in Hong Kong which lasts over 160 years. In fact, even before the New Territories became part of Hong Kong, the Government had been levying rates on Hong Kong Island pursuant to the laws then applicable. Page 1 of The Annotated Ordinances of Hong Kong: Rating Ordinance (Cap.116) has this to say:

“The original 1845 ordinance levied only a police rate. In 1856 a lighting rate and in 1860 a water rate were added while in 1875 a fire brigade rate was introduced. In 1885, the Municipal Rates Ordinance was enacted which transferred the power to make rates from the Governor in Council to the Legislative Council. The consolidating Rating Ordinance 1888 formed the basis of subsequent legislation, later being replaced by the Rating Ordinance 1901. …”

26. The New Territories were leased to Great Britain in 1898.[7]  With the consent of the Legislative Council, the Governor exercised his legislative power in 1901 by passing the consolidated and amended Rating Ordinance 1901, which became the original version of the Ordinance. The Rating Ordinance 1901 reads as follows:

“29. After the time for appealing has expired the following percentages on the valuation of every tenement enumerated in the list shall be payable as rates from the first day of July in each year or from such other day as may from time to time be fixed by the Governor in Council, viz., for any tenement :-

In the City of Victoria	13 per cent.
In that portion of the Hill District …,	10¾ per cent.
In the remaining portion of the Hill District,	8¾ per cent.
In Yaumatei, Kowloon Point, Hunghom and	12¼ per cent.
Hunghom West Nos.1 to 26,
In Hunghom West Nos.27 to 53,	8¾ per cent.
In Mong Kok Tsui,	10½ per cent.
In Causeway Bay, …,	9 per cent.9 per cent.
In any other place,	7 per cent.

…

39.(1)Tenements below the rateable value of such minimum amount as may be fixed by the Governor in Council from time to time and notified in the Gazette shall not be rateable.

(2) The following tenements, so long as they are not occupied in any way for gain or pecuniary profit, shall not be rateable :-

Almshouses, Art Schools or Art Galleries, Cemeteries, Charitable dispensaries, Free Libraries, Government premises, whether Imperial or Colonial, Hospitals, Museums, Places of Worship, Rifle ranges, Schools, The City Hall.

40. Except as provided by section 39, no exemption from rates shall be allowed.”

27. Section 29 of the Rating Ordinance 1901 set out the bases on which rates in different parts of Hong Kong were to be levied. The basis for “any other place” was fixed at “7 per cent”, and “any other place” did not exclude the New Territories which had by then become part of the Colony of Hong Kong. As Mr Lee pointed out in his testimony, the Rating Ordinance 1901 contained no provisions exempting the New Territories from assessment for rates.

28. Section 39 of the Rating Ordinance 1901 was amended by section 2 of the Rating (Amendment) Ordinance 1909, by inserting a provision which allowed the Legislative Council to pass exemption resolutions to exempt any village or area from assessment for rates:

“Section 39 of the Principal Ordinance is hereby amended by the addition of the following sub-section :-

‘(3) Any village or area in the Colony may by resolution of the Legislative Council be exempted from assessment for rates, and such resolution shall remain in force until it is altered or rescinded by a further resolution.’”

The above amendment implies that, unless the exemption under section 39(1) and/or (2) of the Rating Ordinance 1901 applied, or unless an exemption resolution was passed by the Legislative Council, the real properties throughout the Colony of Hong Kong, including the New Territories, were to be subject to assessment and collection of rates under the statute. In 1915, certain properties and areas were exempted from assessment for rates by virtue of the Rating (Exemption) Orders which, however, did not apply to the New Territories.

29. On 28 February 1935, the then Colonial Secretary also explained that there was no formal provision in the Rating Ordinance 1901 to exclude the New Territories from the ambit of that Ordinance, the case being merely that at that time the Government had not, as a matter of policy, assessed and collected rates in respect of areas beyond Hong Kong Island, Kowloon and New Kowloon.[8]  Mr Lee also explained in his evidence that the Government at that time focused on assessing and levying rates on real properties on Hong Kong Island and Kowloon areas and had not yet turned its attention to the New Territories areas which were more remote and which had a lower rental value.

30. According to page 1 of The Annotated Ordinances of Hong Kong: Rating Ordinance (Cap.116):

“… In 1917, a special war rate increased the contributions made to the United Kingdom towards the expenses of the First World War. In 1935, a modified form of capital value based rates was introduced for limited areas of the New Territories beyond New Kowloon. …”

31. According to the record of the proceedings in the first reading of the Rating(Amendment) Bill 1935, as set out in the Minutes of the Legislative Council meeting on 28 February 1935, the relevant discussion shows that the Bill recommended extending the collection of rates to the urban districts in the New Territories:

“The ATTORNEY GENERAL moved the first reading of a Bill intituled ‘An Ordinance to amend the Rating Ordinance, 1901.’ He said: ‘The object of this Bill is to provide a different rating in urban districts in the New Territories other than New Kowloon. The rates will be collected on the value of the buildings as a whole, the buildings to be classified and divided into four classes. The rates, which are provided for in sub-section 4 of the new clause 49 will be valued from $2 to $16 in the first three classes and $2 per $1,000 of the valuation in the special class. The rates will be doubled for houses which are provided with a Government water supply.

THE COLONIAL SECRETARY seconded, and the Bill was read the fi[r]st time.

Objects and Reasons.

The ‘Objects and Reasons’ for the Bill were stated as follows:-

1. Despite the fact that there is no provision in the Rating Ordinance, 1901, excluding from the operation of that Ordinance, no assessment or collection of rates has hitherto been made outside the boundaries of the island of Hong Kong and Kowloon and New Kowloon.

2. With the granting of certain benefits in the way of street lighting, street maintenance, drainage, water supply, scavenging, etc, to such areas as Taipo Market, Yuen Long, and Tsuen Wan, it is considered that some form of rating should be applied in the case of such urban areas in the New Territories.

3. Accordingly, the present Bill adds to the Rating Ordinance, 1901, a new section … in eight sub-sections establish in the New Territories (other than New Kowloon) a modified system of rating …”

32. All along, under the rating system in the urban areas, rates had been levied on a property based on its estimated annual rental value. Although there was no provision in the amended Rating Ordinance 1901 to exclude the New Territories areas from its operation, the Government at that time had not, as a matter of policy, assessed and collected rates in respect of areas beyond Hong Kong Island, Kowloon and New Kowloon.[9]  However, with the provision by the Government of services such as street lighting, street maintenance, drainage, water supply, scavenging etc to Tai Po Market, Yuen Long and Tsuen Wan areas, in 1935 the Legislative Council passed and enacted the Rating (Amendment) Ordinance 1935 to extend the assessment for rates to the urbanized areas in the New Territories. Between 1935 and 1955, in accordance with section 51 of the amended Rating Ordinance 1901 and the relevant Declaration of Urban Areas 1939 and 1950, Tai Po, Yuen Long and Tsuen Wanin the New Territories were declared urban areasand made subject to the special rating system of the New Territories which levied rates based on the capital value of the property.[10]

33. On 14 July 1954, the then Financial Secretary explained the applicability of the Rating Ordinance 1901, as amended by the Rating (Amendment) Ordinance 1935, to the New Territories areas other than New Kowloon as follows:[11]

“In its application to the New Territories (other than New Kowloon) the Rating Ordinance at present contains modifications, enacted in 1935, whereby only areas declared to be urban areas are rated. Buildings in these areas are classified according to their value, the annual rates charges being graded according to such classifications. …”

34. Pages 1-2 of The Annotated Ordinances of Hong Kong: Rating Ordinance(Cap.116) has this to say:

“… During the Japanese Occupation from 25 December 1941 to 30 August 1945, rates were replaced by a house tax. From 30 August 1945 to 31 March 1947, rates were levied under a British Military Administration Proclamation based on the prior Rating Ordinance.

    On 1 April 1947, the Rating Ordinance 1901 came back into force. In 1954, the former capital value based legislation for part of the New Territories was repealed and provision was made for part of the Ordinance to extend to the New Territories. …”

35. The Minutes of the Legislative Council meeting on 14 July 1954 contain the following record of the proceeding during the first reading of the Rating(Amendment) Bill 1954:

“THE FINANCIAL SECRETARY moved the First reading of a Bill intituled ‘An Ordinance to amend the Rating Ordinance, Chapter 116’.

He said: - Sir: … this Bill, its main purpose is to extend the method of determining rateable value at present in force in Hong Kong Island, Kowloon and New Kowloon, to the remainder of the New Territories.

This purpose is in accordance with a decision by the Government which was announced in this Council on the 4^th March, 1953, and I think I can do no better than to quote from Hansard for that year, page 45. What I then said was:-

“Round about 1935 the decision was taken by the Government of that day to commence the collection of rates in the New Territories. The existing system in the urban area by which rates was based on rental value was not then, for some reason, considered appropriate for the New Territories, and the system of rating adopted and enforced only in the first instance in the three districts of Taipo, Yuen Long and Tsu[e]n Wan, was applied only to the buildings, and was based on the value of the buildings, not on the rental value of the tenement. I think it was intended at the time that the system should be extended, but the war intervened and nothing very much happened. The position has been under review for some time, and the Government has now made the decision in principle that the urban system of rating by rental value shall be applied to the urbanized areas of the New Territories. A great deal of money is now being spent there on roads, police, education, health, and development generally, and it seems only reasonable that the residents of the area should themselves bear some part of the financial burden which was hitherto been [sic] largely borne for them by their fellow citizens elsewhere in the Colony.”

…

 This Bill thenmeans a change of policy. If it meets with the approval of this Council and is passed into law, the existing system of rating in the townships of Tai Po, Yuen Long and Tsu[e]n Wan will come to an end on 31^st March, 1955. It is not proposed, nor is it practicable, to apply the ordinary system of assessment to the whole of the New Territories at once. Government’s policy will be to describe and to delineate areas of the New Territories under the new section 50, which it is proposed to enact by clause 18 of the Bill. It will then be for the Governor in Council, under section 7 of the principal Ordinance, to direct the Commissioner of Rating and Valuation to carry out an assessment in those areas.

 As the reason for this change of policy is the fact that parts of the New Territories are in fact developing into urban areas, it is proposed that the areas first to be delineated will be those areas which are most developed. It is probable that the first area so to be delineated will not be one of the three existing areas, but will be the strip along the road to Castle Peak, from the New Kowloon boundary to somewhere in the region of the Castle Peak Police Station. It is along that road that development is proceeding most rapidly at the present moment, and factories, hotels and residences are being constructed there at a great rate. Once this area has been assessed it will be for further consideration what are the areas, next to be attacked.”

36. The then Financial Secretary explained that, with the enactment of the Rating (Amendment) 1935 Ordinance, the Government intended to extend the rates collection system as prescribed by the Ordinance to areas in the New Territories beyond Tai Po Market, Yuen Long and Tsuen Wan, but it was not implemented as World War II intervened. The then Financial Secretary pointed out that the Government had developed roads, police, education, health and other general services and facilities in New Territories areas, and the residents in those areas should bear part of the financial burden thereof. Therefore, after the War the Government therefore passed into law the Rating (Amendment) Ordinance 1954 and repealed section 51 of the amended Rating Ordinance 1901 at the end of the financial year so as to repeal the special rating system that had been in force in the urbanized areas of Tai Po, Yuen Long and Tsuen Wan in the New Territories between 1935 and 1955 and which collected rates based on the capital value of the properties, and so as to extend, phase-by-phase from 1956, the urban rating system which collected rates by the rental value of the properties to the New Territories. However, section 14 of the Rating (Amendment) Ordinance 1954 provided that “… rates charged in the New Territories (other than New Kowloon) shall be at lower percentages of rateable value than those at present applicable in Hong Kong Island, Kowloon and New Kowloon”.

37. Mr Lee testified, and I accept on balance, that although the Rating (Amendment)Ordinance 1954 signified a change in Government policy, and although there was no formal provision in the Rating Ordinanceexempting Designated Areas of the New Territories from payment of rates even after the amendments by the Rating (Amendment)Ordinance 1954, the Government would not immediately extend the regime of assessment for rates to the whole of the New Territories.[12] To reduce the impact brought about by the inclusion of the New Territories in the rates collection areas, the Government at that time adopted a policy of not assessing the rateable value of traditional village-style houses occupied and used by indigenous “poor farmers”.[13]

38. The Rating (Amendment)Ordinance 1954 did not expressly provide that village houses in the Designated Areas of the New Territories could be exempted from assessment for rates. In respect of exemption from assessment for rates, section 40 of the amended Rating Ordinance provided as follows:

“(1) Tenementsbelow the rateable value of such minimum amount as may be fixed by the Governor in Council and notified in the Gazette shall not be rateable.

(2) The following tenements shall not be rateable -

(a) agricultural land;

(b) tenements not occupied in any way for gain or pecuniary profit being – (i) places of public worship, or (ii) owned or occupied by the Government of Hong Kong or of any part of the Commonwealth.

(3) Any village or area may by resolution of the Legislative Council be exempted from assessment for rates.

4.(a) The Governor in Council may in his discretion authorize the total or partial exemption from assessment of any tenement.

(b) Any application for exemption under paragraph (a) shall be made within twenty-eight days of the receipt of the requisition in the prescribed form as provided by section 4 or 24 as the case may be.”

39. It was only in 1973 that the Government proceeded to enact relevant legislation. The Rating Ordinance 1973 contained the following provisions in respect of rates collection areas:

“2. In this Ordinance, unless the context otherwise requires - …

‘specified area’ means any area of Hong Kong declared under section 3;

…

3. The Governor in Council may, by order, declare any area of Hong Kong to be a specified area for the purposes of this Ordnance.

…

11. The Governor may, at any time, direct the Commissioner to make a valuation of tenements in any specified area.

…

19.(1) Subject to this Ordinance there shall be payable, with effect from the 1^st day of April in each year, on the rateable value of every tenement, which is situated in the New Territories (other than New Kowloon) and included in a valuation list in force, general rates not exceeding eleven per cent of the rateable value of the tenement. …”

In line with the progress of urbanization, the Government incorporated the New Territories in the rates collection areas in phases, by means of the Rating (Areas of Hong Kong) Order 1973. The GovernorinCouncil ordered the Commissioner of the Department to assess the rateable value of the properties inside the areas. Mr Lee testified, and I accept on balance, that the Government started by incorporating in the rates collection areas those areas in the New Territories which were nearer to the urban area, and then, step by step, incorporated the remote areas in the New Territories with lower rental value and fewer facilities.  The area in which the Village was located was not incorporated in the rates collection areas until 1978, and before then no assessment for rates had been made to that area. By 1988, the whole of the New Territories had been incorporated in the rates collection areas.

40. TheRating Ordinance 1973 included a new section 36, which set out the following items for exemption from assessment for rates, although at that time there was still no formal provision which exempted any specified area in the New Territories from assessment and collection of rates:

“(1) The following tenements, or parts thereof, shall be exempted from assessment to rates:

(a) agricultural land …;

(b) those used wholly or mainly for public religious worship;

(c) those occupied for public purpose …;

(d) those owned and occupied for public purpose by the government of a Commonwealth Country.

(2) The Governor in Council may, by order, declare any tenement or class of tenement, or any part of a specified area, to be exempted from assessment to rates.

(3) The Governor in Council may exempt any tenement from the payment of rates, wholly or in part.

(4) A tenement, or part of a tenement, occupied for public purposes by or on behalf of the government of a Commonwealth Country shall be exempted from the payment of rates.”

41. A number of subsequent amendments were made to the Rating Ordinance 1973 before it became the current consolidated Rating Ordinance.[14] The first major amendment relevant to this action was section 3 of the Rating (Amendment) (No. 2) Ordinance 1975 which was enacted in 1975. It amended section 36(1)(c) of the Rating Ordinance 1973 by adding section 36(1)(c)(i) and (ii) and, for the first time, stipulating that any village house in a designated area of the New Territories “being” compliant with the prescribed building specifications were exempted from assessment for rates:

“(1) The following tenements, or parts thereof, shall be exempt from assessment to rates –

…

(c) any village house within such areas of the New Territories as may be designated by the Governor for the purposes of this paragraph being -

(i) a building to which paragraph (a) or (b) of regulation 3(2) of the Buildings Ordinance (Application to the New Territories) Regulations, or any regulations replaced thereby, applies or applied; or

(ii) a dwelling house, built before 16^th August 1945, of the type which was normally built for New Territories residents;

…

(1A) The exemption provided by paragraph (b) or (c) of subsection (1) shall take effect on the 1^st April 1976.

…

(5) In this section –

…

‘New Territories resident’ means any person descended through the male line from a person who was in 1898 a resident of a village or town certified by the Secretary for the New Territories for the purposes of this section as an established village or town in the New Territories (except New Kowloon).” (emphasis added)

42. Paragraphs (a) and (b) of regulation 3(2) of the Buildings Ordinance (Application to the New Territories) Regulations (Cap.322), referred to in section 36(1)(c)(i) above, provided as follows:

“This regulation applies to any building situated in the New Territories which –

(a) has a roofed area not exceeding 92.90 m², does not exceed 7.62 m in height and complies with plans;

(b) has a roofed area not exceeding 65.03 m² and does not exceed 7.62 m in height; …”

43. Mr Lee testified, and I accept on balance, that after the Rating (Amendment) (No. 2) Ordinance 1975 came into effect, the Government, acting in accordance with section 36(1)(c) of the amended Rating Ordinance 1973, demarcated phase-by-phase the New Territories village areas occupied by indigenous villagers as Designated Village Areas. The demarcation of the first Designated Village Area was completed in 1976. I accept on balance the evidence given by Mr Lee that, in demarcating Designated Village Areas within the rates collection areas, the factors to be considered included whether or not the New Territories village area (1) was relatively remote; (2) was mainly occupied by indigenous villagers; and/or (3) basically had no shops.

44. On 3 May 1978 the Government, in accordance with section 36(1)(c) of the Ordinance and in exercise of its power bythe Deputy Financial Secretary, designated the village areas(including the Village) occupied by indigenous villagers as Village Area 612. All post-war village houses in Village Area 612 which met the requirements under the Ordinance as to area, height and type were exempted from assessment for rates.

45. However, Mr Lee explained in his evidence that in fact the village houses in Village Area 612 had never been assessed for rates, because the Department concentrated its efforts on first assessing the rates of those buildings in the rates collection areas which were outside the Designated Village Areas. As there were even more buildings in the rates collection areas outside the Designated Village Areas which were liable to payment of rates, the Department would consider assessing the rates of buildings inside the Designated Village Areas after, and only after it had finished assessing the rates of buildings outside the Designated Village Areas. Mr Lee had consulted the records of the Department, whichshowed that officers of the Department patrolled and inspected Village Area 612 in 1988 and found that a deserted school beside a police station covered an area exceeding 62.03 m².Suspecting that it did not meet the requirement for exemption under section 36(1) of the Ordinance, the officers asked their colleagues in the Valuation section to investigate the deserted school. The investigation revealed that construction of the school was completed before 1945. Mr Lee said that there was no other record in the files of the Department regarding patrol and inspection of Village Area 612.

46. It is worth noting that the exemption from assessment for rates granted to eligible buildings inside the Designated Village Areas pursuant to the said section 36(1)(c) came into play only from 1 April 1976. It was not the case, as alleged by the defendant, that all indigenous villagers of the New Territories had been exempted from assessment for rates since the 1940s, still less that such exemption was a traditional right and interest or customary right that was already in existencein or before 1898. It can be seen from the provisions in the Rating (Amendment) (No. 2) Ordinance 1975 that, when it was passed into law, the said section 36(1)(c) clearly expressly provided that the exemption from assessment for rates was available only to any village house within a Designated Village Area the specifications and type of which “being” those specified in section 36(1)(c)(i) or (ii). It was not the case, as alleged by the defendant, that any village house in a Designated Village Area could unconditionally be exempted from assessment for rates. In fact, it can be seen from the above account of the evolution of the Rating Ordinance that inhabitants of the New Territories areas did not have to pay rates in the early years not because the statute had granted any allowance or waiver, but merely because the Government had yet to conduct assessments. The defendant cites page 152 of the Dictionary of the Basic Law of the Hong Kong Special Administrative Region which states that the lawful traditional rights and interests of the New Territories indigenous villagers included “the Rating Ordinance enacted [by the Government] in 1973, [by virtue of which] village houses within the ‘New Territories’ village development areas and self-occupied village houses outside the village development areas might be exempted from rates.” With respect, I do not accept that statement which, while referring to the Rating Ordinance 1973, makes no mention whatsoever of the conditions and requirements for exemption under section 36(1)(c)(i), (ii) and/or (iii) of that Ordinance. I do not accept the defendant’s claim that the provisions of the Ordinance conferred upon any village house within the boundaries of a Designated Village Area the right to be exempted from assessment and payment of rates.

47. Section 22(b) of the Rating (Amendment) Ordinance 1981 made, inter alia, the following amendments to the said section 36:

“by deleting subsections (1A), (2), (3), (4) and (5) and substituting the following –

‘(2) The Governor in Council may, by order, declare any class of tenements, or any part thereof of a specified area, to be exempted from the payment of rates.

(3) The Governor in Council may exempt any tenement from the payment of rates, wholly or in part.

(4) In this section -

…

‘New Territories resident’ means any person descended through the male line from a person who was in 1898 a resident of a village or town certified by the Secretary for the New Territories for the purposes of this section as an established village or town in the New Territories (except New Kowloon); …”

48. Section 14 of and paragraph 2(b) of Schedule 2 to the Buildings Ordinance (Application to the New Territories) Ordinance 1987 made further amendments to the said section 36 by adding section 36(1)(c)(iii):

“in section 36(1)(c) –

(i) in sub-paragraph (i), by deleting ‘applies or applied; or’ and substituting the following - ‘applied immediately before the coming into operation of the Buildings Ordinance (Application to the New Territories) Ordinance 1987;’;

(ii) in sub-paragraph (ii), by inserting at the end of the following – ‘or’; and

(iii) by inserting after sub-paragraph (ii) the following – ‘(iii) a building in respect of which a certificate of exemption in respect of building works has been issued under section 4 or section 5(a), (b) or (d) of the Buildings Ordinance (Application to the New Territories) Ordinance 1987;’.”

49. Sections 4 and 5(a),(b) and (d) of the Buildings Ordinance (Application to the New Territories) Ordinance, (Cap.121), referred to in section 36(1)(c)(iii) above, provide as follows:

“4. The Director [of Lands] may issue a certificate of exemption in respect of any building works in the New Territories.

5. Subject to the provisions of this Ordinance, the Director [of Lands] shall issue a certificate of exemption in respect of building works in the New Territories -

(a) for a building to be built by any person and to be used for non-industrial purposes;

(b) for a building to be built by a community organization for the use of the community;

...

(d) for the replacement of a temporary structure in the New Territories.”

Part 1 of the Schedule to the Buildings Ordinance(Application to the New Territories) Ordinance sets out the following conditions of construction for a “Certificate of Exemption in Respect of New Housing or Community Use, or Issued under Section 4’”:

“1. (1) The building, when constructed, will be a building of not more than 3 storeys and -

(a) of a height of more than 7.62 m but not more than 8.23 m and with a roofed-over area not exceeding 65.03 m², and in respect of which the thickness of each load-bearing wall -

(i) in the case of a load-bearing reinforced concrete wall is not less than 175 mm thick; or
(ii) of the lowest storey is in the case of a load-bearing brick wall not less than 340 mm; and
(iii) of any higher storey is in the case of a load-bearing brick wall not less than 225 mm; or

(b) of a height of not more than 7.62 m -

(i) with a roofed-over area not exceeding 92.90 m² where the building complies with approved plans; or

(ii) with a roofed-over area not exceeding 65.03 m².

(2) In this Part approved plans (批准圖則) means plans prepared by the Director or plans so prepared and modified with his consent.”

50. In my view, the newly-added section 36(1)(c)(iii) does not undermine the analysis and conclusion set out in paragraph 46 above. Section 36(1)(c) of the Ordinance clearly provides that village houses inside the Designated Village Areas which meet the specifications as to area, height and type as set out in the provisions may be exempted from assessment for rates. The defendant alleges that Mr Leewas giving self-contradictory evidence, and obviously making a false statementin an attempt to mislead the court, when on the one hand he said that only those village houses in the Designated Village Areas which met the requirements stipulated in the said section 36(1)(c)(i), (ii) or (iii) might be exempted from assessment for rates[15], but on the other hand said in his witness statement that the demarcation of the first Designated Village Area was completed in 1976 and “the village houses inside the Area were exempted from assessment for rates”. However, in my view, section 36(1)(c) does expressly impose conditions for exemption from rates to be granted to village houses inside the Designated Village Areas. What Mr Lee said is not a false statement; instead, the defendant’s allegation betrays his erroneous understanding of the conditions for exemption under paragraphs (i), (ii) and (iii) of section 36(1)(c). On balance, I accept the explanation given by Mr Lee that, as there were more buildings outside the Designated Village Areas than inside those Areas that were liable to pay rates, the Department concentrated its efforts on first assessing the rates for rates collection areas outside the Designated Village Areas, and for this reason the village houses inside the Designated Village Areas had in general not yet been assessed for rates.[16]

51. Section 36(3) of the Ordinance provides that the Governor in Council may exempt any tenement or part thereof from the payment of rates, wholly or in part. Therefore, I accept on balance Mr Lee’s assertion that although at that time village houses outside the Designated Village Areas were subject to assessment for rates, village houses owned and occupied by indigenous villagers which also met the specifications as to area, height and type might be exempted from payment of rates pursuant to section 36(3) above.[17]

52. As mentioned above, by 1988, the rates collection areas had extended to the whole of the New Territories,[18]and the number of Designated Village Areas had increased to over 300. The defendant has testified that he has no objection to the Government demarcating rates collection areas and/or Designated Village Areas in the New Territories.[19]

53. Section 19 of the Rating(Amendment) Ordinance 1990 amended section 36(2) of the Rating Ordinance. However, the amendment is not relevant to theissues in this action. Section 17 of the Rating(Amendment) Ordinance 1995 amended section 36(3) of the Rating Ordinance by adding “, or part of any tenement”after the word “tenement”. The Ordinance was again amended in 1999, but that amendment is not relevant to theissues in this action. Section 36 of the current Ordinance reads as follows:

“(1) The following tenements, or parts thereof, shall be exempt from assessment to rates -

…

(c) any village house within such areas of the New Territories as may be designated by the Chief Executive for the purposes of this paragraph, being -

(i) a building to which paragraph (a) or (b) of regulation 3(2) of the *Buildings Ordinance (Application to the New Territories) Regulations (Cap.322 sub. leg. 1984 Ed.), or any regulations replaced thereby, applied immediately before the coming into operation of the Buildings Ordinance (Application to the New Territories) Ordinance (Cap.121);

(ii) a dwelling house, built before 16 August 1945, of a type which was normally built for New Territories residents; or

(iii) a building in respect of which a certificate of exemption in respect of building works has been issued under section 4 or 5(a), (b) or (d) of the Buildings Ordinance (Application to the New Territories) Ordinance (Cap.121);

(2) The Chief Executive in Council may, by order, declare any class of tenements, or parts thereof, or any part of Hong Kong to be exempted from the payment of rates wholly or in part.

(3) The Chief Executive may exempt any tenement, or part of any tenement, from the payment of rates, wholly or in part.

(3A) The Commissioner may, for the purposes of subsections (1) to (3), ascertain the rateable value of any tenement, or part of any tenement.

(4) In this section -

‘building’ (建築物) includes any structure;

‘New Territories resident’ (新界居民) means any person descended through the male line from a person who was in 1898 a resident of a village or town certified by the Secretary for Home Affairs for the purposes of this section as an established village or town in the New Territories (except New Kowloon);

‘resited villages’ (重建村落) means such areas in the New Territories as may be designated by the Chief Executive as resited villages for the purposes of subsection (1)(j).”

(3)  Unconditional exemption from rates?

54. The defendant’s argument runs as follows. By the Rating Ordinance 1973, section 36(1) was enacted which provided that all specified tenements  or parts thereof were exempt from assessment for rates, including any village house inside the Designated Village Areas under section 36(1)(c). Since then, the Government had confirmed that most of the villages in the New Territories, including the Village, were within the Designated Village Areas, and all village houses inside those Areas were unconditionally exempt from rates. However, by means of an “administrative measure” or subsequent legislative amendment (if any), the Government superimposed the specifications in the Buildings Ordinance, as set out in section 36(1)(c)(i) and (iii), as conditions for the exemption from rates which was otherwise unconditional. This, it is submitted, went against the nature of the right to exemption from rates and also contravened Article 40 of the Basic Law. On the other hand, section 36(4) was not subject to any condition, and as the defendant was a “New Territories resident” under that section, the Village House was protected by that section and enjoyed the right to exemption from rates conferred on it by that section and had all along been so exempt.

55. I do not agree with the defendant’s argument. First, as stated above, section 36(1)(c) of the Ordinance expressly provides that village houses in the Designated Village Areas mustmeet the requirements under section 36(1)(c)(i),(ii) or (iii) to be exempt from assessment for rates.[20] The defendant relies on the definition of “New Territories resident” under section 36(4), but that section is an interpretative provision and not an empowering provision. The empowering provision is section 36(1)(c), under which the only provision that refers to “New Territories resident” is section 36(1)(c)(ii). That provision stipulates that any village house within a Designated Village Area “being” a dwelling house built before 16 August 1945 and of a type which was normally built for “New Territories residents”, shall be exempt from assessment for rates. The Village House was built after 16 August 1945 and therefore, even if section 36(1)(c) of the Ordinance were applicable (with which I do not agree), the Village House would have to comply with the building specifications prescribed in section 36(1)(c)(i) or (iii) to be exempt from assessment for rates, and these building specifications have nothing to do with the definition of “New Territories resident” under section 36(4).

56. Second, at the time of enactment of the Rating Ordinance 1973, there was not yet any statutory provision under section 36 for the establishment of Designated Village Areas.[21] The Rating (Amendment) (No. 2) Ordinance 1975 added a new provision establishing Designated Village Areas and providing that only village houses within the Designated Village Areas “being” compliant with the requirements of section 36(1)(c)(i) or (iii) could be exempted from assessment for rates.[22]  In 1987, the Buildings Ordinance (Application to the New Territories) Ordinance 1987 was enacted, adding tosection 36(1)(c)(iii) the building specifications as conditions for exemption from rates, and these specifications were similar to those under section 36(1)(c)(i).[23]  Therefore, the conditions regarding building specifications under section 36(1)(c) of the Ordinance were passed by legislative means in 1975, at the same time when legislation was enacted to establish Designated Village Areas, and not, as alleged by the defendant, added retroactively by way of “administrative measure” subsequent to the enactment of the Rating Ordinance 1973.

57. Third, the defendant alleges that there are three documents which serve to show that buildings within the Designated Village Areas were exempt from rates without having to meet any building specification: (1) Item (I)(A)(1) of the Consultation Paper on the Rates Exemption Policy in the New Territories as amended by the Finance Branch, attached to the letter dated 10 December 1991 from the City and New Territories Administrationto the HYK (i.e. the Consultation Paper discussed in the meeting on 23 December 1991 (“the Meeting”) between Mr Fred Ting (“Mr Ting”), Deputy Regional Secretary (NT), and the HYK on the rates exemption policy)(“Annex C”); (2)Item (1) mentioned in the letter dated 9 October 2000 from the HAD to the defendant in response to his letter to the HAD dated 21 September 2000; and (3) An undated letter from the Department to Mr Tang Shing Shi (transliteration). However, on the basis of the analysis in paragraphs 78-79, 102 and 140 below, I am of the view that, on balance, those three documents do not lend support to the defendant’s contention.

58. Fourth, as to the question of whether the “Buildings Ordinance” conditions under section 36(1)(c)(i) or (iii) of the Ordinance are inconsistent with the nature of the right to exemption from rates or Article 40 of the Basic Law, please refer to the analyses in paragraph 46 above and paragraphs 63-67 below.

(4)  “Customary right”

59. The defendant alleges that, since the Government started to collect rates in the New Territories in the 1940s, the villagers of the Village had never paid any rates in respect of the village houses therein. This, however, does not in my view serve to prove that New Territories indigenous villagers have the right to exemption from rates and that such right is unconditional and/or has become a “customary right”.

60. First, the defendant’s statement that the Government started to collect rates in the New Territories in the 1940s is consistent with the extension of the rates assessment regime to the urbanized areas of the New Territories i.e. Tai Po, Yuen Long and Tsuen Wan by virtue of the Rating (Amendment) Ordinance 1935.[24] The Government had intended to extend the rates collection system to other areas in the New Territories, only that it could not be done by reason of the outbreak of World War II.[25] The Rating(Amendment) Ordinance 1954, which was enacted after the War, replaced the special rating system then in force in the New Territories (under which rates were levied on the basis of capital value) with the urban rating system.[26]Up to 1973 when the Rating Ordinance 1973 was passed, there was still no statutory provision for the establishment of Designated Village Areas. It was only with the enactment ofthe Rating (Amendment) (No. 2) Ordinance 1975 that Designated Village Areas were set up with the stipulation that only village houses in those Areas “being” compliant with the requirements of section 36(1)(c)(i) or (ii) could be exempted from assessment for rates. Subsequentlythe Buildings Ordinance (Application to the New Territories) Ordinance 1987 was enacted,adding the building specifications in section 36(1)(c)(iii) asconditions for exemption from rates under section 36(1)(c).[27] In my view, it is clear from the above legislative history that all along, or since the 1940s, the Ordinance had not conferred upon New Territories indigenous villagers any unconditional right to be exempted from rates.[28]

61. Second, the Ordinance has never excluded the New Territories areas.[29]Although in the early days of its implementation the Government had not extended the rates assessment and collection regime to New Territories areas.[30]  In any event, the publicly declared stance of the Government had always been that, with the provision by the Government of public facilities and services in the New Territories and/or the gradual urbanization in the New Territories, New Territories areas would step by step be incorporated in rates collection areas.[31]  However, in order to reduce the impact on the New Territories and to protect villagers occupying traditional village houses, the rates collection system in the New Territories would be implemented in phases.[32]  Even after the demarcation of rates collection areas and Designated Village Areas, the Government started by assessing the rates of buildings situated outside the Designated Village Areas (i.e. within the rates collection areas).[33]Therefore, the fact that village houses in the Village (including the Village House) had all along not been assessed for rates was the result not of any “customary right”, but of the step-by-step implementation by the Government of the rates assessment system under the relevant legislative framework, with the rates of the buildings inside Village Area 612 yet to be assessed.

62. Third, the “customary right” applicable to Hong Kong is:

“that ‘which was prevalent in 1843 in that part of China which comprised the present Territory of Hong Kong, but subject to any diminution of its application consequent upon enactments subsequently passed in Hong Kong or the United Kingdom, and further subject to any changes made in such customs or their interpretation as may since have become established. … This conclusion was clearly supported by the authorities.”[34]

Cheung JA stated that the Chinese Law, custom and customary rights commonly used in Hong Kong in 1843 would be changed as a result of subsequent developments.[35] These subsequent developments include the enactment of laws of Hong Kong after 1843 which “actually alters the substance of a Chinese law and custom” (emphasis added).[36] Accordingly, even if the villagers of the Village had been exempted from ratessince the 1940s when the Government began to collect rates in the New Territories (with which I do not agree), this could not possibly be the said “customary right” which could be traced far back in time. And even if the New Territories indigenous villagers (including the villagers of the Village) were entitledto what the defendant alleges to be a customary right of unconditional exemption from rates(with which I do not agree), the substance of the right had been altered by the Ordinance which was subsequently enacted. Section 36(1)(c) and (3) of the Ordinance stipulates that village houses both within and beyond the boundaries of the Designated Village Areas shall be exempted from rates only if they meet the prescribed building specifications and/or other requirements.

(5)  Article 40 of the Basic Law

63. As regards the defendant’s allegation that he, as an indigenous villager, enjoys the lawful traditional rights and interests under Article 40 of the Basic Law, I repeat my analysis set out in paragraph 46 above. The defendant relies on acomment made by Li CJ in the Court of Final Appeal case of Secretary for Justice v. Chan Wah (2003) 3 HKCFAR 459, namely that the lawful traditional rights and interests referred to in Article 40 of the Basic Law “include various property rights and interests such as exemption from Government rent and rates in respect of certain properties held by indigenous villagers.”[37] Li CJ went on to say:

“The lawful traditional rights and interests of indigenous inhabitants that are within Article 40 are protected by the Basic Law. In addition, there is specific protection in domestic legislation in relation to some of them. For example, the Government Rent (Assessment and Collection) Ordinance and the Rating Ordinance, Cap.116, s.36 relating to exemption from Government rent and rates respectively. (The former is also subject to the protection in Article 122 of the Basic Law.)”[38]

64. In my view, however,Chan Wah concerned a challenge mounted by non-indigenous villagers against the validity of electoral arrangements in respect of a village representative election of the village in which they resided.  Therefore, the comments made by Li CJ regarding exemption from payment of rates were merely obiter dicta. These comments will of course be respected, but they are not binding as a matter of law. Furthermore, as the case had nothing to do with exemption from assessment and/or payment of rates, Li CJ did not in his judgment delve into the long legislative history and/or details of the provisions of the Rating Ordinance. And on the facts of that case, it was not necessary to closely examine the question of what constituted lawful traditional rights and interests of New Territories indigenous villagers under Article 40 of the Basic Law.

65. In fact, in Koon Ping Leung v. The Director of Lands HCAL 14/2011 (unreported, 26 January 2012),[39] Lam J(as he then was) took the same view, and I respectfully agree with his analysis:

“24. Chan Wah was a case about the voting rights of non-indigenous villagers and women in a village representative election. It has nothing to do with the rights of an indigenous villager under the Small House Policy. Thus, the dicta of the Chief Justice in respect of the benefit under the small house policy is obiter. Though it would command respect, it is not binding as a matter of law.

25. Since the rights under the Small House Policy were not in issue in that case, there was no in-depth discussion in that judgment as to the relationship between the Small House Policy and the lawful traditional rights and interests of indigenous inhabitants. If one reads the dicta carefully, the Chief Justice only recorded what was not disputed between the parties in that particular case. On the facts and issues raised in that case, the court did not find it necessary to discuss comprehensively what constitutes lawful traditional rights and interests of indigenous inhabitants under Article 40.

26. One must not assume that all the rights afforded to an indigenous inhabitant under the Small House Policy come within the scope of Article 40. As mentioned, the Small House Policy was only implemented by the Government in 1972 and Professor Johannes Chan advanced a forceful argument in his book, Law of the Hong Kong Constitution, that the traditional rights and interests under Article 40 should be confined to rights and interests traceable to rights of the indigenous inhabitants in 1898 when the New Territories was leased to the British Government.

…

28.Confronted with the analysis of Professor Chan (relied upon by Mr Chan), the Applicant told this court that he could not seriously dispute the same. However, he maintained his reliance on the dicta in Chan Wah to support his case on Article 40.

29. As I have explained, the dicta in Chan Wah in respect of rights under the Small House Policy was a mere passing remark as to the position adopted by the parties in that case where the focus was on some other issues. With the greatest respect, I do not consider such dicta to be determinative of the issue that I have to adjudicate in the present case.”

66. In fact, the Government had begun assessing and collecting rates before 1898.[40] And before the Rating (Amendment) (No. 2) Ordinance 1975 came into effect, there was no statutory provision stipulating that village houses self-occupied by indigenous villagers in the New Territories village areas could be exempted from assessment for rates, or that the Rating Ordinance was not applicable to village houses self-occupied by indigenous villagers in the New Territories village areas.[41]Following the enactment and implementation of the Rating (Amendment) (No. 2) Ordinance 1975 and the Buildings Ordinance (Application to the New Territories) Ordinance 1987, only village houses in the Designated Village Areas “being” compliant with the requirements of section 36(1)(c)(i), (ii) or (iii) would be exempted from assessment for rates.[42] The village houses self-occupied by indigenous villagers in the New Territories village areas were not subject to payment of rates in the early years not because it was a right conferred by the Rating Ordinance, but because the Government extended the urban rating system to the New Territories in phases and assessment of rates was yet to be made for the New Territories.[43] In my view, given that the defendant does not dispute the demarcation of rates collection areas and/or Designated Village Areas,[44] and on the basis of the above analysis, there is no sufficient evidence before me to prove that the defendant as an indigenous villager had the lawful traditional right and interest to unconditional exemption from assessment and/or payment of rates in respect of the Village House he occupied.

67. But even if the dicta of Li CJ in Chan Wah is binding on this action (with this I do not agree), what Li CJ said was that lawful traditional rights and interests only protected “certain properties” held by indigenous villagers from the need to pay rates, and “section 36 of the Ordinance” covers matters relating to exemption from rates. Clearly, Li CJ was also of the view that not all village houses owned and/or occupied by indigenous villagers could be exempted from paying rates. Looking at the “specific protection in domestic legislation” (which means “section 36 of the Ordinance”) referred to by Li CJ in his judgment, section 36 expressly provides that village houses in the Designated Village Areas have to meet the specifications as to area, height and type before they can be exempted from assessment for rates. Therefore, there are restrictions on the “certain properties”which Li CJ said are protected by traditional rights and interests, and the building specifications as to area, height and type of the village houses, as specified under section 36(1)(c) of the Ordinance, are sufficient to protect traditional village-style houses of the indigenous villagers from liability to pay rates.[45] They do not contravene Article 40 of the Basic Law.

(6)  Conclusion

68. For the above reasons, I find that the defendant fails in his challenge to the plaintiff’s claim on the ground of Article 40 of the Basic Law and/or “customary right”.

VII.  “De-designation” of Designated Village Areas

69. In granting exemption from rates in the New Territories areas, the Administration’s original intention was to free “poor farmers” from the burden of paying rates in respect of the houses they occupied.[46] In view of the rapid development of the New Territories, the then effective policy of exempting small village houses from rates underwent a review in the 1970s.[47]  Mr Lee explained in his testimony that in the 1980s, with the reconstruction of old village houses and urbanization of the best part of the New Territories, quite a number of residents in the Designated Village Areas were people other than indigenous villagers. The Department regularly reviewed all the Designated Village Areas to consider if any of them should be “de-designated”. In reviewing each Designated Village Area, the Department would consider: (1) whether its location was still remote; (2) whether it still retained the essential character of a New Territories village; (3) all the reconstruction projects underway; (4) whether there were basically no shops in the Area; and (4) (sic)whether the residents in the Area were essentially indigenous villagers.[48] Upon “de-designation”, village houses within the Area could, similar to buildingsoutside the Area, still be exempted from the payment of rates pursuant to section 36(3) of the Ordinance so long as they were owned and occupied by indigenous villagers for domestic purpose and met the prescribed specifications as to area, height and type.[49]

70. However, due to opposition by the HYK and indigenous villagers, the “de-designation” work was once held up in the 1980s. As a result, the assessment of rates for certain village areas in the New Territories was suspended pending clarification of the exemption policy in respect of village houses occupied by indigenous villagers.[50] With a view to revising the rates exemption policy, in 1989 the Government recommended consulting the HYK, but the HYK raised strongopposition. Between 1990 and 1991, the Department utilized its resources to conduct a comprehensive revaluation of rates.[51] However, in 1991, the Department considered that the arrangements for exemption from rates (in particular, arrangements in respect of the Designated Village Areas) formulated in the 1970s were indeed out of date and had to be modified as a matter of urgency.[52]  The plaintiff submits that the purpose of the amendment the Government recommended was to revise, but not to revoke, the benefits enjoyed by indigenous villagers, and to remove anomalies and inconsistencies(i.e. non-indigenous villagers enjoying exemption from rates which was not meant for them).[53] The Administration considered that rates were an indirect tax levied on property users and that it was inconsistent with the spirit of the rates policy to grant exemption to buildings not occupied by indigenous villagers.[54] The Government, therefore, amended its earlier recommendation and once again consulted the HYK about the “de-designation” of the Designated Village Areas.

71. On 8 November 1991, the Regional Secretary (NT) had a meeting with the HYK. Thereafter, the Finance Branch amended the rates exemption policy in relation to the New Territories. The Regional Secretary (NT) wrote to the HYK dated 10 December 1991, attaching the Consultation Paper Annex C to the letter and requesting the HYK to consider the proposals.

72. Annex C succinctly set out the rates exemption arrangements then in existence (“the existing arrangements”), the amendments proposed by the Government(“the Administration’s proposal”) and the alternatives proposed by the HYK (“the HYK’s alternatives”) as understood by the representatives of the Finance Branch and the Department. The existing arrangements covered the arrangements both within and outside the Designated Village Areas: “village-type houses within the Designated Village Areas are all exempted from rates; village-type houses outside the Designated Village Areas may also be exempted from payment of rates if they meet the following conditions”. Under the existing arrangements, the conditions for exemption from rates that the buildings outside the Designated Village Areas had to meet included: (1) “complying with the prescribed building specifications”; (2) “owned and used by an indigenous villager, or owned by an indigenous villager but used by his immediate family”; and (3) “used for domestic purpose…”. According to the Administration’s proposal and the HYK’s alternatives, once a Designated Village Area was “de-designated”, all village houses would be assessed for rates, but applications for exemption from rates could be made as long as the requisite conditions were met. As regards the conditions for exemption, the Administration’s proposal and the HYK’s alternatives were that items (1) and (3) of the existing arrangements should continue to apply. The Administration’s proposal was that item (2) of the above conditions for exemption should also continue to apply, but the HYK’s alternatives requested that the village houses be used by indigenous villagers (but regardless of ownership). The HYK also proposed that the existing arrangements be preserved(i.e. each indigenous villager could only be exempted from rates in respect of one unit in use of one village-type house), but the Administration’s proposal was that, no matter how many village-type houses each indigenous villager owned, as long as the above conditions were complied with, the houses could all be exempted from rates.

73. On 23 December 1991, Mr Ting and theHYK held the Meeting to discuss the rates exemption policy. Present at the Meeting were the Commissioner of the Department, the Senior Assistant Financial Secretary, and the Chairman, two Vice-Chairmen and a number of members of the HYK. According to the Notes of the Meeting, it was held for the purpose of formally consulting the HYK regarding exemption of village-type houses in the New Territories from rates.[55]

74. The defendant said that at that time he was in Europe and was not aware of the above consultation, and that the New Territories indigenous villagers knew nothing about the discussion between the Government and the HYK. He considered that the “de-designation” of Designated Village Areas and the removal of the rates exemption policy would affect the rights of more than 800,000 New Territories indigenous villagers and 40,000 to 50,000 indigenous villagers who sojourned in Europe, and a government which respected the rights of its citizens and acted according to law should have conducted an open, fair and reasonable consultation. Instead, the Government “proceeded under the table” andrevoked the right of the indigenous villagers and collected rates from them. This, it is submitted, was extremely unfair, unreasonable and unlawful.

75. I do not agree that the decision to “de-designate” the Designated Village Areas was reached “under the table” by a small group of people at a private meeting. Back in the early years when the Legislative Council discussed the Rating (Amendment) Ordinance 1935 and the Rating (Amendment) Ordinance 1954, the Governmentalready stated publicly that the amendments to extend the rates collection regime to the New Territories were introduced with the objective of bringing it in line with the urbanization of the New Territories.[56]The proposal to “de-designate” the Designated Village Areas did not depart from that objective.

76. Although the Administration did not disclose to the mass media or the general public the revision of the rates exemption policy and/or the proposal to “de-designate” the Designated Village Areas, the above evidence does show that the Administration had thoroughly consulted the HYK. Under the Heung Yee Kuk Ordinance (Cap.1097), the HYK is “an advisory and consultative body for the New Territories”.[57]It has all along been a valuable advisory body to the Government on New Territories affairs as well as a platform for opinion leaders in the Territories to exchange views. When the Administration set up the HYK as a statutory advisory body, it framed its constitution to ensure that it would as far as possible be truly representative of informed and responsible opinion in the New Territories.[58] Section 9 of the Heung Yee Kuk Ordinance provides that the objects of the HYK are:

“(a) to promote and develop mutual co-operation and understanding among the people of the New Territories;

(b) to promote and develop co-operation and understanding between the Government and the people of the New Territories;

(c) to advise the Government on social and economic developments in the interests of the welfare and prosperity of the people of the New Territories;

(d) to encourage the observance of all such customs and traditional usages of the people of the New Territories as are conducive to their welfare and to the preservation of public morality; and

(e) to exercise such functions as they may be invited to from time to time by the Chief Executive.”

As Mr Lee pointed out, the HYK was set up for the purpose of advising the Government on behalf of the New Territories indigenous villagers. The HYK serves as an important channel through which the indigenous villagers are consulted. Therefore, I do not consider it improper for the Government to consult the HYK as it did when it proposed to revise the rates exemption policy.

77. At the Meeting, Government officials received and responded to the opinions of members of the HYK on the Consultation Paper, Annex C. The Deputy Commissioner of the Department indicated that, following the “de-designation” of a Designated Village Area, the Department would implement the rates assessment scheme in phases, with priority to be given to those areas in which most village-type houses had been sold and/or let to non-indigenous villagers.[59] Furthermore, as the lawyer representing the HYK had expressed doubts about the legality of the existing arrangements, the Administration would submit its recommendations together with the HYK’s views to the Executive Council which would then decide whether it was necessary to amend the relevant legislation. The Chairman of the HYK did not agree to have the problem resolved by means of legislative amendment, but the Administration indicated that the possibility of amending the Rating Ordinance could not be ruled out in the longer run.[60]

78. The defendant argues that the existing arrangement, as stated in Annex C, whereby “all village-type houses within the Designated Village Areas are exempted from rates”, indicated that all village-type houses in the Designated Village Areas were unconditionally exempted from rates, and that the plaintiff’s aim in delaying disclosure of Annex C in this action is to conceal the truth of the matter.

79. I do not agree with the defendant’s argument. As explained by Mr Lee, the main objective of Annex C was not to explain the existing arrangements, but to highlight the differences between the Administration’s proposal and the HYK’s alternativesand then compare them with the existing arrangements, so as to facilitate the consultation of the HYK on the Administration’s proposal. Therefore, the Administration merely gave an overview of the existing arrangements in Annex C. As Annex C was the Consultation Paper discussed at the Meeting, the Deputy Commissioner of the Department explained clearly at the Meeting that all pre-war village houses occupied by New Territories inhabitants regardless of size were at that time exempted from rates and would continue to be so exempted in future. However, re-developed buildings exceeding the prescribed measurements were not, and would not in future be, eligible for exemption from rates.[61] Therefore, during the consultation stage the Administration had clearly pointed out, with no concealment whatsoever, that post-war village houses must comply with the building specifications to be exempted from rates.

80. After the Meeting, the HYK wrote to the Regional Secretary (NT) on 29 January 1992, informing him that the HYK had unanimously passed several proposals and requested the Administration to consider the HYK’s alternatives carefully and resolve the problem by way of administrative measures. In the letter, the HYK also suggested that “the Administration should publicize the ‘de-designation’ of the Designated Village Areas upon its implementation, to enable villagers sojourning abroad to know about it and apply for exemption from rates in respect of their village-type houses.”

81. On 26 February 1992, the Regional Secretary (NT) wrote back stating that the Government could not accept the HYK’s suggestion that all village-type houses owned by indigenous villagers be exempted from rates regardless of use and occupier. He indicated that the Administration was going to submit the following proposals to the Executive Council for consideration: (1) all village-type houses and resited village houses occupied by indigenous villagers or their immediate families were to be exempted from rates regardless of ownership if those houses were occupied for domestic purpose; and (2) the above rates exemption arrangement was to be implemented by way of administrative measures, but the HYK had to confirm by written undertaking that it agreed to the said policy.

82. By reply letter of 7 April 1992, the HYK indicated that it had decided to accept the relevant proposals of the Government on the premise that the Government agreed to the terms put forward by the HYK. These terms included the HYK’s wish that the Government would promulgate administrative measures through the Executive Council in order to implement the proposals of the Government and the HYK as set out in the letter.

83. In July 1992, with the consent of the HYK and on the recommendation of the Executive Council, the then Governor made an order on the procedures of carrying out the rates exemption policy and “de-designation” of Designated Village Areas. The order included:

(1)  The amendment of the Ordinance should not be proceeded with at that time;

(2)  The designation of Designated Village Areas and New Resited Villages should be confined to village areas which retained the essential character of New Territories villages;

(3)  A village-type house situated outside a Designated Village Area and Resited Village (including any Designated Village Area and Resited Village that had been “de-designated”)which complied with the prescribed building specifications was to be exempted from rates regardless of ownership, provided that the house was occupied by an indigenous villager or his immediate family members for domestic purpose, or had been left vacant but was intended for occupation by the said person(s) for domestic purpose.

Point (3) above extended the eligibility to the right to exemption from payment of rates by virtue of section 36(3) of the Ordinance so that it covered village houses occupied by indigenous villagers and their immediate families. But still the village-type houses had to fall within the definition of a village-type house and comply with the prescribed building specifications in order to be exempted from payment of rates. The prescribed building specifications referred to in the above rates exemption policy were the building specifications prescribed in section 36(1)(c) of the Ordinance entitling a village house in a Designated Village Area to exemption from rates, that is: (1) a post-war village house situated in the New Territories (except New Kowloon), with a roofed-over area not exceeding 700 ft² (65.03 m²) (or 1,000 ft² (92.9 m²) for a house constructed in compliance with certain approved plans), and with a height not exceeding 25 feet (7.62 metres) (or, in certain cases, 27 feet (8.23 metres)), and comprising no more than three storeys; and (2) a pre-war dwelling-house, irrespective of size, which must be of the type normally built for New Territories residents.

84. On 20 July 1992, the Lands Department wrote to the HYK, informing them of the above newly formulated New Territories rates exemption policy, and stating that, in practice, if the essential New Territories village character of a Designated Village Area had been altered due to the development and urbanization of the New Territories, the Administration would phase out the Designated Village Area and proceed to assess the rates of the properties inside the “de-designated” Designated Village Area. The authority to designate and “de-designate” Designated Village Areas was to be exercised by the Secretary for the Treasury. Therefore, the suspended rates assessment work resumed in August 1992, but it had to be conducted in stages due to the large number of villages in the New Territories.

85. Mr Lee testified, and I accept on balance, that the development of the Sheung Shui New Town started in the early 1980s and was more or less completed by mid-1990s. Being adjacent to the new town with enhanced transport facilities, coupled with the changes resulting from urbanization, many of the village houses in Village Area 612 had been re-developed into 3-storey quality village houses which were owned or occupied by non-indigenous villagers. Some of the village houses were even used as shops or workshops. They no longer retained the essential character of NewTerritories villages. Therefore, pursuant to the rates exemption policy formulated in 1992,[62] the Government kicked off the procedure to “de-designate” the Designated Village Areas. On 5 January 1994,the Department completed the review report on the Designated Village Areas including Village Area 612. On 24 January 1994, the Department wrote to the New Territories Administration to consult them on the proposal to “de-designate” the Designated Village Areas. On 22 April 1994, the Department wrote to the Secretary for the Treasury, requesting him to exercise his power to “de-designate” 56 Designated Village Areas including Village Area 612. On 21 July 1994, the acting Regional Secretary (NT) wrote to the HYK, stating that the Department would on 29 July 1994 “de-designate” a number of Designated Village Areas including Village Area 612, and would from 1 August onward levy rates on the properties affected by the “de-designation”.

86. On 29 July 1994 the Secretary for the Treasury, in exercise of his power under section 46 of the Interpretation and General Clauses Ordinance (Cap.1), “de-designated” 56 Designated Village Areas including Village Area 612. Immediately after that, the Department began to assess the rates of the properties within those “de-designated” areas. For the village houses in the relevant areas which were occupied by indigenous villagers and their immediate families, if they met the prescribed specifications as to area, height and type, specifications, they might be exempted from rates pursuant to section 36(3) of the Ordinance upon exercise of the relevant power by the Director of Home Affairs.

87. Furthermore, in response to the request made by the HYK in its letter dated 29 January 1992,[63] the Government publicized the “de-designation” of Village Area 612 so that villagers of the Area could apply to the City and New Territories Administration for exemption from rates in respect of their village-type houses. On 7 September 1994, the Department had a meeting with the relevant Rural Committees and village representatives to explain matters relating to rates assessment work to be carried out following the “de-designation” of Designated Village Areas and applications by indigenous villagers for exemption from rates pursuant to section 36(3) of the Ordinance. Besides, on 23 September 1994 the Department attended the Sheung Shui Village Rural Committee on invitation, and on 17 October 1994 the Department wrote to the Sheung Shui Village Office to explain matters relating to the past and current policies on collection of and exemption from rates in the New Territoriesand the “de-designation” of Designated Village Areas. In the letter, the Department reiterated the policy of exemption from payment of rates passed by the Governor in Council (referred to in paragraph 83 above), namely that each indigenous villager of the New Territories(including his immediate family) had the right to be exempted from rates in respect of one self-occupied “dwelling house”. The letter also stated the definition of immediate family and the specifications of a “dwelling house” as mentioned in paragraph 83 above.

88. Subsequent to the above consultations and communications, the Department completed the rates assessment work of the Village(which was no longer within a Designated Village Area) in 1995. To date 312 rating assessments have been made in respect of the Village, and 112 of them, which meet the requisite conditions under section 36(3) of the Ordinance, have been exempted from payment of rates.

89. On 9 April 1995, Liu Sr submitted to the City and New Territories Administration an “Application Form for Exemption of Village Houses in the New Territories from Payment of Rates”, but the application was not approved. On 16 January 1996, the Department issued a “Notice of Interim Valuation” to Liu Sr to collect the rates in respect of the Property.

90. The defendant said that after his return to Hong Kong between 1995 and 1996, he made enquiries of the villagers of the Village and of the neighbouring villages, but they did not know that Village Area 612 had been “de-designated”, nor did they know that the Department had explained the rates exemption policy to the Sheung Shui Rural Committee. He estimated that approximately 200,000 villagers lacked such knowledge. However, under cross-examination, he admitted that the number of 200,000 was merely his own estimate not supported by any evidence. On 25 May 1996, the defendant himself also submitted to the City and New Territories Administration an “Application Form for Exemption of Village Houses in the New Territories from Payment of Rates”.  The first page of the form he filled out contained the following statement underneath the title of the form: “Pursuant to the provisions of section 36(3) [of the Ordinance], the Secretary of the City and New Territories Administration may, in accordance with the power conferred by the Governor, exempt genuine village houses located outside areas prescribed under section 36(1)(c) from payment of rates. For details, please refer to the ‘Explanatory Note to Application for Exemption of Village Houses in the New Territories from Payment of Rates’.” (emphasis added) On balance, I am of the view that the defendant’s allegation that he was unaware of the “de-designation” of Village Area 612 not reliable or credible.

91. On balance, I accept the explanation given by Mr Lee. The Department had subsequently conducted six review exercises in 1993, 1994, 1995, 1998, 2005 and 2010 respectively and “de-designated” a total of 237 Designated Village Areas. At present, there are still 105 Designated Village Areas in the New Territories. About half of them are located in Yuen Long and the rest are variously located in the Northern District, Tai Po, Shatin, Sai Kong and the Outlying Islands. The Department continues to review and evaluate the existing Designated Village Areas. If any of them, being adjacent to a new town, is affected by urbanization and unable to retain the essential village character by reason of circumstances such as improvement in transport facilities, re-development of old buildings inside the Area into quality 3-storey village houses, use of some of the buildings for commercial purpose, and/or ownership or occupation of some of the buildings by non-indigenous villagers etc, the Department will, pursuant to thepolicy formulated in 1992,make adjustment and invoke the procedure to “de-designate” the Designated Village Area and revoke the exemption from rates under section 36(1)(c) of the Ordinance which is originally intended for indigenous villagers. Although the Department has kept no written record on the above factors for consideration in respect of the “de-designation” of Designated Village Areas, the Government has, ever since it submitted to the HYK the Consultation Paper on revising the rates exemption policy, clearly expressed those factors, which have remained unchanged.

92. It can be seen from the above that it was only after numerous discussions and meetings and extensive correspondence that the HYK accepted the Government’s proposal. The Government also publicized the relevant rates exemption policy so that it was made known to the villagers. I do not agree with the defendant’s allegation regarding “dealings under the table”, nor do I believe that he had been kept in the dark.

VIII.  The Hong Kong Bill of Rights, the ICCPR, the ICESCR and the Basic Law

(1)  The Hong Kong Bill of Rights, the ICCPRand the Basic Law

93. The defendant argues as follows. The Village House, being located inside Village Area 612, was originally eligible for exemption from rates. The Government “de-designated” Designated Village Areas (including Village Area 612) and levied rates on the Village House, whereas buildings in Hang Tau Village, Hang Mei Village and Tong Fong Village were exempted from assessment for rates as they were situated inside Designated Village Areas. Such implementation was, it is submitted, unfair to the defendant and unlawful. He submits that the Department selectively deprived the villagers of the Village of the right to exemption from rates and revoked the lawful status of Village Area 612, whereas other clans living in Hang Tau Village, Tong Fong Village and Hang Mei Village enjoyed the right to exemption from rates. This, it is submitted, was discriminatory against the villagers of the Village and constituted unequal treatment to them. Therefore, the defendant submits that the “de-designation” of Village Area 612 contravened his right to exemption from rates under the Hong Kong Bill of Rights, the Basic Law, the ICCPR and the ICESCR.

94. The Basic Law provides as follows:

 

“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.” [Article 8]

“In accordance with Article 31 of The Constitution of the People’s Republic of China, the systems and policies practised in the Hong Kong Special Administrative Region, including the social and economic systems, the system for safeguarding the fundamental rights and freedoms of its residents, the executive, legislative and judicial systems, and the relevant policies, shall be based on the provisions of this Law.

No law enacted by the legislature of the Hong Kong Special Administrative Region shall contravene this Law.” [Article 11]

“All Hong Kong residents shall be equal before the law.” [Article 25]

95. The Hong Kong Bill of Rights provides as follows:

“(1) The rights recognized in this Bill of Rights shall be enjoyed without distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status.

(2) Men and women shall have an equal right to the enjoyment of all civil and political rights set forth in this Bill of Rights.”[Article 1]

“All persons are equal before the law and are entitled without any discrimination to the equal protection of the law. In this respect, the law shall prohibit any discrimination and guarantee to all persons equal and effective protection against discrimination on any ground such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status.” [Article 22]

96. Ms Ng of counsel does not dispute that the ICCPR is applicable to Hong Kong. The ICCPR states as follows:

“(1) Nothing in the present Covenant may be interpreted as implying for any State, group or person any right to engage in any activity or perform any act aimed at the destruction of any of the rights and freedoms recognized herein or at their limitation to a greater extent than is provided for in the present Covenant.

(2) There shall be no restriction upon or derogation from any of the fundamental human rights recognized or existing in any State Party to the present Covenant pursuant to law, conventions, regulations or custom on the pretext that the present Covenant does not recognize such rights or that it recognizes them to a lesser extent.” [Article 1(sic)]

The terms of Article 26 of the ICCPR are identical to those of Article 22 of the Hong Kong Bill of Rights.

97. The legal principles pertaining to Article 22 of the Hong Kong Bill of Rights (the terms of which are identical to those of Article 26 of the ICCPR) and Article 25 of the Basic Law have been examined in the cases of The Secretary for Justice v Yau Yuk Lung Zigo and anor (2007) 10 HKCFAR 35 and Fok Chun Wa & anor v Hospital Authority & anor [2012] 2 HKC 413. The defendant argues that these cases are not relevant to the present action because they have arisen in a different context in that they do not concern the rights of New Territories indigenous villagers and/or the laws applicable to those villagers. However, whether a decided case is applicable depends on its ratio decidendi. As the above two cases mainly involve the issue of whether the Administration had contravened Article 22 of the Hong Kong Bill of Rights, Article 26 of the ICCPR and Article 25 of the Basic Law, which is the very issue involved in the present case, the interpretations of those provisions by the Court of Final Appeal are binding on this court and the parties in this action.

98. In Yau Yuk Lung Zigo,the Court of Final Appeal dealt with the question of whether section 118F(1) of the Crimes Ordinance (Cap.200) involved sexual orientation discrimination and hencecontravened Article 22 of the Hong Kong Bill of Rights, Article 26 of the ICCPR and Article 25 of the Basic Law. Li CJ (as he then was) set out in the following terms the legal principles pertaining to those provisions:

“19. In general, the law should usually accord identical treatment to comparable situations. …

20. However, the guarantee of equality before the law does not invariably require exact equality. Differences in legal treatment may be justified for good reason. In order for differential treatment to be justified, it must be shown that:

(1) The difference in treatment must pursue a legitimate aim. For any aim to be legitimate, a genuine need for such difference must be established.

(2) The difference in treatment must be rationally connected to the legitimate aim.

(3) The difference in treatment must be no more than is necessary to accomplish the legitimate aim.

The above test will be referred to as ‘the justification test’. …

21. The burden is on the Government to satisfy the court that the justification test is satisfied. …

22....Where the difference in treatment satisfies the justification test, the correct approach is to regard the difference in treatment as not constituting discrimination and not infringing the constitutional right to equality. Unlike some other constitutional rights, such as the right of peaceful assembly, it is not a question of infringement of the right which may be constitutionally justified.”

99. In Fok Chun Wa, the question before the Court of Final Appeal was whether charging qualified users and unqualified users different levels of fees for obstetric services they used in public hospitals was a violation of the right to equal treatment guaranteed under Article 22 of the Hong Kong Bill of Rights and Article 25 of the Basic Law. Ma CJ pointed out that the starting point was the legal principles and thejustification test referred to in Yau Yuk Lung Zigo,but “[it] is … important in this exercise to bear firmly in mind the relevance of what is known as the aspect of the margin of appreciation, particularly in circumstances where the court is asked to examine issues involving socio-economic policy” (p.433). Ma CJ went on to say:

“66. Accordingly, it would not usually be within the province of the courts to adjudicate on the merits or demerits of government socio-economic policies. That said, where appropriate … the court will intervene, this being part of its responsibility to ensure that any measure or policy is lawful and constitution[al].” [p.435]

…

75. … In the socio-economic context, where policy considerations are best left to the executive, legislative or other authority, the position is as follows: (1) … the purpose of the exercise … is to see whether the relevant act or decision satisfies the justification test … whether what has been done (or omitted to be done) or decided is a proportionate response to the legitimate aim. … (3) Where a number of alternative, but reasonable, solutions to a problem exist, the court will not put itself in a place of the executive or legislature or other authority to decide which is the bestoption. That is not its role. The court will only interfere where the option chosen is clearly beyond the spectrum of reasonable options; in other words, the option has clearly gone too far (or further than necessary) to deal with the problem. In this situation the court will not have been satisfied under the third limb of the justification test.

…

77. … It would be appropriate for the courts to intervene … where, even in the area of socio-economic or other government policies, there has been any disregard for core values. … Where, for example, the reason for unequal treatment strikes at the heart of core-values relating to personal or human characteristics (such as race, colour, gender, sexual orientation, religion, politics, or social origin), the courts would extremely rarely (if at all) find this acceptable. These characteristics involve the respect and dignity that society accords to a human being. They are fundamental societal values. On the other hand, where other characteristics or status which do not relate to such notions or values are involved … the courts will hesitate much more before interfering; in other words, more leeway is given to the Executive, Legislature or other authorities. … [p.439]

…

79.  … These fundamental concepts are those which go to the heart of any society. They include, for example, the right to life, the right not to be tortured, the right not to be held in slavery, the freedom of expression and opinion, freedom of religion (amongst others). Fundamental concepts also include the right to a fair trial and the presumption of innocence. Here, the courts have been vigilant to ensure that the proportionality or justification test is satisfied …” [p.440] (emphasis added)

100. In Fok Chun Wa,the Court of Final Appeal heldthat entitlement to social welfare or to subsidized health services was not a core value or fundamental concept which warranted a more stringent scrutiny of the relevant policies. In his evidence, the defendant admitted that the collection of rates was one of the sources of public revenue. I agree with the submission of Ms Ng of counsel that the exemption from rates and “de-designation” of Designated Village Areas is a socio-economic policy which has nothing to do with personal or human characteristics or respect and dignity that society accords to a human being. Therefore, the exemption from rates does not involve any core value or fundamental concept and a laxer approach is allowed in considering if the differential treatment in question contravenes the principle of equality under Article 22 of the Hong Kong Bill of Rights, Article 26 of the ICCPR and Article 25 of the Basic Law.

101. In my view, even if a laxer approach is not taken in dealing with the policies behind the “de-designation” of Designated Village Areas and the collection of rates, the difference (if there be any) in treatment between Hang Tau Village, Hang Mei Village and Tong Fong Village on the one hand and the Village on the other, did not involve inequality or discrimination for the reason that such difference (if any) was genuinely necessary to accomplish a legitimate aim.

102. According to an undated letter of Tang Shing Sze(transliteration), 113 Hang Tau Village, 54 Tong Fong Village and 153 and 154 Hang Mei Village were “currently exempted from assessment for rates (i.e. not required to pay rates)”. The defendant argues that this was sufficient to prove that buildings in Designated Village Areas were unconditionally exempted from assessment and payment of rates. I do not think so, because the fact that the abovementioned properties were exempted from assessment for rates does not mean that all buildings within the Designated Village Areas where those properties were situated could also be unconditionally exempted from rates. However, even if none of the buildings in Hang Tau Village, Tong Fong Village and Hang Mei Village had yet been assessed for rates, this was because the Department concentrated its efforts in first assessing the rates of the buildings outside the Designated Village Areas[64], not because any exemption from rates was unconditional.

103. Mr Lee said,and I accept on balance, that by 1988 the whole of the New Territories had been incorporated in the rates collection areas.[65] Tong Fong Village, Hang Tau Village and Hang Mei Village in Ping Shan, being geographically remote, were not incorporated in the rates collection areas until the final phase in 1988. These village areas occupied by indigenous villagers were designated as Village Areas 437/438 on 1 March 1988. In 1994, when Village Area 612 was “de-designated”, the construction Tin Shui Wai New Town had not yet completed and, not being adjacent to a new town, Village Areas 437/438 have to date retained by and large the essential character of a New Territories village. Having said that, Village Areas 437/438 are also undergoing gradual urbanization, with Tin Shui Wai already connected by the West Rail Line. The Department will therefore continue to review Village Areas 437/438 regularly.

104. The defendant argues that the factors to be considered in the “de-designation” of Designated Village Areas, referred to in paragraphs 43, 69 and 91 above, cannot be taken as such because they were what Mr Lee subjectively saw them to be, lacked any definition or objective criteria, and were not supported by any documentary evidence. However, in my view, the various factors for consideration mentioned by Mr Lee constitute an exhaustive list. The Department must have regard to the particular circumstances of each Designated Village Area in making assessment, and this does not mean that the above factors for consideration cannot be taken as such.

105. The defendant further argues that Tong Fong Village, Hang Tau Village and Hang Mei Village were only 400 metres away from Tin Shui Wai New Town. However, Mr Lee explained, and I accept on balance, that although Village Areas 437/438 were approximately 400 to 600 metres away from Yiu Foo House, Tin Yiu Estate, they were separated by a rural area. Although the Village was approximately 1,100 metres away from Metro City, Village Area 612 was on the whole adjacent and proximate to Sheung Shui New Town and was only 145 metres away from Tsui Lai Garden, a housing estate under the Home Ownership Scheme in Sheung Shui. The Village and Village Areas 437/438 cannot be mentioned in the same breath. The defendant argues that the Government had not provided facilities and services to the Village, but on balance I accept the testimony of Mr Lee that there had been enhancement to the supporting transport facilities of Village Area 612, that some of the village houses were already owned or occupied by non-indigenous villagers, and that some were even used as shops and workshops.[66] Mr Lee pointed out that quite a number of village houses in Village Area 612 had been re-developed into quality 3-storey village houses. In fact, back in 1973 Liu Sr demolished the original village house of the Property and re-developed it into the multi-storey quality Village House which now stands. The photographs produced in the court also show that there were multi-storey quality village houses on both sides of the Village House. Although the defendant claims that the Village was an ancient village with several hundredyears of history and although its ancestral hall was a declared monument of Hong Kong, I accept on balance that when itwas “de-designated” in 1994, Village Area 612 had already undergone urbanization and failed to retain the essential character of a New Territories village.

106. Although Village Area 612 had been “de-designated”, the HAD could, pursuant to section 36(3) of the Ordinance, approve the exemption from rates for village houses which were occupied by indigenous villagers and which complied with the prescribed building specifications as to area, height and type. These building specifications were the same as those under section 36(1)(c)(i) or (iii) of the Ordinance as to area, height and type of the buildings.[67] Mr Lee testified that the leaflet on “Applications for Exemption from Rates in the New Territories — New Territories Exempted Houses/Small Houses Developed Pursuant to Lease Conditions” compiled by the Lands Department and dated October 1997 was expressed to be for the reference of those who built “ding houses” and briefly stated the specifications prescribed for the construction of “ding houses” that met the conditions of grant. In fact, the specifications prescribed for village houses both within and outside Designated Village Areas which are eligible for exemption from assessment for rates were the same as those for the construction of “ding houses”.[68]

107. The defendant considers that the “de-designation” of Village Area 612, which rendered the Property liable to assessment and payment of rates, was unfair to him. However, village houses situated in former Designated Village Areas which were occupied by indigenous villagers or their immediate families and which complied with the prescribed building specifications were still exempted from rates, and the building specifications[69] prescribed for village houses within and outside the Designated Village Areas which were entitled to exemption from rates were the same as those for the construction of “ding houses”. There was no unequal treatment under the statute.

108. Even if there was a difference in treatment between the implementation of the rates exemption scheme within Designated Village Areas and that beyond those Areas (in that buildings within those Areas did not have to pay rates as no assessment had yet been made), I agree with the submission Ms Ng of counsel that therewas a legitimateaimin “de-designating” Designated Village Areas and then proceeding to assess the rates of the village houses therein and collect rates accordingly, and the differential treatment was reasonably connected to this legitimateaim. The grant by the Administration of the exemption from rates was for the purpose of protecting the right of the indigenous villages to occupy traditional “ding houses”. Such exemption was not granted for the benefit of non-indigenous villagers and/or newly constructed or reconstructed multi-storey quality village houses which did not comply with the specifications of “ding houses”. If the Designated Village Areas that had lost the essential character of a village were not “de-designated” and rates were not then assessed and levied in respect of the village houses in those areas, an anomalous and unfair situation would arise in which the non-indigenous villagers outside the Designated Village Areas had to pay rates whereas those within such Areas enjoyed exemption from rates which was not meant for them. This would also be unfair and unjust. In fact, after “de-designation”, indigenous villagers could apply for exemption from rates pursuant to the mechanism under section 36(3) of the Ordinance which required compliance with the prescribed building specifications. This arrangement adequately protected the concession enjoyed by indigenous villagers who occupied traditional village houses or “ding houses”. Therefore, the difference in treatment did not go beyond what was necessary to accomplish the legitimate aimand was not discriminatory in any way.

109. Accordingly, I rule that the “de-designation” of Village Area 612 and the assessment and collection of rates in respect of the Property following the “de-designation” did not contravene the relevant provisions in the Hong Kong Bill of Rights, the ICCPR and the Basic Law.

(2)  Article 4 of the ICESCR

110. The defendant also relies on Article 4 of the ICESCR which reads as follows:

“The States Parties to the present Covenant recognize that, in the enjoyment of those rights provided by the State in conformity with the present Covenant, the State may subject such rights only to such limitations as are determined by law only in so far as this may be compatible with the nature of these rights and solely for the purpose of promoting the general welfare in a democratic society.” (emphasis added)

and Article 39 of the Basic Law which provides as follows:

“The provisions of ... the [ICESCR] ... as applied to Hong Kong shall remain in force and shall be implemented through the laws of the Hong Kong Special Administrative Region.

The rights and freedoms enjoyed by Hong Kong residents shall not be restricted unless as prescribed by law. Such restrictions shall not contravene the provisions of the preceding paragraph of this Article.” (emphasis added)

111. In MA v Director of Immigration CACV 46/2011(unreported, 27 November 2012), Fok JA pointed out that the parties agreed “there has been no implementation of the ICESCR in Hong Kong domestic law through an equivalent of HKBORO [the Hong Kong Bill of Rights Ordinance (Cap.383)]. It remains an open question whether the ICESCR is generally given effect in the existing laws of Hong Kong …” [at paragraph 90]. In that case, the Senior Counsel representing the defendant(i.e. the Director of Immigration) “disputed the proposition that there is a domestically enforceable right to enforce the guarantee or requirement that applicable provisions would be implemented through the laws of Hong Kong” [at paragraph 91], but the Senior Counsel representing the appellant said:

“Art 39 BL envisages laws to deliver the Guarantee [of the effective implementation of the Applicable Provisions through the laws of the Region in Art 39(1)] which must not infringe the Protection [of individual rights and freedoms from restriction save where prescribed by law and compatible with the Guarantee]. A law would include a BOR-type instrument and sector-specific legislation. Provisions of the BL itself … are also relevant” [at paragraphs 88 and 101]

However, in MA it was not necessary for the Court of Appeal to make a ruling on the above different legal propositions.

112. In Comilang Milagros Tecson also known as Comilang Milagaros T & anor v Commissioner of Registration & ors HCAL 28/2011 (unreported, 15 June 2012),[70] Lam J (as he then was), citing Chan Mei Yee v Director of Immigration HCAL 77/1999 (unreported, 13 July 2000), Chan To Foon & ors v Director of Immigration & anor [2001] 1 HKLRD 109and other decided cases, said that the ICESCR itself did not directly confer enforceable personal rights, but its promotional oraspirationalnature did not mean that it could not become a framework under which the government made decisions or exercised its discretions.

113. Obviously, no domestic legislation has been enacted in Hong Kong to give effect to the application of the ICESCR. However, I do not find it necessary in this action to delve into the promotional and aspirational nature of the ICESCR or how it constitutes the framework under which the government makes decisions.  Article 4 of the ICESCR, on which the defendant relies, sets out the limitations and purposes to which citizens of the States Parties to the ICESCR are subject when they enjoy“those rights provided in conformity with the present Covenant”, but the defendant has not cited “those rights provided in conformity with the present Covenant” (i.e. any other empowering provision of the ICESCR other thanArticle 4). In my view, there is insufficient evidence before me to show that the Government was in breach ofArticle 4 of the ICESCR and/or Article 39 of the Basic Law.

114. On the above analysis, the Government, the HAD, the Department and/or the Ordinance did not breach and/or contravene the Hong Kong Bill of Rights, the ICCPR, the ICESCR and the Basic Law.

IX.  The power to “de-designate” Designated Village Areas

115. The defendant argues that section 36(1)(c) of the Ordinance only empowered the Governor/Chief Executive to designate Village Areas and that there was no provision empowering him to “de-designate” them. The defendant further argues that the Administration did not have the power to “de-designate” Village Area 612 years later in 1994 by way of “administrative measures”, thereby depriving the Village House which was built in 1973 of the right to exemption from rates.

116. The defendant also contends that the plaintiff had over the years avoided clarifying the rights New Territories villagers under section 36(1)(c) and (4) of the Ordinance and tried the best to conceal the truth. It was only after the defendant complained to the Hon. Emily Lau Wai Hing and the Office of the Ombudsman between 1999 and 2000 that the HAD disclosed that Village Area 612 was “de-designated” on 29 July 1994, but then it did not confirm specifically whether the “de-designation” was done as a matter of “policy” or “administrative measure”. It was only at a late stage of the proceedings herein that the plaintiff provided the document signed by the Secretary for Treasuryon 29 July 1994 “de-designating” Village Area 612. The defendant considered that the plaintiff delayed the disclosure of the document for the purpose of concealing the truth of the matter. The defendant further alleges that the plaintiff had clearly indicated that the defendant could not disclose the document to any third party without the plaintiff’s consent, and that the document was clearly an unlawful and invalid document which the plaintiff did not want to be made public. Therefore, it is submitted that the Village House was still within a Designated Village Area under section 36(1)(c) of the Ordinance and was exempted from rates.

117. In my view, the defendant’s argument must fail. Although the Government made recommendations and carried out consultation regarding the policy of “de-designating” Designated Village Areas, it did not act merely in reliance of policy or administrative measure. The abovementioned document of 29 July 1994 expressly confirmed that the Secretary for Treasury was exercising his power under section 46 of the Interpretation and General Clauses Ordinance (Cap.1) in “de-designating”Village Areas including Village Area 612.[71] Section 46 of the Interpretation and General Clauses Ordinance provides that: “Where any Ordinance confers power upon any person to make, grant, issue or approve any proclamation, order, notice, declaration, instrument, notification, licence, permit, exemption, register or list, such power shall include power - … (c) to withdraw approval of any proclamation, order, notice, declaration, instrument, notification, licence, permit, exemption, register or list so approved …”.

118. In MTR Corp Ltd v Commissioner of Rating and Valuation [2008] 2 HKC 350, the Commissioner of the Department made an order pursuant to section 29 of the Government Rent (Assessment and Collection) Ordinance (Cap.515) holding over government rent or a part thereof payable by the plaintiff pending the determination of the appeal. The Commissioner subsequently withdrew the order although section 29 did not expressly provide for such power. The Court of Appeal held in that case that:

“There was no contrary intention ousting s 46 of the Interpretation Ordinance, with the result that the Commissioner had been able to withdraw the order made under s 29 of the Rent Ordinance. … In any event, the application of s 46 of the Interpretation Ordinance would promote fairness and would be sufficiently certain.” (at page 351)

119. I do not see any contrary intention in the Ordinance which rendered section 46 of the Interpretation and General Clauses Ordinance not applicable. Therefore, in “de-designating” Designated Village Areas including Village Area 612, the Secretary for the Treasury was exercising the power vested in him by the said Ordinance and not merely acting by way of “administrative measure” as alleged by the defendant. Although in 1992 the Administration accepted the HYK’s suggestion of not “de-designating” Designated Village Areas by means of legislative amendments, this does not mean that the “de-designation” was an unlawful government policy.

120. As regards the defendant’s allegation that by disallowing him to disclose the 29 July 1994 document to third parties, the plaintiff was trying to conceal the truth, this merely shows that the defendant has misunderstood the duty of discovery by the parties to civil proceedings. In fact, all documents disclosed for the purpose of litigation are protected byan implied undertaking which prohibits the use of those documents otherwise than for the purposes of that litigation.

X.  The exemption under section 36(3) of the Ordinance

121. On the above analysis, the “de-designation” of Village Area 612 by the Government was valid and effective at law. Accordingly, the Village House had since 1 August 1994 been a village house outside a Designated Village Area, and section 36(1)(c) of the Ordinance no longer applied to the Village House which must be subject to assessment for rates. I now turn to the question of whether the Village House complied with the conditions for exemption from rates as set out under section 36(3) of the Ordinance.

(1)  The conditions for exemption from rates under section 36(3) of the Ordinance

122. Following the “de-designation” of a Designated Village Area, village houses situated outside that Area which were occupied by indigenous villagers and their immediate families and which met the prescribed requirements as to area, height and type could apply for exemption from rates pursuant to section 36(3) of the Ordinance, and the HAD could exercise the powers vested in it to grant such exemption. To date 312 rating assessments have been made in respect of the Village, and 112 of them, which satisfy the conditions for exemption under section 36(3) of the Ordinance, are exempted from payment of rates.

123. Under section 36(3), decisions to grant exemption from rates beyond Designated Village Areas are made by “the Chief Executive”, and his decisions can be found in (1) the rates exemption policy of July 1992;[72] (2) the “Explanatory Note to Application for Exemption of Village Houses in the New Territories from Payment of Rates” issued by the Department;[73]and(3) the “Applications for Exemption from Rates in the New Territories — New Territories Exempted Houses/Small Houses Developed Pursuant to Lease Conditions”[74] and (4) the “Criteria for Exemption of New Territories Village Houses from Rates”[75] issued by the Lands Department.

124. First, the July 1992 rates exemption policy is set out in paragraph 83 above.

125. Second, the “Explanatory Note to Application for Exemption of Village Houses in the New Territories from Payment of Rates” explained the procedures for applying for exemption from payment of rates in respect of genuine village houses located outside areas designated under section 36(1)(c) of the Ordinance.Such applications could only be made by indigenous villagers or their immediate family members who met all the exemption criteria stated in paragraph X of the Explanatory Note. Paragraph IX of the Explanatory Note stated that applicants who wished to make further enquiries about the exemption criteria or application procedures could contact the District Office in the relevant area.

126. Third, Mr Lee explained, and I accept on balance, that the leaflet on “Applications for Exemption from Rates in the New Territories — New Territories Exempted Houses/Small Houses Developed Pursuant to Lease Conditions” compiled by the Lands Department and dated October 1997 was for the reference of those who constructed “ding houses”. The leaflet outlined the building specifications for “ding houses” and how they could comply with the conditions of grant. These building specifications were identical to those for New Territories village houses eligible for exemption from rates. Mr Lee explained, and I accept on balance, that the indigenous villagers in general understood what the building specifications for “ding houses” were, and therefore section 36(1)(c)(iii) and section 36(3) of the Ordinance adopted the same building specifications. A simple drawing was attached to the said leaflet to illustrate the approved dimensions of a building. However, the leaflet made it clear that it did not intend to set out all the prescribed requirements, and that an applicant who wished to make any enquiry should consult the relevant District Office or Lands Office in the New Territories or the Department, or should seek independent professional advice.

127. Fourth, the defendant wrote to the HAD on 14 July 1999, indicating that the Administration had sent to him a Rev 1997 version of the Explanatory Note on “Criteria for Exemption of New Territories Village Houses from Rates”, but the Explanatory Note was not applicable as the Village House was built in 1973. The HAD wrote back on 20 June 2000, explaining (and I accept the explanation) that in general, wheneverthe HAD revised its printed material, the year in which the revision was made would be printed on it. The wording of this printed material was revised in 1997, but it did not affect the substantive criteria/conditions. The above Explanatory Note stated as follows:

“Pursuant to the power vested in him by the Chief Executive, the Director [of Lands] may consider exempting the rates of the village houses located outside the Designated Village Areas subject to the following conditions:

…

The above is only a brief introduction on the basic criteria that the Director [of Lands] considers in granting exemption from rates. Any inhabitant who needs more detailed information or would like to make the relevant application should enquire with the Liaison Officers of the District Offices, …”

128. Looking at the requirements set out in the above policy, leaflet and the Explanatory Note together, New Territories village houses located outside the Designated Village Areas must be occupied by indigenous villagers or their immediate family members and also comply with the following building specifications to enjoy exemption from rates:

(1)  A pre-August 1945 dwellinghouse, irrespective of size, but must be of the type built for New Territories residents.

(2)  A post-war village house (a) with a total roofed-over area not exceeding 65.03m²(700 ft²) (or 92.9m² (1,000 ft²) but must comply with approved plans), and (b) with a height not exceeding 7.62m (25ft) (or 8.23m (i.e. 27ft) for structural safety while meeting the requirements in respect of party walls and load-bearing walls as set out in paragraph (4) below), and (c) comprising no more than 3 storeys.

(3)  The calculation of height shall exclude the height of a parapet not exceeding 1.22m (4ft) in height and a stairhood not exceeding 7.44 m² (80ft²) in roofed-over area and 2.14m (7ft) in height. The stairhood must be used solely for the purpose of covering the exit of the roof staircase and gaining access to and egress from the roof. One water storage tank not exceeding 2m² in area and 1.22m in height could be installed at any location(other than on the stairhood) on the roof of the house.

(4)(i)  The party walls separating the house to be erected on the lot from the adjoining houses must be load-bearing walls:

(a) in the case of a load-bearing reinforced concrete wall, the thickness of each load-bearing wall must not be less than 175 mm;

(b) in the case of a load-bearing brick wall and where the house to be erected did not exceed 7.62 m in height, the thickness of each load-bearing wall must not be less than 225 mm; and

(c) in the case of a load-bearing brick wall and where the house to be erected exceeded 7.62 mbut did not exceed 8.23 m in height, the thickness of each load-bearing wall of the lowest storey must not be less than 340mm and the thickness of each load-bearing wall of any higher storey must not be less than 225 mm.

(ii)The party wall must extend continuously from the floor level of the lowest storey of the house up to the underside of the roof and from an external wall to the opposite external wall.

(iii)No door, doorway, arch, archway, window or other opening could be made or constructed in or on the party walls.

(5) The village house must not contain any illegal or unauthorized structure/extension.

The HAD would consider whether an application satisfied the above requirements by taking into account the particular circumstances of the application.

(2) Had the Village House satisfied the conditions for exemption?

129. Mr Ko testified that when the Department went to the Property on 18 July 1995 and in March 1998 for the purpose of assessing rates, it was unable to gain entry to the Village House to carry out inspections and take measurements. Besides, Mr Lee inspected the exterior of the Property on 18 June 2012, and what he saw was the same as that shown on drawings[76] prepared on the basis of a visual inspection and the photographs taken from the outside of the Village House. The drawings and photographs show that the Village House was a village house comprising three and a half storeys (i.e. ground floor, first floor, second floor and penthouse), with a metal frame installed at the penthouse.[77] The defendant said that he did not live in the Village House in 1995 and moved back to the Village House only in 1996 or so, and therefore he has no idea about the metal frame in 1995. However, he admitted that the condition of the Village House from 1996 to the present was and is as shown in the photographs. I do not accept the defendant’s allegation that he was not aware of the condition of the Property in 1995 because in the “Application Form for the Exemption of Village Houses in the New Territories from Payment of Rates” dated 2 July 1998 he confirmed in writing that he had resided in the Village House since June 1995.

130. On balance, I accept the evidence given by Mr Ko and find that the area of the penthouse and the height of the Village House did not meet the prescribed requirements as to area and height. Therefore, the Village House could not be exempted from rates, be it located within or outside Village Area 612.

131. First, the defendant admitted that he did not know if the Village House exceeded 25 feet in height as he had not measured its height, but he agreed that there was no evidence to prove that the Village House was less than 25 feet high. The defendant agreed that the ceiling height of the ground floor of the front portion of the Village House exceeded 6 feet, and so was the case with the first floor of the front portion of the Village House.[78] He said that he was 5 feet 10 inches tall; that the heights of the ground floor, first floor and second floor of the rear portion of the Village House were each up to the top of his head only; and that the ceiling of each floor was only 2 inches above the top of his head, which was just about 6 feet. Mr Ko said when one looked at the penthouse from the back of the Village House or from the photographs, the penthouse appeared to be an enclosed structure with an area of about 16.8 m², taking up half of the area at the rear portion of the rooftop. As the area of the penthouse exceeded the permissible 7.44 m²(80 ft²) for stairhood, the height of the penthouse had to be included in calculating the height of the building. Although Mr Ko had not been able to enter the Village House to take measurements, assuming that the height of the ground floor, first floor, second floor and penthouse was 6 feet each, and adding to it the 4 floor slabs each of which was 3 inches thick, the height of the Village House was already 25 feet. However, given that on average the height of each floor of a village house is 8 to 10 feet, the overall height of the Village House hadexceeded the height restriction of 7.62 m (i.e. 25 ft).[79] In the absence of evidence before me as to the thickness of the party walls and load-bearing walls of the Village House, there is insufficient evidence to show that the height restriction of 8.23 m(i.e. 27 ft) was applicable. But even if, as alleged by the defendant, the penthouse was created to reduce the height of other floors of the rear portion of the Village House[80] so that its height did not exceed 25 feet, it was still not eligible for exemption from rates because, with the existence of the penthouse, it comprised more than 3 storeys.

132. Second, the relevant condition of exchange only allowed one building not exceeding two storeys and 25 feet(i.e. 7.62 m) in height to be located on the Lot. Therefore, the condition of exchange was even more stringent than the building specifications for exemption from rates under section 36(3) of the Ordinance. The Village House clearly comprised more than two storeys, and the whole of it (includingthe penthouse) exceeded 25 feet(i.e. 7.62 m).[81]It follows that the Village House failed to meet the condition for exemption of rates under section 36(3) of the Ordinance in that it contained illegal structure/extension. The District Lands Office, North wrote to the HAD on 20 December 1999, informing inform them that the Village House, which consisted of more than 3 storeys, had contravened the condition of exchange.

133. On the above analysis, the Village House which was located outside a Designated Village Area failed to meet the prescribed building specifications. As the occupier of the Property, the defendant was liable to pay rates. And even if Village Area 612 had not yet been “de-designated” (with which I do not agree), as the Village House was a post-war village house and failed to comply with the above building specifications, it would also have failed to meet the conditions for exemption from rates under section 36(1)(c)(i), (ii) or (iii). Therefore, even if Village Area 612 had not yet been “de-designated”, the Village House would still have failed to meet the conditions for exemption under section 36(1)(c) and rates would have been payable in respect of the Village House.

(3)  Application for exemption from rates in respect of the Village House

134. On 9 April 1995, Liu Sr submitted to the City and New Territories Administration an “Application Form for Exemption of Village Houses in the New Territories from Payment of Rates”. On 14 November 1995, the Department recommended that the City and New Territories Administration should not exempt the Property from rates, the reason being that the Village House was a building comprising 3½ storeys, with a structure on the rooftop which rendered the whole building in excess of the height limit. Therefore, on 16 January 1996, the Department issued a Notice of Interim Valuation to Liu Sr demanding rates from the Property. On 22 February 1996, the Department received a Notice of Opposition from Liu Sr, but as the Notice of Opposition was not served on the Department within the statutory period,the Department had no authority to deal with it.

135. On 25 May 1996, the defendant submitted to the City and New Territories Administration an “Application Form for Exemption of Village Houses in the New Territories from Payment of Rates”. On 8 November 1996, Liu Sr passed away. On 15 October 1997, the HAD suggested simplifying the procedures to clear the backlog of applications. On 2 July 1998, the defendant again submitted to the HAD an “Application Form for Exemption of Village Houses in the New Territories from Payment of Rates”, and on 27 July 1998, he wrote to the HAD stating that there was no more covered structure as the canvas awning supported by the metal frame on the rooftop had been taken down.

136. On 31 March 1999, in response to an enquiry made by the HAD, the Department indicated that, upon onsite inspection carried out in around July 1995 and March 1998, the Village House was found to be a 3½-storey building with a structure on the rooftop exceeding the height limit, “and the building is of a type which cannot be exempted from rates” and failed to meet the specifications for exemption from rates. On 8 April 1999, the Department faxed to the HAD for reference a hand-drawn plan of the ground floor, first floor, second floor and penthouse of the Village House. On 4 June 1999, the HAD informed the defendant of the decision not to grant exemption from rates in respect of the Property on the ground that the penthouse had rendered the whole building in excess of the height limit.

137. On 14 July 1999, the defendant replied by letter that the penthouse of the Village House was created to reduce the height of the other floors, that its overall height was the same as that of the adjoining buildings on both sides (No.4 and No.6) which were built at the same time, and that therefore it could not be said that the building had exceeded the height limit. The defendant also stated that, as buildings No.4 and No.6 had already been granted exemption from rates, the defendant applied for a review of the application for exemption from rates. However, on 20 June 2000 the HAD refused the application for review:

“According to the information supplied by [the Department], [the Village House] is a three-and-a-half-storied building comprising 3½ storeys. It is the policy of the Government that one of the conditions for eligibility to exemption for rates is that the village house in question cannot exceed 8.23 metres in height and cannot comprise more than three storeys. In calculating the height of a building, a staircase shelf on the rooftop the cover of which does not exceed 7.44 m² in area and 2.14 metres in height and which is built and used solely for the purpose of sheltering the rooftop staircase of the building from the sun and rainshall be excluded. The record of [the Department] shows that the area of staircase shelf on the rooftop in question is 16.8 m². In response to an enquiry by [the HAD], [the defendant] has stated that the staircase shelf on the rooftop in question is for residential purpose. As the area of staircase shelf on the rooftop exceeds 7.44 m², its height has been included in the calculation of the height of the whole building.

Furthermore, the District Lands Officer, Northern District has pointed out that according to Lease Grant No.9924, approval is given for only one building comprising no more than two storeys and not exceeding 25 feet(i.e. 7.62 metres) in height to be located in DD52 Lot 1627.

[The defendant is] challenging the grant of exemption from rates in respect of buildings No.4 and No.6 which adjoin [the Village House] on both sides and the overall height of each of which is the same as that of [the Village House]. The records of [the Department] show that those buildings comply with the requirement as to height and are therefore granted exemption from rates.

As to [the defendant’s] explanation in [his] letter that the ‘penthouse’ was created to reduce the height of the other floors, there is evidence showing that the building has exceeded the three-storey requirement.

 The Director [of the HAD] has reviewed [the defendant’s] application and carefully considered the grounds put forward by [the defendant] in [his] letter. In light of the above facts, as the building in question has exceeded the requirements as to height and number of storeys, such requirements being conditions for exemption from rates, the Director [of the HAD] maintains the decision not to exempt the said building from the payment of rates.”

On balance, I agree with the reasoning and explanation given by the HAD.

138. On 21 September 2000, the defendant sent a reply letter expressing his dissatisfaction with the HAD’s decision on review. He stated that section 36(3) of the Ordinance was not applicable as the Village House was located within a Designated Village Area, and that the HAD had fabricated the allegation that the staircase structure on the rooftop of the Village House, which was in fact a “storeroom”, was “used for residential purpose”. Furthermore, the defendant stated that he did not understand why a number of illegal structures/extensions in the Village had been granted exemption from assessment for rates.

139. On balance, I do not accept the defendant’s allegation that the staircase structure on the rooftop was merely used as a storeroom. In its reply letter of 9 October 2000, the HAD pointed out that, according to the file record, its staff contacted the defendant on 8 April 1999 enquiring about the use of the staircase structure on the rooftop, and that the defendant indicated that it was for residential purpose. Furthermore, in the box under “Occupancy” in the “Application Form for Exemption of Village Houses in the New Territories from Payment of Rates” dated 2 July 1998, which required an applicant to fill in “If occupied by the applicant, please state the usage(such as self-occupation, storage, commercial etc)” (emphasis added), the defendant stated that the “rooftop” was for “self-occupation” and not “storage”. In any event, under the terms of exemption, the stairhood of a building could not be used for purposes other than covering the exit of the rooftop staircase and gaining access to and egress from the roof.[82]

140. In its reply letter of 9 October 2000, the HAD also explained that “according to the provisions of the Rating Ordinance, only village houses located inside the boundaries of a ‘Designated Village Area’ are eligible for exemption from assessment for rates”, but as the Village was no longer inside the boundaries of a Designated Village Area from 1 August 1994 onwards, it was subject to assessment and payment of rates after that date. The defendant argues that the above statement proves that all buildings within a Designated Village Area were entitled to unconditional exemption from rates. I do not agree. In my view, it was only in response to the defendant’s allegation that the Village House was still located within a Designated Village Area that the HAD stated that the Village House was not exempted from assessment for rates as it was already a building outside a Designated Village Area. The thrust of the response was the distinction between buildings inside and outside a Designated Village Area for the purpose of assessment for rates, and not whether the relevant exemption was conditional or not. But whatever the content of the letter was, it could not alter the requirements for exemption from rates in respect of Designated Village Areas, which were expressly set out under section 36(1)(c) of the Ordinance. In the letter, the HAD did request the defendant to provide addresses of the village houses inside the Village with “illegal structures/extensions” which were exempted from rates so that the HAD could make investigations. The HAD took the view (which I agree) that the opinions expressed by the defendant did not justify a variation of the HAD’s decision not to grant exemption from rates.

(4)  The recovery

141. On 8 October 1999, the Secretary for Justice, acting on behalf of the Department, commenced a civil action in the District Court, claimingagainst Liu Sr for the outstanding rates plus interest (DCCJ19038/1999). However, the court process was returned on the ground that Liu Sr had passed away.

142. On3 May2001, the Department wrote to the defendant, explaining that the Ordinance provided that both the owner and the occupier of a property were under a duty to pay the Commissioner of the Department the assessed rates in respect of the property. The Department stated that it was aware that Liu Sr had passed away and was informed by the HAD that the application by the defendant as occupier for exemption from payment of rates in respect of the Property had been refused, and therefore the defendant was under an obligation to pay rates in respect of the Property. Attached to the letter was a Warning before Legal Action for the Recovery of Outstanding Rates and/or Government Rent which demanded the defendant to pay the relevant amount.

143. Therefore, on 25 August, 1 September and 8 September 2000 respectively, the Department issued to the defendant a Demand for Rates and a Warning Letter for Recovery of Outstanding Rates in respect of the Property. On 18 September 2000, the defendant wrote to the Department raising queries about the Warning Letter.

144. On 23 May 2001, the Department commenced a claimagainst the defendant in the Small Claims Tribunal (SCTC 23691/2001) for the recovery of, inter alia, the arrears of rates for the period from 1 June 1995 to 31 March 2001 in respect of the Property. The defendant raised a public law defence and on 30 November 2001, the case was transferred to the Court of First Instance of the High Court.

145. From 1 August 1994 to 31 December 2007, the arrears of rates in respect of the Property amounted to HK$41,058. As the Property enjoyed rates concession in subsequent financial years, the amount in arrears remained the same up to the rates payment quarter from 1 October 2011 to 31 December 2011.[83]The plaintiff’s claim is in my view well-founded.

(5)  Government rent

146. The defendant argues that when the Department’s claim against him for arrears of Government rent, which was also included in the said Small Claims Tribunal claim SCTC 23691/2001, was an abuse of process, because the Property had fully met the requirements under section 4 of the Government Rent (Assessment and Collection) Ordinance and should therefore be exempted from Government rent, and it followed that the plaintiff was wanton in bringing the action.

147. As a matter of fact, as early as on 31 March 1999, the Department had issued a memorandum to the HAD, pointing out that the applicant could apply to the Rent Concession Team of the Lands Department for Government rent concession in respect of the Property, and requesting the HAD to inform the applicant to contact the relevant District Office for assistance in making the application, and also stating that upon receipt of notification that an application for rent concession had been made, the Department might consider suspending the issuance of Demands for Government Rent. As the Department had not received any relevant application, on 13 August 1999 the Department of Justice on behalf of the Department sought to recover the outstanding Government rent from Liu Sr, and on 8 October 1999, brought a civil claimagainst Liu Sr in the District Court (DCCJ 19038/1999) seeking recovery of, inter alia, the outstanding Government rent. However, it subsequently transpired that Liu Sr had passed away. On 1 September and 8 September 2000, the Department issued, respectively, a Replacement Demand for Rates and/or Government Rent and a Warning (to Owner) before Legal Action on Outstanding Rates and/or Government Rentto the defendant as the occupier of the Property to demand payment of the outstanding Government rent.

148. On 23 May 2001, the Department brought a claim against the defendant in the Small Claims Tribunal for the recovery of, inter alia,  the outstanding Government rent in respect of the Property. However, the defendant subsequently submitted an application for exemption from Government rent. On 30 May 2003, the Lands Department wrote to the defendant, informing him that, as from 28 June 1997, the defendant was not required to pay Government rent in respect of the Property by virtue of Government rent concession.

149. I do not agree that the Department’s claim for Government rent was not legally justified or contravened the Government Rent (Assessment and Collection) Ordinance. The above account shows that the defendant did not apply for exemption from Government rent until between 2002 and 2003, and there was nothing improper for the Department to seek recovery from Liu Sr and/or the defendant for the outstanding Government rent prior to approval of the said application. On the other hand, following approval of the defendant’s application, both parties agreed on 16 June 2003 to adjourn sine die the application for setting down and hearing of this action, so that the parties could try to resolve the question of the outstanding rates. The Court also agreed to make the relevant order.[84] Therefore, on 11 May 2005, the Department of Justice wrote to the defendant, confirming that that he was exempted from payment of Government rent. Although it was only on 17 November 2011 that the plaintiff withdrew its claim for Government rent, it does not mean that the Department had not handledthe matter seriously.

XI.  Conclusion

150. In my view, the plaintiff’s claim is eminently justified and there is no merit in the defence. I therefore give judgment for the plaintiff and hold that the defendant is liable to pay rates and surcharge in the total sum of HK$41,058 as claimed, together with interest at judgment rate from 23 May 2001 (being the date of commencement of this action in the Small Claims Tribunal).

151. I also make the following costs order nisi: subject to paragraph 152 below, the defendant shall pay to the plaintiff costs of this action, including all reserved costs, on a party and party basis, to be taxed if not agreed.

152. The plaintiff had prepared two trial bundles for this action. The first bundle was not compiled in accordance with the order and direction dated 30 January 2013, as a result of which it was extremely difficult to make reference to that bundle. Therefore, on 30 January 2013, I ordered the plaintiff to prepare the bundle afresh in compliance with the relevant order and direction. Ms Ng of counsel has made it clear to this court that the plaintiff will not claim costs against the defendant in connection with the preparation of the first trial bundle.

153. My Clerk will inform the defendant that, if he so requests, the Court can arrange a Court Interpreter from the Court Language Section to interpret to him in the Punti dialect those parts of this judgment which are written in English, in the High Court building and at a mutually convenient date and time.