TREASURE SPOT FINANCE CO LTD v. DIRECTOR OF LANDS

HCAL 72/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO. 72 OF 2004

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J U D G M E N T

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Application for judicial review

1.  This is an application for judicial review.  The decisions under challenge are the decisions of the District Lands Officer, Yuen Long, on behalf of the Chief Executive to respectively revoke and cancel three building licences and the related certificates of exemption, in respect of three pieces of land, set out in letters all dated 28 June 2003.

2.  The three pieces of land are all situated in the same lot, i.e. Taxlord Lot No. 920 in Demarcation District No. 111.  They are respectively known as Section X, Section Y and Section W (“Section X”, “Section Y” and “Section W” respectively).  They are owned by a Mr Chan, a Mr Lai and a Mr Kan respectively, all indigenous male villagers in the New Territories.

The small house policy

3.  The building licences in question were licences granted pursuant to the Government’s “small house policy”.  According to the Government material that has been placed before the Court by agreement, the background of the small house policy is as follows:

“	1.1	In November 1972, the then Governor-in-Council approved a small house policy for the rural areas of the New Territories.  Under this policy, an indigenous male villager, who is over 18 years old and is descended through the male line from a resident in 1898 of a recognised village, is entitled to one concessionary grant during his lifetime to build one small house.  The small house policy enables male indigenous villagers to apply for a small house grant in the form of either:
		(a)	a building licence/land exchange.  For an indigenous villager who owns private agricultural land, he can apply for a building licence at nil premium, or a land exchange to build a small house on his own agricultural land; or
		(b)	a private treaty grant (PTG).  For an indigenous villager who does not own land, he can apply for the grant of a site on government land at a concessionary premium of two-thirds of the full market value.
		In either case, the villager has to pay for the construction costs of the small house.  A list of Recognised Villages is kept by the Director of Lands.
	1.2	The New Territories small house police enables New Territories indigenous villagers to build houses for themselves and to preserve the cohesion of indigenous communities.  The policy is also intended to improve the housing and sanitary standards in the rural areas of the New Territories.
	1.3	Such New Territories small houses may not exceed three storeys or 8.23 metres (27 feet) in height and 65.03 square metres (700 square feet) in the roofed-over areas.  There are also rules regarding building materials and construction standards.  As long as the small houses conform to these rules, they are exempt from the requirement to submit building plans to the Building Authority for approval.  This arrangement enables villagers to construct small houses with a minimum of administrative procedures, while ensuring that the houses are properly and safely constructed.
	1.4	Small houses may be built in existing village areas within 91.44 metres (300 feet) from the edge of the last house built before December 1972; or within village type development zones in Development Permission Areas or Outline Zoning Plans.  However, this rule is subject to the constraints of local topography, the need to avoid power lines, country parks, etc. and the compliance with planning layouts.
	1.5	In 1981, the then Governor-in-Council approved a village expansion area scheme.  Under this scheme, private lands within village environs were resumed to meet the demand for village housing.  Indigenous villagers could apply for the construction of small houses in the resumed land.  The cost incurred by the Government in the acquisition and servicing of the land under the scheme was to be recovered from the premium for the small house sites.”

Facts

4.  The three landowners of Sections X, Y and W all qualified for concessionary treatment under the policy.  They were granted building licences, all on the same standard terms, on 15 April 1998, 1 March 1997 and 15 April 1998 respectively. 

5.  Under each of the building licences, the landowner was required to build and complete a small house on his land within a period of 36 calendar months (condition 2).  Moreover, there were restrictions on alienation (condition 4(a)).  They were subject to an exception in relation to building mortgage.  Condition 4(c) of the building licence read as follows:

“

(c)

The Licensee may, with the prior written consent of the Director of Lands (hereinafter referred to as “the Director”) and in conformity with any conditions imposed by him (including the payment of such fees as may be required by him), mortgage or charge the lot as a whole (but not a part thereof or an undivided share or interest therein) but only for the purpose of the development of the lot and then only by way of a building mortgage in such form and containing such provisions as the Director shall approve or require.”

6.  Condition 28 of the building licence provided for the right of re-entry by the Government of the land should the licensee/landowner fail or neglect to observe or comply with any of the conditions in the building licence.  However, it was common ground during the hearing, and the application for judicial review proceeded on the basis, that in practice the sanction for non-compliance with the building covenant was merely a right on the part of the Government to revoke the building licence.

7.  According to the building covenants in the three building licences, the original building periods for Sections X, Y and W expired on 14 April 2001, 28 February 2000 and 14 April 2001 respectively.

8.  For Section X, there were three subsequent offers by the Government to extend the building period for another 12 months (to 14 April 2002), which were made by letters dated 14 November 2001, 11 December 2001 and 13 March 2002, upon payment of an additional premium of several hundred dollars.  But none of the offers were taken up by the landowner.

9.  For Section Y, there were two offers by the Government to extend the building deadline by 24 months (to 28 February 2002), which were made by letters dated 19 June 2001 and 22 October 2001.  The subsequent offer was accepted by the landowner on 31 October 2001 and a nominal additional premium (of several hundred dollars) was paid.  After the expiry of the extended building period, by two further letters dated 3 May 2002 and 10 June 2002, the Government again offered to extend the building period by yet another period of 12 months (to 28 February 2003).  Again the second of those two offers was accepted by the landowner, and the additional premium of several hundred dollars was paid on 17 June 2002.

10.  For Section W, there were three offers by the Government to extend the original building period by 12 months (to 14 April 2002), which were made by letters dated 14 November 2001, 11 December 2001 and 30 February 2002.  None of those offers were accepted by the landowner.  By letters respectively dated 23 April 2002 and 28 May 2002, the Government again offered to extend the building deadline to 14 April 2003.  The last offer was accepted by the landowner, who paid a nominal additional premium on 5 June 2002.

11.  Thus in summary, for Section X, the building period was never extended and it expired on 14 April 2002.  For Section Y, there were two extensions for a total period of 36 months.  The building period, as extended, expired on 28 February 2003.  For Section W, there was one single extension of 24 months.  The building period, as extended, expired on 14 April 2003.  For Sections Y and W, there was no further extension after 28 February 2003 and 14 April 2003 respectively.

12.  The Applicant, a licensed moneylender, came into the picture in the following way.  In 2001, the Applicant agreed to lend to each of the three landowners a building loan of $1.1 million to finance the construction of the small houses, which was to be secured by a building mortgage of the land.  On 18 June 2001, the Applicant applied on behalf of the landowners to the District Lands Officer, Yuen Long, for his consent to the three landowners executing the building mortgages in favour of the Applicant, as securities for the loans contemplated.  In relation to each application, by letter dated 7 November 2001, the Director of Lands gave his consent on terms and conditions.  Amongst other things, the Director required that the building mortgage be in the form approved by him.  The Director also required the Applicant as mortgagee to undertake to notify him immediately when the mortgagee’s right to exercise the power of sale or foreclosure pursuant to the building mortgage should arise or when the mortgagee should intend to take possession of the land or to appoint a receiver or otherwise to take any steps to enforce the security.  The Director further required the Applicant as mortgagee to undertake to apply to the Director for and obtain from him, his consent to all or any of these enforcement actions and in the event of the Director’s consent being so granted to pay any additional premium that might be due, prior to the taking of any of the actions by way of enforcement of the security under the building mortgage.

13.  The approved form of building mortgage provided, amongst other things, that the building loan of $1.1 million be advanced in accordance with certificates issued by the building contractor named in the building mortgage certifying the various stages of construction works as set out in the third schedule to the building mortgage.  According to the third schedule, the mortgage loan was to be drawndown by stages, with the first instalment of the loan (not exceeding $165,000.00) only payable upon the completion of the foundation works.  All subsequent instalment payments were works-related, and there was thus no question of any drawdown of the building loan prior to commencement of work.

14.  After the respective consents were obtained, three building mortgages, in the same standard approved form, were executed by the three landowners in favour of the Applicant on 13 November 2001.  The Applicant in turn gave the Director the requisite undertakings on the same day.

15.  Pausing here, it should be pointed out that under clause 3(a) of each of the building mortgages, the mortgagor/landowner covenanted with the Applicant as mortgagee that “the Building Licence is now good valid and subsisting and in no wise void or voidable”.

16.  But as can be seen from the summary of facts set out above, what the landowners of Section X and Section W covenanted regarding the respective building licences were only half-truths.  For it should be remembered that for Section X, the building period of 36 months had expired on 14 April 2001, and there was never any extension of the building period.  Thus as at the time of the building mortgage, the building licence was liable to be revoked.  Likewise, for Section W, the original 36 months building period expired on 14 April 2001, and the extension of 24 months to 14 April 2003 only took place on 5 June 2002.  As of 13 November 2001 when the building mortgage was executed, the building licence was liable to be revoked by the Government.

17.  In contrast, whilst the original 36 months building period for section Y had expired on 28 February 2000, it had been extended by 24 months to 28 February 2002 on 31 October 2001, shortly before the execution of the building mortgage.

18.  Continuing with the relevant chronology, it would appear from the Applicant’s own case and evidence that sometime between the execution of the building mortgages and January 2002 when the Applicant had a site visit of the three pieces of land, the Applicant advanced to each of the landowners a sum of $165,000.00 as part of the building loans under the building mortgages, even though no construction works (foundational or otherwise) had been carried out, let alone completed, on the three pieces of land, quite contrary to the provisions in the building mortgages and in particular the payment timetables set out in the respective third schedules to the mortgages.  According to the Applicant’s explanation given to the District Lands Officer, Yuen Long, at a subsequent stage, “it was a common practice that [the Applicant] would release 15% of the mortgage loan to the licensee before commencement of building works” (paragraph 4 of the minutes of meeting held on 13 August 2003 – see below).

19.  According to the Applicant, in January 2002, during a routine site visit, it discovered that the development of the three pieces of land fell behind schedule.  A further site visit was paid by the Applicant in April 2002 and no progress was observed to have been made at all.  The Applicant said that in view of the unsatisfactory progress, it decided to issue proceedings against the landowners for enforcement of the securities.  By letters all dated 22 July 2002, the Applicant through their solicitors asked the Director for his consent to the Applicant’s taking of enforcement proceedings, in compliance with the undertakings that the Applicant had previously given to the Director.

20.  By then (22 July 2002), it should be remembered, the building periods for Sections Y and W had been extended to 28 February 2003 and 14 April 2003, whereas that for Section X had already expired.

21.  But the Director took time to consider the position.  The extended building periods for Sections Y and W eventually expired in February and April 2003, and there was no subsequent extension or application for extension.  This remained the position until 2 June 2003 when the solicitors acting for the Applicant wrote to the District Lands Officer three letters in respect of the building licences in essentially identical terms as follows:

"	We refer to the matter and the previous correspondence.  We note that our client’s application has still not been approved since 22nd July 2002.  A period of ten months has lapsed and our client could not resort to the civil proceedings to protect its interest pending your consent to commence the same.
	Be that as it may, we are instructed that our client has liaised with the mortgagor and both have agreed to complete the construction of the small house on the captioned land.  We shall therefore be grateful if you would kindly let us have your approval to extend the building covenant period for a further 12 months.  Kindly also let us know whether any administrative fee shall be payable therefore."

22.  The belated applications for extension of time in respect of the three building licences were unsuccessful.  As mentioned at the outset, by letters all dated 26 June 2003, the Director of Lands wrote to the three landowners to revoke the building licences for failure to comply with the respective building covenants. 

23.  On the following day, the District Lands Officer, Yuen Long wrote to the Applicant’s solicitors informing the latter that the Applicant’s applications for extending the building periods could not be entertained by reason of the revocation of the building licences.

24.  By letter dated 7 July 2003, the Director of Lands wrote to the solicitors informing them that by reason of the revocation of the building licences, the Director would cease to process the Applicant’s applications for consent to enforce the building mortgages, the Director having obviously taken the common sense approach that (despite the wide wording of the undertakings) there was no question of the Applicant requiring any consent from him to enforce the building mortgages after the revocation of the building licences – of course, the three pieces of land as securities for enforcement would no longer enjoy the building licences as part of their attributes.

25.  After receipt of the above letters, the Applicant obtained an appointment to meet with the District Lands Officer on 13 August 2003.  According to the minutes of the meeting,

"	2.	Mr Kenny Ku [of the Applicant] expressed his concern that before the revocation of building licences took effect, TSF [i.e. the Applicant] should have been notified.
	3.	DLO [District Lands Officer] explained that revocation of the building licences was a matter between Government and the ex-licensees.  Being considered as a third party, TSF had been duly provided with copies of the revocation letters for attention.
	4.	DLO further clarified that the building licensees were revoked because no work of any description had taken place on the sites after the expiration of the building covenant period, and that this was clearly a broach of the licence conditions.  In at least one case, premium to extend the original building covenant period had also not been paid for over two years.
	5.	Mr Kenny Ku claimed that although no building works had been carried out on site, it was a common practice that TSF would release 15% of the mortgage loan to the licensee before commencement of buildings works.  As such, each ex-licensee had obtained an amount of $165,000 from TSF.  This sum had not been repaid.
	6.	DLO expressed surprise since he was advised that under the terms of the Building Mortgage, money would only be advanced to the licensee upon the building contractor’s certification of the stages of progress of construction works.  If no works had been carried out as in these cases, he understood money should not have been advanced.
	7.	Mr Kenneth Woo [solicitor for the Applicant] supplemented that pursuant to the building mortgage, TSF was entitled to exercise power of sale or foreclosure to enforce the building mortgage.  He also expressed that the legal right of TSF had been damaged as it had not been notified of the revocation of the building licences in advance.
	8.	DLO noted that the ex-licensees were the directly affected parties and did not attend or request a meeting.  He enquired what TSF had done and what other courses of action it proposed to take to recover the debt in the circumstances.
	9.	Mr Kenny Ku claimed that the address and whereabouts of the ex-licensees were not known to TSF.  Hence, they could not be informed to attend the meeting and other ways to recover the outstanding amount could not be pursued.
		…
	12.	The Meeting adjourned at 10:30 a.m. with TSF agreeing that they may submit a formal appeal letter fully stating their case if they wished to pursue the matter."

26.  Pursuant to what had been discussed and suggested in the meeting, the Applicant’s solicitors by letter dated 11 September 2003 made representations to the District Lands Officer, Yuen Long and asked for a reconsideration of the revocation of the building licences.  Apart from asserting that in reliance on the consents given to the execution of the building mortgages, the Applicant had released a sum of $165,000.00 to each of the landowners as the first drawdown, the Applicant also relied on the following grounds:

“	a.	Despite that the building licence had expired at the time of executing the building mortgage, you still approved our application as per your letter dated 7 November 2001 (Encl. 2);
	b.	If the application was rejected for the reason that the relevant building licence had expired, we would not enter into agreement with [the landowner] and advanced him the requested borrowing;
	c.	The relevant Building Mortgage had been registered in the Land Register after execution.  We are of the view that by registering the building mortgage, we had properly declared our interest to the public (including your Department);
	d.	Relying on the [above] actions, we would think that we would be informed (sic.) if any matter happened that would seriously infringed (sic.) our interest.  As such, if the building licence had expired, you would send the notice for renewal of building licence for our attention and necessary action.  However, we understand that the notice had been sent to [the landowner] directly.  We haven’t at least been provided with a photocopy of the same.
	e.	Since [the landowner’s] default, we would like to exercise our right as provided under the building mortgage.  As stipulated, we had applied for your prior consent.  We are disappointed for your reply and at the same time we wonder why your reply shall be make after 11 months of our application which we think is unreasonable (sic.) long.”

27.  But the Applicant’s effort was in vain.  By letter dated 23 October 2003, the District Lands Officer, Yuen Long wrote to the Applicant, effectively refusing to reverse the revocation of the building licences and certificates of exemption.  The District Lands Officer wrote:

"	As stated in my letter dated 28 June 2003, copied to you, the Licence is revoked due to non-compliance with the Building Covenant being Condition 2 of which you should be fully aware.  Building Covenant extension letters were issued at the time the Building Mortgage was granted but, in this case, there was no response, the premium payable was not settled and no development had taken place.
	You say that you had released the sum of $165,000 to [the landowner] as the first drawdown according to the building mortgage.  However, I note that under para. 6 of the Building Mortgage, the mortgagee shall advance money by installments in accordance with the stages of works in the Third Schedule – the first installment to be a maximum of $165,000 upon the completion of foundation works.  No works have been completed and you may wish to consider further this point together with any other action available to you to enforce your security."

Grounds for judicial review

28.  In this application for judicial review, the Applicant seeks to challenge the decisions of the District Lands Officer to revoke the three building licences and the relevant certificates of exemption, as set out in the three letters all dated 26 June 2003.  What is not under challenge as such is the implied decision contained in the letter of 23 October 2003 refusing to reverse the revocation of the building licences and certificates of exemption.  Nor does the Applicant challenge as such the delay (if any) in and eventual cessation of the processing of its application for consent to take enforcement proceedings in relation to the three building mortgages, although the application featured prominently in counsel’s arguments.

29.  The Applicant relies on three specific grounds in the form 86A, namely legitimate expectation, procedural impropriety and Wednesbury unreasonableness.  Each of these three grounds will be dealt with in turn.  In addition, the question arose as to whether the decisions of the District Lands Officer are amenable to judicial review at all.  This raises the question of whether the decisions fall within the public law or private law domain.  For reasons that will become immediately apparent, I will not deal with this question in any detail and will refrain from expressing any definite view on the matter. 

Amenability to judicial review of decisions made under the small house policy

30.  Counsel’s arguments on whether the decisions to revoke the building licences are amenable to judicial review raise the general question of whether decisions made under the Government’s small house policy are amenable to judicial review, and the specific question of whether a decision to revoke a building licence by reason of expiry of the building period (whether as extended or not) is amenable to judicial review. 

31.  Given the subject matter raised and the potential implications of a decision on the issue may have – particularly in relation to the general question of whether decisions made under the small house policy are amenable to judicial review, and in the light of the conclusions that I have reached in relation to the three substantive grounds of challenge raised on behalf of the Applicant by counsel, I am not prepared to express any view on the matter.  Whatever I would otherwise have wished to say on the subject would be obiter in nature.  I do not think it wise to make obiter observations on an important subject with potentially wide implications on such a flimsy footing.

32.  In those circumstances, I would simply record the gist of counsel’s arguments here.

33.  Mr Ismail, counsel for the Respondent, argued by reliance on leading cases like Hang Wah Chong Investment Co. Ltd v. Attorney General [1981] HKLR 336 (PC) and Canadian Overseas Development Co. Ltd v. Attorney General [1991] 1 HKC 288 (CA) that the District Lands Officer, in deciding to revoke the building licences, on behalf of the Chief Executive, was merely acting in the capacity of a private lessor/licensor, exercising a power given to him under contract (i.e. the building licence).  He was not performing or discharging any public function.  His decisions are therefore not amenable to judicial review. 

34.  Mr Kenneth C L Chan (appearing together with Mr Roland Lau) argued on behalf of the Applicant that the high authority of the two cases cited by Mr Ismail notwithstanding, the present case is clearly distinguishable because the decisions were made in the context of the Government’s well-known small house policy.  Counsel argued that the Government’s implementation of the small house policy involve or concern matters pertaining to town planning, environmental protection, land use and development in the New Territories and the unique position and rights of the indigenous male villagers of the New Territories given their peculiar historical background.  Furthermore, as this is a concessionary policy, it affects (in the prejudicial sense) the public at large as a majority sector of the public does not qualify for concessionary treatment under the policy and is in that sense prejudiced against.

35.  Counsel further placed heavy reliance on a decision of Keith J (as he then was) in Hong Kong and China Gas Co. Ltd v. Director of Lands [1997] 3 HKC 520, where the learned judge distinguished Hang Wah Chong and Canadian Overseas Development by reference to the function played by the officer whose decision was under challenge.  His Lordship placed emphasis on the function performed by the officer through his decision, rather than his source of power. 

36.  Counsel relied on de Smith, Woolf & Jowell’s Principles of Judicial Review (1999 ed.) paras. C-018 and C-019 in support of his submission on the true distinction between private law and public law:

"	Here it is sufficient to note that – as with statute and the prerogative – merely to assert that a decision has its legal source of authority in contract provides little general guidance as to whether or not such action will or ought to be subject to judicial review.  The picture is complex.  In some situations the courts have been prepared to use their supervisory jurisdiction and apply judicial review principles to what may be characterised as contractual relationships, whereas in other cases the existence of a contract or potential contractual relationship has been given as a reason for action not being susceptible to judicial review.
	It is submitted that the court ought to have regard to the function being performed by the body whose decision is impugned, rather than the formal source of its power, this should be so whether or not the body in question is ostensibly a “public” or “private” one.  If a public function is being performed, and contract law does not provide an aggrieved person with an appropriate remedy, then action taken under or in pursuance of a contract should be subject to control by judicial review principles."

37.  Mr Ismail, in his argument, urged the Court to focus not on the small house policy and the decisions made under it in general, but rather on the decisions to revoke the building licences.  Counsel argued that when making the decisions, albeit in the context of the small house policy, the District Lands Officer was not performing any public function at all – he revoked the licences because the building covenants had not been complied with.  Counsel argued that there was no public function or public element involved in the decisions. 

38.  As I say, I am reluctant and indeed not prepared to express any views on counsel’s competing arguments.  It is not necessary for me to do so given my conclusions on the substantive grounds of challenge.  All I would say is that both sides have made reasonably arguable submissions. 

Legitimate expectation

39.  Turning to the first substantive ground of challenge, i.e. legitimate expectation, the Applicant argues in paragraphs 18 and 19 of the form 86A as follows:

'	Legitimate Expectation
	18.	When the Director of Lands granted the consent to the execution of the Building Mortgage despite the expiration of the 36-month period for erecting the building on the 3 Lots, the Applicant was entitled to conclude that the Building Licence No. 5571, No. 5588 and No. 5093 would not be revoked or cancelled despite the said expiration.
	19.	The Applicant relied on the grant of the consent by the Director of Lands and acted to its detriment in granting the loan to 3 Mortgagors, namely Mr Chan Yuk Wa, Mr Kan Yik Ming and Mr Lai Yung Sang."

40.  I have no difficulty in rejecting this ground of challenge.  As Mr Ismail has reminded this Court, to be legitimate, the expectation must be reasonable in the light of the official conduct which is said to have given rise to the expectation.  This depends on the conduct of the public authority, what it has committed itself to as well as what the applicant is entitled to expect:  Ng Siu Tung v. Director of Immigration [2002] 5 HKCFAR 1, 43H-J (para. 101).

41.  In my judgment, on the facts, what the Applicant may reasonably argue (and I need not decide on it) is that there was a legitimate expectation that the building licences would not be revoked within a period of time counting from the date consents to the building mortgages were given (7 November 2001), which would be reasonably required by the landowners to complete the construction of the small houses exercising all due diligence.

42.  I say that this is reasonably arguable because as pointed out above, as of 7 November 2001, the building periods for Section X and Section W had expired.  As for Section Y, the building period had just been extended to 28 February 2002, less than 4 months from 7 November 2001.  It is common ground that as of 7 November 2001(and indeed as of any other material time), no construction work had been carried out.  Yet the building mortgages were consented to by the District Lands Officer.  The approved form of the building mortgages set out expressly a covenant by the mortgagee that the building licences were still subsisting.

43.  In those circumstances, in my view, it is reasonably arguable in favour of the Applicant that it had, as of 7 November 2001, a legitimate expectation that the Director, having consented to the execution of the building mortgages, would allow the landowners respectively a reasonable period of time to complete construction of the small houses, which (construction) had not been started yet – to the knowledge of all concerned.

44.  However, that is the extent that I am prepared to go along with the Applicant in its case of legitimate expectation.  The expectation of non-revocation of the licences cannot have been an open-ended one.  As Mr Ismail has submitted, it cannot be seriously suggested that by consenting to the building mortgages, the Government has represented to the Applicant that it will never revoke the building licences, no matter how late the construction works may be.

45.  In considering what should be the reasonable period of time, one must bear in mind the history of the matter.  By 7 November 2001, the three building licences were already more than three or four years old; yet no building work whatsoever had been commenced.  For this reason, in my judgment, any legitimate expectation that can be derived from the facts and in particular the length of the period of non-revocation must be informed by the past history, and it must be computed on the basis that the landowners must exercise all due diligence to complete the works. 

46.  Here, I should point out that the crucial question is the non-revocation of the building licences, rather than any extension of the building periods.  For the expiry of the building period would not automatically terminate the building licence.  It would simply give rise to a right to terminate the licence.  So long as the licence has not been terminated, one may continue to carry out the building works.  That is why thus far in my discussion on what can or cannot be reasonably argued by the Applicant regarding legitimate expectation, I have expressed it in terms of the non-revocation of the building licences rather than extension of the building periods.

47.  Thus analysed, I think it is beyond reasonable argument to the contrary that the eventual revocation of the building licences on 26 June 2003, almost 20 months after the granting of consent to the building mortgages, cannot possibly have involved any violation of any reasonably arguable legitimate expectation on the part of the Applicant relating to the non-revocation of the licences. 

48.  At the hearing, Mr Chan did not seek to argue otherwise on this aspect of the case.

49.  For those reasons, I reject the ground of challenge based on legitimate expectation. 

Procedural impropriety

50.  As regards procedural impropriety, the Applicant’s point is that he had not been told of the District Lands Officer’s intention to revoke the licences, and had never been given any opportunity to make representations to the District Lands Officer before the decisions to revoke the building licences were made.

51.  During hearing, I have heard much argument on whether the Applicant knew about the actual positions regarding the extension(s), if any, of the building periods in relation to the three pieces of land at the material times.  In my judgment, regardless of the Applicant’s extent of knowledge or information prior to 2 June 2003, the Applicant must have known about the true positions by the time it wrote to the District Lands Officers through its solicitors on 2 June 2003 – the material parts of the letters have already been extracted above.  It is clear from a plain reading of the three identical letters that the Applicant must have known about the latest positions by then.  In fact neither the form 86A nor the supporting affirmation of the Applicant suggested otherwise.

52.  But more importantly, I do not think this is the crucial issue.  The crucial issue involved in this ground of challenge is twofold – firstly, whether the Applicant enjoyed the right to be heard or make representations; and secondly, if the answer to the preceding question is in the affirmative, whether that opportunity or right had been substantively granted.

53.  In my judgment, the answer to the second question must be “yes”, which therefore renders the first question academic.  The matter is covered by the legal principles expounded and applied by Chu J in Lam Yuet Mei v. Permanent Secretary for Education and Manpower [2004] 3 HKLRD 524, 540 to 541 (paras. 53 to 60):

"	53.	Firstly, Mr Yu SC submits, and I agree, that in considering whether the requirements of fairness have been met in this case, the Court should consider whether the overall procedure is a fair one and in the light of the purposes and objectives of consultation.
	54.	The applicant’s challenge to the first decision falls within the broad ground of procedural impropriety.  The underlying concept is the duty of a decision maker to act fairly when it has to make a decision that will affect the rights of individuals.  The requirements of justice will vary depending on the character of the decision-making body, the nature of the decision and the statutory or other framework in which it operates: Lloyd v McMahon [1987] AC 625 at p. 702.
	55.	In the context of the requirement to consult and hear representations, it has been pointed out by Lord Mustill in R v Secretary of State for the Home Department, ex p Doody [1994] 1 AC 531 at p. 560 that:
		Fairness will very often require that a person who may be adversely affected by the decision will have an opportunity to make representations on his own behalf either before the decision is taken with a view to producing a favourable result; or after it is taken, with a view to procuring its modification; or both.
	56.	In R v Barnet London Borough Council, ex p B [1994] 1 FLR 592, the applicants applied to judicial review the decision of the local council to close a nursery school which they were attending.  The parents of the children attending the school were not informed of the proposal to close the school before the council made the decision and communicated it to them.  After the decision was communicated, the council proposed to and did conduct three stages of consultation.  Eventually the council confirmed its earlier decision despite the parents’ objections.  In dealing with the applicants’ complaint that there was no or no adequate consultation, Auld J (at p. 606D-E) was of the view that the question of whether the council behaved unfairly in failing to consult or to consult adequately before it made the decision in the first place, is superseded by the question whether its later conduct, including the subsequent consultation, was unfair.  He stated that: “Where the court is concerned with the procedures and decision of one body, … the test, …, is whether the ultimate decision is a fair one reached by fair methods”.
	57.	It is not in dispute that in the 18 September 2002 meeting, the Secretary for Education and Manpower had agreed to receive and consider representations from schools including the School.  Thereafter, the School did through the principal make written representations on the matter.  It is also not in dispute that the Education Department had duly considered the representations made, as reflected in the reasons given for maintaining the July decision to exclude the School from the POA School List and the POA exercise.
	58.	When approaching the first decision on the broad consideration of fairness, the court should also have regard to the conduct of the Department since September 2002 and leading to the decision in December 2002 to maintain the July 2002 decision.  The School was afforded an opportunity to make representations to the Department on and to draw to its attention, information about the School and its students, and the perceived impact of the decision upon the School and parents and students living in the village.  Although in the end it decided to maintain its earlier decision, the Department had been prepared to re-consider its decision.  I agree with Mr Yu SC that this was a round of genuine and fair consultation.
	59.	Mr Kwok does not quarrel with this.  He however points out that by the time this was done, the decision had been made and implemented, and the consultation served no useful purpose.  While I accept that it would have been much better if the consultation took place before the July decision was made, I will not go so far as saying that the consultation carried out in September had no utility.  It was open to the School to, and it did, make representations with a view to persuading the Department to change the July 2002 decision.  Although by then the DP stage of the POA exercise had been launched, the CA stage had yet to commence.  If, after considering the representations made, the Department were persuaded to vary the July decision, the School would still be able to participate in the CA stage with an amendment to the POA School List.
	60.	In the circumstances, having regard to the process as a whole, it cannot be said that the requirements of fairness has not been attained."

54.  The facts of our case are of course different.  But in my judgment, the same principles apply.  Assuming that the Applicant had a right to be heard or make representations, that right was not infringed because the Applicant had been afforded sufficient opportunities after the decisions to revoke the licences had been made to make representations to the District Lands Officer, with a view to procuring the reversal of the decisions.  Two opportunities had been given – the face-to-face meeting in August and the letter of representations in September 2003.

55.  That the Applicant has not chosen to challenge the eventual decision of the District Lands Officer not to reverse the building licences, as implied in his letter dated 23 October 2003, written in response to the written representations and request for reconsideration of the revocation, cannot alter substantively the above analysis.  Certainly it cannot improve the Applicant’s challenge of the Director’s earlier decisions in June 2003.  The reality is that the Applicant has been given adequate opportunities to make representations, and it has been heard.

56.  For these reasons, the second ground of challenge also falls away. 

Wednesbury unreasonableness

57.  This leaves the final ground of challenge, namely Wednesbury unreasonableness.

58.  Again I have no hesitation in rejecting it.  The District Lands Officer has explained in the meeting in August 2003 (as evidenced by the minutes) as well as his letter of 23 October 2003 the reasons for his decisions.  I can find nothing wrong, in the public law sense, with those decisions.  Certainly, in my judgment, in the public law sense, the decisions were not unreasonable.  Quite certainly, they could not be described as “perverse”.

59.  The building licences were granted in 1997 or 1998.  By June 2003 or October 2003, they were more than five or six years old.  The original 36 months construction periods had long expired.  In relation to Section X, there was never any extension.  In relation to Section Y and Section W, the subsequent extensions had also expired.

60.  More importantly, this is not a case where some works had already been carried out on the land so that only further time would be required so as to complete the construction.  It was not such a case.  No work whatsoever had been carried out on the three pieces of land despite the lapse of more than five or six years, and despite the availability of the building mortgages. 

61.  In those circumstances, I totally fail to see how this Court sitting in its supervisory role in these proceedings could call the relevant decisions of revocation Wednesbury unreasonable, irrational or perverse. 

62.  The Applicant complains that the District Lands Officer did not take into account the fact that it had advanced monies under the building mortgages to the landowners, so that the revocation of the building licences would affect the Applicant financially as mortgagees.  As noted above, the revocation of the building licences would not affect the enforceability of the building mortgages over the three pieces of land as such.  But without the benefit of the building licences, the three pieces of land would, presumably, be less valuable than they would otherwise have been.  Although there is no direct evidence, I am prepared to assume that the land, without the building licences, would not be sufficient in terms of value to cover the outstanding building loans plus interests (which are charged at the rate of 35% per annum).

63.  The fallacy of the whole argument lies in this simple fact: the building loans were drawndown and allowed to be drawndown other than in accordance with the terms of the building mortgages that had been approved by the Director of Lands in the first place.  For it must be remembered that advance of the loans under the building mortgages was to be and should have been done by instalments and by reference to the stages of the construction works.  As no construction works had actually been carried out, there should not have been any drawdown, as per the third schedules to the building mortgages.  Yet according to a so-called “common practice”, the Applicant chose to advance 15% of the agreed building loans to the landowners, even though no building works had been commenced, let alone completed.  In those circumstances, the Applicant had only itself to blame.  There was simply no causal connection between the revocation of the building licences and the loss (if any) suffered or to be suffered by the Applicant in having the values of their securities diminished by the revocation. 

64.  In my judgment, from the perspective of the District Lands Officer, the loss or potential loss to the Applicant was not something that he need take or ought to have taken into account.  Put at the highest (without deciding it), the District Lands Officer was only obliged to take into account the financial interest of the Applicant as mortgagee under and pursuant to the building mortgages.  Any loss that the Applicant might suffer other than by reason of its performance of the terms of the building mortgages should not be a concern to the District Lands Officer, in deciding whether to revoke the building licences.  On the facts, the (partial) loans advanced to the landowners, which are said to have been covered by the building mortgages although the building mortgages did not require the making of those (partial) loans, as well as the accruing interests, were not something that the District Lands Officer need take into account in reaching his decisions.  In my judgment, that is a complete answer to the Applicant’s complaint.

65.  But then Mr Chan argued on behalf of his client at the hearing that when the District Lands Officer decided to revoke the licences in June 2003, the above analysis did not go through his mind at all.  He simply failed to take into account the then known fact that the Applicant had advanced monies to the landowners under the building mortgages.  In those circumstances, it is not open to this Court to supplement the reasons actually relied on by the District Lands Officer in reaching his decisions.

66.  I am doubtful whether on the facts counsel’s argument is correct.  In any event, I reject it.  First, in my judgment, I am entitled to take into account what happened subsequently at the face-to-face meeting in August 2003 and the letter of representation written in September 2003.  Any defect in the reasoning of the original decisions to revoke has been remedied, in my judgment, by the subsequent process involving the Applicant’s setting out its full case before the District Lands Officer and the latter’s willingness to entertain the request for a reconsideration of the revocation.  In the District Lands Officer’s letter dated 23 October 2003 already extracted above, he correctly dealt with the fact that monies had been advanced by the Applicant to the three landowners.  The answer given, which accords with my analysis above, was impeccable. 

67.  Secondly and in any event, judicial review is a discretionary remedy.  The court has a discretion not to grant any relief if no prejudice is suffered.  Given my above analysis, any technical failure to consider the position of the Applicant and the financial implications to the Applicant if the licences were revoked back in June 2003 did not, in my judgment, cause the Applicant any loss or real prejudice.  Put another way, even if the matter were taken into account and considered in June 2003, the result would still have been the same, by reason of the analysis that I have set out above.  For that reason also, I reject counsel’s argument.

Application for consent to issue enforcement proceedings

68.  As mentioned above, during submission, much was said about the Applicant’s application for consent to issue enforcement proceedings against the landowners by letter dated 22 July 2002, which was not replied to until the following year.  In my judgment, that is neither here nor there and does not really assist the three grounds of challenge relied on in the form 86A.  In any event, that application was overtaken by subsequent events, i.e. the belated application by letter dated 2 June 2003 for extension of the respective building periods.  Furthermore, as I noted above, there is no challenge regarding the Director’s handling of that application for consent to issue enforcement proceedings as such.  Finally, regardless of what the Applicant knew or did not know in 2002 and whether the Director should have replied to the Applicant earlier informing it of the latest positions, by the time of its solicitors’ letter dated 2 June 2003, the Applicant must have been made aware of the latest positions regarding the expiry of the building periods (and thus the Applicant’s applications for extension).

Revocation of the exemptions

69.  The decisions to revoke the relevant certificates of exemption, issued by the Director pursuant to the Building Ordinance (Application to the New Territories) Ordinance (Cap. 121), really stand or fall together with the decisions to revoke the building licences.  Nothing really turns on the Ordinance, save that Mr Chan argued on behalf of the Applicant that the Ordinance forms part of the scheme of things to implement the small house policy and gives statutory underpinning to some of the necessary and relevant decisions required to be made under or in pursuance of the small house policy. 

Outcome

70.  For all the above reasons, I dismiss the application for judicial review.  I make a costs order nisi that the Applicant pay to the Respondent the costs of these proceedings; such costs are to be taxed if not agreed.  Unless either party should apply to vary the costs order nisi within 14 days after this judgment is handed down, the same shall become absolute upon the expiry of the 14 days period.

71.  I thank counsel for their assistance.