THE HONG KONG AND CHINA GAS CO LTD v. THE DIRECTOR OF LANDS

1997 A.L. No. 50

Headnote

[The issue of a warrant for the arrest of a ship is a discretionary remedy. Moreover, leave to issue a warrant cannot be granted unless the statutory requirements for its issue have been satisfied. Those requirements include the issue of the writ and the filing of the affidavit in support before the issue of the warrant. Consideration should be given to the amendment of the Rules of the High Court to include provisions similar to those contained in Ord. 6 r. 7A of the English Rules of the Supreme Court.]

[(1) If a public officer decides to reconsider an earlier decision made by him or his subordinate, the decision made following that reconsideration is amenable to judicial review even if it amounts to the confirmation of the earlier decision.

(2) The decision of the Director of Lands whether to extend the lease of a public utility company was, in the particular circumstances of the case, made by him in the exercise of his private functions, and was therefore amenable to judicial review: Hang Wah Chong Investment Co. Ltd. v. Attorney General [1981] HKLR 336 and Canadian Overseas Development Co. Ltd. v. Attorney General [1991] 1 HKC 288 distinguished.]

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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J U D G M E N T

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The facts

1. In September 1963, a plot of land in Tsuen Wan was leased to the Applicant, the Hong Kong and China Gas Co. Ltd. ("the Company"). The land had been the subject of a Crown lease, which was due to expire on 27th June 1997. The Company was granted a lease for the remainder of the term.

2. The New Territories (Extension) Ordinance (Cap. 150) extended the term of New Territories leases until 2047. It was enacted in 1988. However, leases for special purposes, including the Company's lease, was not to be covered by this Ordinance, and in 1987 the Government had issued a pamphlet which included an explanation as to what its policy on the extension of such leases was. Para. 13 read:

"Each lease granted for a special purpose will be examined before a decision is taken on extension. However, in general, leases for special purposes will be extended unless the land is required for a public purpose or is no longer being used for the purpose for which it was originally granted. Most extensions will be to 30 June 2047; some might be for a shorter period if the land is likely to be required for a public purpose before that date or is unlikely to be needed for its original purpose for the full period."

Para. 14 identified the policies relating to particular categories of leases for special purposes. These policies were expressed to be "subject to the general principles outlined in paragraph 13", but para. 14(a) dealt specifically with public utility leases. It provided:

"Leases held by companies which are not subject to a franchise or licence [including the Company] will normally be extended to 30 June 2047."

3. In January 1996, the Company was informed by the Regrant Unit of the Lands Department that the lease would not be extended on its expiry. The Company made concerted attempts to persuade the Department to change its mind, but eventually the Director of Lands decided not to extend the lease. That decision was communicated to the Company's surveyors by a letter dated 16th June 1997. The reason given was that the land was not being used for the purpose for which the lease had originally been granted. That was clearly a reference to the passage in the policy statement which excluded from the general policy of extension those leases for special purposes where the land was no longer being used for the purpose for which the lease was originally granted.

The decision challenged

4. In this application for judicial review, the Company challenges the decision not to extend the lease. The decision which is actually being challenged is the decision of the Director of Lands communicated to the Company's surveyors by the letter of 16th June 1997. Initially, I had my doubts as to whether it was appropriate for the Company to be challenging that decision. The decision was, at first blush, merely confirmation that the earlier decision communicated to the Company in January 1996 would stand. I suspected that the reason why the Company was challenging the later decision only was to get round the fact that the Company was out of time for any application to review the earlier decision.

5. However, I have been persuaded that it is appropriate for the Company to be challenging the later decision. Although the later decision had the effect of confirming the earlier decision, it can properly be said to have superseded and replaced it. That is because it followed a reconsideration of the issue by the Director of Lands (rather than by the officer who made the earlier decision who was a subordinate officer in the Regrant Unit) after the views of officials both within the Lands Department and in the Electrical and Mechanical Services Department had been sought. If a public officer decides to reconsider an earlier decision made by him or his subordinate, the decision made following that reconsideration is amenable to judicial review even if it amounts to the confirmation of the earlier decision. That was accepted as being correct in relation to the reconsideration of issues of policy in McCarthy & Stone (Development) Ltd. v. Richmond-Upon-Thames London Borough Council [1992] 2 A.C. 48.

The Company's use of the site

6. With the development of Tsuen Wan as a major residential area, it became necessary for sufficient quantities of gas to be supplied to the area. Initially, temporary arrangements had to be made for the supply of gas because a gas mains system had not been extended to Tsuen Wan for the supply of towngas from what was then the nearest towngas supply network in Tai Kok Tsui. Accordingly, to use the words of Chung Ka So, the acting plant manager of the Company's production plant at Ma Tau Kok,

"In order to make a supply of gas quickly available to Tsuen Wan area before full supply of towngas was possible, [the] Company decided to install an independent gas production plant there. This installation was designed to mix liquefied petroleum gas ('LPG') in safe proportions with air to produce a gas, called 'LPG/Air' or 'substitute natural gas' ('SNG'), which is similar to towngas and which can be piped to customers."

7. It was again this background that the lease was granted to the Company. Clause 2 of the special conditions limited the Company's use of the site:

"The lot shall be used for the production and storage of gas and for commercial purposes specifically associated with selling gas and providing gas services only."

Accordingly, until 1974, the Company used the site for the storage of LPG, for the production of LPG/Air, for the storage of LPG/Air pending its delivery, and for other activities connected with these uses.

8. By 1975, the gas mains system had been extended to Tsuen Wan. The temporary need for the supply of LPG/Air to Tsuen Wan had gone. Accordingly, the storage of LPG, the production of LPG/Air, and the storage of LPG/Air pending its delivery ceased on the site. Since 1979, the site has been used by the Company as an emergency and maintenance depot for its Customer Maintenance Department and its Distribution Department for the Tsuen Wan, Kwai Chung, and Tsing Yi areas. The depot consists of offices, car-parking spaces and areas used for the storage of tools, equipment, fittings, spare parts, cylinders of nitrogen (which are used for cleaning pipelines) and cylinders of LPG/Air (for emergency use).

The amenability of the decision challenged to judicial review

9. The Company's case is that as a result of the policy statement it had a legitimate expectation that the lease would be extended. Mr. Johnny Mok for the Director of Lands contends that this argument is not open to the Company. That is because the decision not to extend the Company's lease is not amenable to judicial review. In deciding not to extend the lease, the Director of Lands was not operating in the public domain, and the Company's argument that the Government had gone back on the commitment it gave in the policy statement could only be deployed by the invocation of the private law doctrine of estoppel, and not by reliance on the public law doctrine of legitimate expectation.

10. This argument is based on a line of cases which began with Hang Wah Chong Investment Co. Ltd. v. Attorney General [1981] HKLR 336. In that case, developers wished to develop a site included in a Crown lease. Clauses 6 and 7 of the lease provided that no buildings could be erected on the site without the approval of the Director of Public Works. He was only prepared to grant permission for the proposed development of the site on the payment of a substantial premium. One of the arguments advanced by the developers in the Privy Council was described at p.341E as follows:

"Was the Director, ask the appellants, not operating in the public domain when saddling his approval of the appellants' building plans in 1976 with a demand for an extremely high premium which bore no apparent relation to the terms of the appellants' application? And, in consequence, was he not therefore imposing an insupportable condition on his compliance amounting to an abuse of power?"

That argument was rejected. It was held that no difference "relevant to the present appeal" could be drawn between a Crown lease and a private lease. In relation to some of the provisions in the lease, the Director of Public Works was "almost certainly [the] protector of the public interest". However, in imposing conditions on the grant of permission pursuant to clauses 6 and 7 of the lease, the Director of Public Works was applying the provisions of the lease in a manner which in his view was in the interests of the Crown as landlord. When performing that particular function, he was acting as the land agent of the Crown, not as the protector of the public interest, and was therefore not operating in the public domain.

11. This case was applied in Canadian Overseas Development Co. Ltd. v. Attorney General [1991] 1 HKC 288. In that case as well, developers wished to develop a site included in a Crown lease. Clauses 7(c) and 14 of the lease provided that building on the land was prohibited except in accordance with a master layout plan approved by the Secretary for the New Territories. The developers submitted a new master layout plan, but approval for it was refused. The developers sought leave to apply for judicial review of that refusal. A question arose as to whether the issue was a matter of private law, and therefore not amenable to judicial review. The Court of Appeal, relying on theHang Wah Chong case, held that the issue was a matter of private law. The Court of Appeal saw no relevant distinction between the Director of Public Works' decision to impose conditions on any approval for development pursuant to clauses 6 and 7 of the lease in the Hang Wah Chong case, and the Secretary for the New Territories' decision not to approve the new master layout plan pursuant to clauses 7(c) and 14 of the lease. Since the decision in the former was not a decision taken in the public domain, nor was the decision in the latter. It followed that the decision could not be challenged on public law grounds, and the rights and obligations of the parties to the lease were governed by private law, i.e. in that case by the law of contract. Mr. Mok argues that likewise the rights and obligations of the parties arising out of the policy statement should be governed by the law of estoppel only.

12. What these cases show is that it is the nature of the function which is being performed which is all-important. The mere fact that the decision challenged relates to a Crown lease which is governed by the law of contract is not decisive. The true question is whether the making of the particular decision in question relating to a Crown lease amounts to the performance of a function within the public domain. Some decisions, such as those which the Director of Public Works and the Secretary for the New Territories had to make in the Hang Wah Chong and Canadian Overseas cases, did not amount to the performance of a function within the public domain. Other decisions, as the Privy Council in the Hang Wah Chong case recognised, may "almost certainly" amount to the performance of a function within the public domain. That is entirely in accordance with the decision in R. v. Panel on Take-overs and Mergers ex p. Datafin Plc. [1987] 2 WLR 699, namely that the true demarcation line between public and private law involves focusing on whether the decision-making body took the decision challenged in the course of its public functions.

13. Mr. Mok argued that the decision of the Director of Lands not to extend of the lease because the Company did not bring itself within the terms of the policy statement was no different from a private developer issuing a policy statement relating to the circumstances in which it would or would not renew the tenancies of its private tenants on their expiry. I disagree. A private developer need only have regard to its own economic interests. However, in deciding whether to extend the Company's lease, the Director of Lands had to have regard to a host of competing interests. Essentially, he had to balance the interests of the community at large in having an emergency and maintenance gas depot in Tsuen Wan, against the disadvantage of the current site being unavailable to other potential lessees at a significant premium in the event of the lease being extended. Ultimately, what the Director of Lands had to decide, therefore, was whether these considerations justified a departure from the "general" policy in the policy statement which would "normally" be applied to public utility companies (upon the assumption that the site was still being used for the purpose for which the lease was originally granted). In view of the competing interests which the Director of Lands had to balance in the context of the application of an important policy statement relating to the extension of large numbers of Crown leases in the New Territories, I have concluded that his decision whether or not to extend the Company's lease was made by him in the exercise of his public functions, and is therefore amenable to judicial review.

Legitimate expectation

14. The Company's case is that the Government's policy statement in 1987 was intended to be relied upon. Para. 1 said that it should be read by everyone who held a lease of land from the Government in the New Territories. As a result of paras. 13 and 14(a), the Company had a legitimate expectation that its lease would be extended beyond 1997, unless (a) the site was required for a public purpose, or (b) the site was no longer being used for the purpose for which the lease was originally granted. It is common ground that the site was not required for a public purpose. Since the site was still being used for at least some of the purposes identified in clause 2 of the special conditions of the lease, it followed that the site was still being used for the purpose for which the lease was originally granted. Thus, neither of the disqualifying circumstances referred to in the policy statement applied. Accordingly, the Company's legitimate expectation that the lease would be extended should be fulfilled.

15. This argument equates the permitted use of the site with the purpose for which the lease was originally granted. That is said to be justified because it is said that the purpose for which the lease was originally granted has to emerge from the lease itself. I do not agree. The permitted use of the site is not the same thing as the purpose for which the lease was originally granted. The undisputed facts show that the purpose for which the lease was originally granted was to enable LPG/Air to be produced at the site to meet the temporary needs of Tsuen Wan pending the extension of the gas mains system to enable towngas to be supplied there. The fact that clause 2 of the special conditions also permitted the site to be used for other purposes, which included the purpose for which the site is currently being used, does not mean that the site is now being used for the purpose for which the lease was originally granted.

16. However, I do not need to reach a concluded view on this topic because in order to justify the invocation of the doctrine of legitimate expectation, a number of requirements have to be established. One of them is the need for the statement which gives rise to the expectation to be "clear, unambiguous and devoid of relevant qualification": R. v. Inland Revenue Commissioners ex p. M.F.K. Underwriting Agents Ltd. [1990] 1 WLR 1545 at p.1569G. If the statement is not clear and unambiguous, such expectations as the statement gives rise to will not be legitimate ones. Since it is at the very least possible that the phrase "the purpose for which [the lease] was originally granted" related to the reason for the grant of the lease, rather than to the uses expressly permitted by the lease, the policy statement did not amount to a sufficiently clear and unambiguous statement of the Government's intention to justify the creation of a legitimate expectation on the part of the relevant employees of the Company that the lease would be extended beyond 1997.

17. Moreover, the policy statement made it clear that the question of whether leases granted for special purposes would be extended would be considered on a case-by-case basis: see the first sentence of para. 13 and para. 15 which provided:

"The extension of leases for special purposes will be dealt with as quickly as possible. However, it will take some years to examine the individual circumstances of all such leases ..."

Although para. 13 identified what the general approach would be, the policy statement recognised that there could be exceptions to the application of that approach: note the words "in general" in para. 13 and "normally" in para. 14(a). There had been such a significant change in the use of the site between the time when the lease was granted and the time when the policy statement was made that the officers of the Company who considered the policy statement should have recognised the possibility that that could be regarded as justifying a departure from the general rule, and that the lease would not be extended for that reason.

18. It is said that in correspondence the Government led the Company to believe that, despite the substantial change in use, the lease would nevertheless be extended if the user clause was modified. The letters relied on are those dated 7th October 1991 and 24th October 1994. However, I regard these letters as ambiguous. It is clear that the Lands Department wanted the Company to accept the deletion of that part of the user clause which permitted the production and storage of gas, so as to reflect the change in the use of the site and to provide for the Government's wish to prohibit such activities on the site in future. The modification of the clause was never agreed upon, partly because the modification which was ultimately requested turned out to be narrower than the modification originally suggested. I accept that it is possible to read the letters as promising an extension of the lease if agreement could be reached on the ambit of the user clause. But it is equally possible to read them as requiring agreement on the ambit of the user clause before an extension of the lease could be considered. It follows that the letters relied upon do not contain a sufficiently clear and unambiguous statement that the lease would be extended if agreement on the ambit of the user clause was reached.

19. Finally, Mr. Mok argued that one of the other requirements of the doctrine of legitimate expectation is that the person who seeks to rely on the doctrine must have altered his position to his detriment in some way as a result of the statement which is said to have given rise to the expectation. He went on to develop an interesting argument by reference to the correspondence to show that this requirement had not been satisfied in the present case. It is not necessary for me to consider the argument in view of the conclusion I have reached about the policy statement itself. However, had it been necessary for me to consider it, I would have rejected it. The doctrine of legitimate expectation is still in an embryonic stage of its development, but the current state of the law on the topic has been described in de Smith, Woolf & Jowell, "Judicial Review of Administrative Action", 5th ed., para. 13-030, as follows:

"Despite dicta to the contrary, it is not necessary for a person to have changed his position or to have acted to his detriment in order to obtain the benefit of a legitimate expectation. In a number of leading cases it has been held that a legitimate expectation should have been fulfilled in a situation where detrimental reliance had not taken place or was not appropriate or required in the circumstances ... Private law analogies from the field of estoppel are ... of limited relevance where a public law principle requires public officials to honour their undertakings and respect legal certainty, irrespective of the loss incurred by the individual concerned."

The authors recognised that "detrimental reliance may be relevant to the decision of the [public body] whether to revoke a representation". Thus, in R. v. Jockey Club ex p. R.A.M. Racecourses Ltd. [1993] 1 All E.R. 225, it was said at p.237a:

"... since a public body is entitled to change its policy if it is acting in good faith, [detrimental reliance] is a necessary ingredient where, as here, an applicant is saying, 'You cannot alter your policy now in my case; it is too late'."

The present case is not an example of a change of policy: on the contrary, the Director of Lands contends that he has at all times been seeking to uphold and apply the terms of the policy statement. In short, the similarity between the private law doctrine of estoppel and the public law doctrine of legitimate expectation does not justify incorporating the requirements of estoppel into the requirements of legitimate expectation, when to do so would be contrary to authority.

Breach of the special conditions

20. One issue has been argued in this case which I regard as beside the point. It has been suggested that because the Company has not been using the site for the production of gas since 1974, it has been in breach of clause 2 of the special conditions. That argument was raised in correspondence before the Director of Lands' final decision. I have two comments to make on it:

(i) The argument is wrong. Clause 2 is permissive, not mandatory. It permitted the Company to use the site for the activities set out in clause 2, but it did not require the Company to use it for all of them. What was mandatory was that the site could not be used for any other activities. In any event, even if the Company had been in breach of clause 2 by not using the site for the production of gas since 1974, that breach was known to the Government, and it did nothing to require the breach to be remedied (apart from suggesting that clause 2 should be amended to reflect the change in use).

(ii) The argument is irrelevant. It does not help on the proper interpretation of the policy statement. And although the alleged breach of clause 2 was referred to in correspondence, it did not in the end form any part of the Director of Lands' reasons for not extending the lease.

Irrationality

21. On 21st May 1997, in a final attempt to persuade the Director of Lands to extend the Company's lease, the Company's surveyors made a lengthy submission to the Director of Lands. The thrust of the submission was that the Electrical and Mechanical Services Department had taken the view that there was a continuing need for the Company, in order "to fulfil [its] obligations as a gas supply company", to have a depot in Tsuen Wan so as to "deal with gas emergencies in an effective and timely manner". Such a depot could be housed in an industrial building, but no suitable industrial building was currently available in Tsuen Wan. However, the Company was proposing to expand the areas which the site currently served. That rendered the relocation of the site to an ordinary industrial building (assuming that one was available) inappropriate. It was argued that an extension of the lease should be granted to enable an important public service to be maintained. Putting the policy statement to one side, therefore, Mr. Barrie Barlow for the Company argued that it was Wednesbury unreasonable for the Director of Lands to refuse an extension of the lease in these circumstances.

22. There might well have been merit in this argument if the extension which had been sought was a short-term extension, i.e. an extension for such time as the Company would need to find a suitable industrial building in Tsuen Wan to cover the areas which the site currently served, and a suitable site outside Tsuen Wan to cover the additional areas to which the Company wished to expand its services. But the Company was not seeking a short-term extension. Para. 9 of the surveyors' letter of 21st May 1997 made it clear that the extension for which they were asking (although they referred to it as a "renewal") was until 2047. What was being sought was an extension of the lease in accordance with the policy statement. Accordingly, the argument that the decision not to extend the lease was Wednesbury unreasonable must fail, because it was capable of rendering irrational only a decision not to grant the Company a short-term extension of the lease, and was not capable of rendering irrational the only decision which the Director was being asked to make, namely whether the lease should be extended until 2047.

Conclusion

23. For these reasons, this exceptionally well-argued application for judicial review must be dismissed. At present, I see no reason why costs should not follow the event, and I therefore make an order nisi that the Company pays to the Director of Lands his costs of these proceedings, to be taxed if not agreed.

24. However, the dismissal of this application does not necessarily mean that the Company is not entitled to a short-term extension of the lease. Since the Director of Lands has not yet considered whether such an extension should be granted, there is nothing to prevent the Company applying for one. In that connection, I note that in his letter of 16th June 1997 the Director of Lands referred to the Company's requirement for a depot to deal with emergencies arising in Tsuen Wan and its neighbouring areas, but added:

"I fail to see that this warrants a private treaty grant of the site because as pointed out by the Director of Electrical and Mechanical Services, there is no reason why the depot could not be accommodated in an industrial building."

As I understand it, the Company's case is that the depot cannot be accommodated in an industrial building only on the Company's proposals to expand the areas which the site currently serves. The depot could be accommodated in an industrial building if it is used to cover only the areas which the site currently serves (provided that such a building is available). In these circumstances, if an application is made for a short-term extension of the lease, the Director of Lands may think it appropriate to extend the lease for such time as, in his view, it will take for the Company to find a suitable industrial building in Tsuen Wan and to relocate its current operations there.