DATA KEY LTD v. DIRECTOR OF LANDS

HCAL 146/2014
[2018] HKCFI 440

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO 146 OF 2014

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J U D G M E N T

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A.  INTRODUCTION

1.  The applicant was the registered owner of a ground floor corner shop (“the Shop”)[1] at Pine Street, Kowloon.

2.  In February 2008, the Shop was reverted to the Government under the Lands Resumption Ordinance (Cap 124) (“the LRO”) for the implementation of a development by the Urban Renewal Authority (“the URA”).

3.  After failed negotiations on the compensation, the applicant obtained final judgment in around August 2011 in the Lands Tribunal, which assessed that the applicant should be paid the compensation of $7,303,000 as the Shop’s open market value at the time of resumption.  The Director of Lands (“the Director”) paid the applicant the compensation.

4.  In this judicial review, the applicant seeks to challenge the Director’s decision (“the Decision”) said to be made on or about 18 August 2014 to refuse to pay the applicant a solatium in the sum of $222,000, which equals to the Shop’s rateable value.  It is the applicant’s fundamental ground in the judicial review that the Government maintains a policy (“the Policy”) that she will pay owners of tenanted or vacant resumed commercial properties a solatium in an amount equalling to its rateable value. Hence, the applicant says the Decision was ultra vires or in breach of the applicant’s legitimate expectation as it was made inconsistent with the Policy.  Further, the applicant also says the Decision was unlawful as it lacks any or any adequate reasons.

5.  The applicant is represented by Mr Chan Chi Hung, SC leading Ms Jo Siu.  The Director, opposing the application, is represented by Mr Anthony Ismail.

6.  Before I deal with the arguments raised in this judicial review, it is helpful to set out briefly the relevant provisions under the LRO and the facts leading to the judicial review, which are not in dispute.

B.  BACKGROUND

B1.  The LRO

7.  The provisions of the LRO that are relevant for the present purposes are these.

8.  Section 3 of the LRO provides that the Chief Executive in Council may order the resumption of any land if it is required for a public purpose.  For that purpose, the Government shall publish a notice of resumption under section 4 and, under section 5, the subject land shall be reverted to the Government on the expiration of one month (or any longer period so authorized and provided under the notice) of the notice.

9.  Section 6 provides that when the land reverts to the Government under section 5:

(1) Within 28 days of the reversion date, the Director shall:

(a) make a written offer to the former owner of compensation in respect of the resumption of land (section 6(1)(a)); or

(b) serve on the owner a notice requiring him to submit his claim for compensation within the time stipulated in the notice (section 6(1)(b)).

(2) If the owner does not accept the offer within 28 days of the date of the offer, or does not submit a claim within the stipulated time (if he is served with a notice to require him to submit a claim), the owner or the Director may refer the matter to the Lands Tribunal for determination of compensation to be paid (section 6(3)).

(3) For land resumed under the LRO, the Lands Tribunal shall determine the compensation on the basis of the open market value of the subject property at the time of the reversion (sections 10(2)(a), 11(1)(a) and 12).

B2.  The relevant facts

10.  On 23 October 2007, the Lands Department (“the LandsD”) issued a notice of resumption in respect of the Shop under section 4(1) of the LRO for implementation of a development project by the URA.

11.  The Shop was reverted to the Government on 2 February 2008 under section 5 of the LRO.

12.  For the purpose of the resumption, and pursuant to section 6 of the LRO, the Director had made three separate offers to the applicant for compensating its loss of the Shop.  These offers were respectively of the sums $4,724,000 and $5,036,000 (for twice).[2]  Each of these offers consisted of a sum representing what the Director regarded to be a fair and reasonable open market value of the Shop (respectively, $4,502,000 and $4,814,000) together with the sum of $222,000 (which equalled to the rateable value of the Shop) as solatium.

13.  The applicant, assisted by professional surveyors, rejected the offers and claimed for a higher sum respectively of $9,130,000 plus the solatium of $222,000 and $8,200,000 plus the solatium of $220,000.[3]  These claims were not accepted by the Director.

14.  Ultimately, in September 2009, the applicant referred the matter to the Lands Tribunal for determination of the amount of compensation under section 10(2) of the LRO.  After trial, in August 2011, the Lands Tribunal determined that the open market value of the Shop at the date of resumption should be $7,303,000[4] and ordered the Director to pay the applicant the sum as compensation.

15.  The Director paid the applicant the said compensation together with interest, costs and its experts’ professional remuneration pursuant to sections 6(2A) and 8(4) of the LRO.

16.  Thereafter, by letters respectively dated 10 October 2011 and 28 December 2011, the applicant demanded the Director for the payment of the solatium of $220,000.  The Director responded to these demands respectively by his letters dated 13 October 2011 and 28 December 2011 effectively with a holding reply stating that he would consider the request.

17.  After about two and a half years not having received any substantive reply from the Director, by its letter dated 29 July 2014, the applicant again demanded for the payment of the solatium and stated that it would assume that the Director was to decline the claim if it did not hear from the Director a constructive reply within the next three weeks.  The Director then replied on 18 August 2014, stating again that “[the applicant’s] request is being considered by our headquarters” and he “shall revert to [the applicant] in due course”.

18.  The applicant treated this as the Director’s decision to reject its demand for the payment of the solatium (ie, the Decision).

19.  On 30 October 2014, the applicant sought leave to judicially review the Decision.  Leave was granted to the applicant on paper.

C.  THIS JUDICIAL REVIEW

C1.  Grounds of judicial review

20.  As I mentioned above, the applicant raises three grounds of judicial review:

(1) The Decision is ultra vires as it was made without taking into account the Policy.

(2) The Decision was in breach of the applicant’s legitimate expectation that it would be paid the solatium under the Policy.

(3) The Decision lacks any or any adequate reasons to explain why the applicant was not paid the solatium.

21.  All these grounds in substance turn on the applicant’s contention as to what the Policy is.  In gist, it is the applicant’s fundamental case that the Policy as formulated is that upon resumption of a tenanted or vacant commercial property, the owner would be paid by the Government as ex gratia allowance a solatium that equals to the property’s rateable value.  The payment is an independent one and not unconditional upon acceptance by the owner.

22.  On the other hand, in opposing this judicial review, the Director contends that the Policy as formulated is only that the Director will make an offer to compensate the owner of a resumed tenanted or vacant commercial property, and the offer as a whole should comprise of the offered open market value of the property and an ex gratia allowance of a solatium at its rateable value.  The offer as a whole is conditional upon acceptance. Hence, under the Policy, the owner has no independent and absolute entitlement to a solatium payment.  In the present case, the Director did make offers to the applicant which included the solatium payment.  Since the offers were not accepted by the applicant, there is no question that the applicant should still be paid the solatium.

23.  In light of the above principal contentions raised by the parties, the core question that the court is required to determine in this application is what is the meaning of the Policy.  This is a purely question of proper construction.

24.  I will therefore look at this core question first.

C2.  What is the Policy

25.  It is common ground that the following principles apply to a judicial review premised on the meaning of a Government policy:[5]

(1) The formulation of policies is a proper course for the provision of guidance in the exercise of an administrative decision.

(2) What is the meaning of a policy is a matter for the court to construe objectively in accordance with the language used and in its proper context, and should not be construed as if they were statutory or contractual provision.

(3) An administrative decision made in departure from a stated policy by the decision-maker’s misinterpretation of its meaning or misunderstanding of the policy itself is defective and unlawful and may be quashed in a judicial review.

26.  Bearing these principles in mind, I now look at the contentions raised in relation to the construction of the meaning of the Policy in the present case.

27.  It is common ground that the Policy in its present form was formulated in 2001 as a revision and improvement to the then existing Government policy in land resumption to offer compensations to affected owners and tenants.[6]  The proposals to so revise and improve the then existing policy were set out and explained to the Panel on Planning, Lands and Works (“the PLW”) of the Legislative Council (“the LegCo”) in the paper (“the 2001 PLW Paper”) entitled “Proposed Ex Gratia Allowances for Property Owner and Tenants Affected by the Resumption of Land” dated February 2001.[7] The paper was prepared by Planning and Lands Bureau (“the Bureau”), which is a policy bureau.  It is thus obvious that this paper is important for construing what the Policy is.

28.  The relevant paragraphs in the 2001 PLW Paper are as follows:

“Introduction

During the consideration of the Urban Renewal Authority Bill, some Legislative Council (LegCo) Members asked the Administration to review the proposed compensation package for owners and tenants affected by the resumption of land, in particular the proposed basis for calculating the Home Purchase Allowance (HPA) and to bring the Urban Renewal Authority Ordinance into operation only after the revised package has been endorsed by the Finance Committee of LegCo. The Bill was passed by LegCo on 27 June 2000. The Administration has now reviewed the current ex gratia allowances and our proposals are set out below.

Background

2. To arrest the problem of urban decay and to improve the living conditions of residents in old dilapidated areas, the Government will adopt a proactive and people-oriented approach to urban renewal. Our approach to urban renewal will be guided by three underlying principles –

(a) affected property owners should be offered fair and reasonable compensation;

(b) affected tenants should be provided with proper rehousing; and

(c) the community at large should benefit from urban renewal.

3. If the ex gratia compensation package proposed below is approved by the Finance Committee of LegCo, the Urban Renewal Authority (URA) will be set up. It will be tasked to implement a 20-year urban renewal programme, consisting of 200 urban redevelopment projects and 25 uncompleted projects of the Land Development Corporation (LDC).

Proposals

4. Having reviewed the existing ex gratia compensation policy, the Administration proposes that –

(a) the basis for calculating the HPA be revised from a replacement flat of about ten years’ old to a replacement flat of about seven years’ old;

(b) the HPA for owners of a tenanted flat (or tenanted area) be retitled as the Supplementary Allowance (SA) to avoid confusion or misunderstanding;

(c) the eligibility criteria for the new HPA/SA and the amount payable, as set out in paragraph 12 below and at Annex A, be adopted;

(d) owner-occupiers of commercial properties be offered an ex gratia allowance of four times the amount of the rateable value of the resumed properties, partly in lieu of the right to claim disturbance payments consisting of loss or damage to the business conducted in the resumed properties under section 10(2)(d) of the Lands Resumption Ordinance (Cap. 124), removal costs under section 10(2)(e)(i) and professional fees in relation to the claim for business loss under section 10(2)(e)(ii) of the same Ordinance (disturbance payments), and partly as a solatium (Note 1[8]);

(e) tenants of commercial properties be offered an ex gratia allowance of three times; the amount of the rateable value of the resumed properties in lieu of the right to claim disturbance payments;

(f) owners of tenanted or vacant commercial properties be offered an ex gratia allowance of the amount of the rateable value of the resumed properties as a solatium; and

(g) the revised HPA for owner-occupiers of domestic properties and owners of domestic properties which are occupied by their immediate family members; the new SA for owners of tenanted/vacant domestic properties, and the new ex gratia allowance for owners and/tenants of commercial properties be applicable to all land resumption exercises under any ordinance.

Review

(i) Background

5. We have reviewed the ex gratia allowances for owners and tenants affected by the resumption of land, taking into account the practices of the LDC, the current compensation policy of the Government for resumed land and the views of LegCo Members. A number of improvements to the existing package are recommended. The details of the proposed package are set out below in the following paragraphs.

…

(iii) Proposed new ex gratia allowance for owners and tenants of commercial properties

14. At present, owner-occupiers of commercial properties resumed by the Government are offered the following compensation to facilitate clearance and to help finance their move from the property resumed –

(a) the open market value of their properties, plus an ex gratia allowance based on a formula consisting of the rental cost for the removal period (during which no business is conducted), removal costs, decoration costs, stamp duty, legal fees and agent’s fees (the different rates of the current ex gratia allowance are set out at Annex B); or

(b) the open market value of their properties, plus the right to claim business loss (if substantiated) under section 10(2)(d) of the Lands Resumption Ordinance, removal costs under section 10(2)(e)(i) and professional fees under section 10(2)(e)(ii) of that Ordinance.

15. Tenants of commercial properties are offered the same ex gratia allowance as owner-occupiers of commercial properties in lieu of the right to claim disturbance payments. If the tenants so choose, they have the right to make statutory claims for business loss, removal costs and professional fees.

16. In negotiations for the acquisition of land in recent projects, the LDC has offered the following compensation package to owners and tenants of commercial properties –

(a) for owner-occupiers of ground floor shops

the open market value of their properties, plus an ex gratia allowance of a further 35% of the open market value;

(b) for owners of tenanted ground floor shops

the open market value of their properties; plus an ex gratia allowance of a further 20% of the open market value;

(c) for owners of upper floor commercial premises

the open market value of their properties, plus an ex gratia allowance of a further 10% of the open market value;

(d) for all owners (an alternative option available to all)

the open market value of their properties, plus any business loss (if substantiated); and

(e) for tenants

three to five times the Government’s ex gratia allowance as set out at Annex B.

This package, which is offered during the acquisition stage of the LDC land assembly process, is more generous and flexible than the compensation currently offered by the Government. However, if the LDC is unable to acquire some properties for a project and if these remaining properties are resumed under the Lands Resumption Ordinance for the project, the Government's compensation terms are used.

17. Owner-occupiers and tenants of commercial properties (mostly shopkeepers) may be entitled to claim business loss, removal costs and professional fees under the Lands Resumption Ordinance. However, many may find it difficult to produce documentary evidence to prove business loss. When compared with owner-occupiers and tenants of domestic properties who are entitled to the HPA and rehousing respectively, the amount of ex gratia compensation for owner-occupiers and tenants of commercial properties is relatively modest. The existing ex gratia allowance for owner-occupiers and tenants of commercial properties should be rationalized and enhanced.

18. In our review, we have looked at the possibility of using the rateable value as the basis for calculating the ex gratia allowance for owners and tenants of commercial properties. The rateable value of a property is the reasonable annual rental value of that property as assessed by the Rating and Valuation Department. Rateable values are reviewed annually. The rateable value is a reliable measure of the commercial worth of a property.

19. Having reviewed the existing ex gratia payment policy, we propose that owner-occupiers of commercial properties be offered the open market value of their properties, plus an ex gratia allowance of four times the amount of the rateable value of the resumed properties. The new ex gratia allowance would be paid partly in lieu of the right to claim disturbance payments (deemed to be equivalent to three times the amount of the rateable value) and partly as a solatium rateable value (set at the amount of the rateable value).

20. In the case of tenants of commercial properties, we propose that they be offered the open market value of their lesser interest in the properties, if any (for example, long term lease at below market rent), plus an ex gratia allowance of three times the amount of the rateable value of the resumed properties they are occupying in lieu of the right to claim disturbance payments.

21. We also propose that owners of tenanted or vacant commercial properties be offered the open market value of their properties, plus an ex gratia allowance of the amount of the rateable value of the resumed properties as a solatium. This ex gratia allowance is partly to cover any temporary loss of rental income as a result of the resumption and partly to make up for the fact that the owner is forced to give up his property.

22. The proposed ex gratia allowance for owners and tenants of commercial properties is generally more generous than the current ex gratia allowance.

23. If the above proposals are adopted, both affected owner‑occupiers and tenants of commercial properties would continue to be offered the choice of either making a statutory claim for business loss, removal costs and professional fees, or receiving the new ex gratia allowance. The proposed ex gratia allowance would replace the existing one.

(iv) Application

24. Resumption of land for both URA and non-URA projects are conducted under the Lands Resumption Ordinance. It would not be fair to offer different compensation terms in respect of URA and non-URA projects. We therefore propose that the new HPA and SA and the new ex gratia allowance for owners and tenants of commercial properties be made applicable to all land resumption exercises under any ordinance to ensure equity.

…

The Way Forward

27. Subject to LegCo Members’ views, we intend to make a submission to the Finance Committee of the LegCo for approval of the proposals.” (emphasis added)

29.  As stated at paragraph 27 of the 2001 PLW Paper (as quoted above), the Bureau after presenting the proposals to the PLW proceeded to seek approval from the Finance Committee of the LegCo for funding to implement the proposed improved policy.  In doing so, the Bureau again explained and set out what the improved policy (ie, the Policy) was in its paper prepared for the Finance Committee dated 9 March 2001 and numbered FCR(2000-01)83 (“the 2001 FC Paper”).  The relevant paragraphs are as follows:

“Members are invited to approve –

(a) a revision to the basis for calculating the Home Purchase Allowance payable to owners of domestic properties affected by land resumption and the eligibility criteria for the Home Purchase Allowance;

(b) the retitling of the Home Purchase Allowance for owners of a tenanted flat (or tenanted area) as Supplementary Allowance; and revision to the basis and eligibility criteria for the Supplementary Allowance; and

(c) a revision to the ex gratia allowance payable to owners, owner-occupiers and tenants of commercial properties affected by land resumption.

PROBLEM

The current Home Purchase Allowance (HPA) and the ex gratia allowance (EGA) for commercial property owners and tenants affected by land resumption are perceived as being inadequate by many owners and residents in older urban areas.

…

(B) Proposed new EGA for owners and tenants of commercial properties

7. At present, owner-occupiers of commercial properties resumed by the Government are offered the open market value of their properties plus one of the following additional payments –

(a) an EGA based on a formula consisting of the rental cost for the removal period (during which no business is conducted), removal costs, decoration costs, stamp duty, legal fees and agent’s fees. This EGA package was last approved by the Finance Committee of this Council on 9 December 1988, vide FCC(88-89)21; or

(b) the right to claim business loss (if substantiated) under section 10(2)(d) of the Lands Resumption Ordinance, removal costs under section 10(2)(e)(i) and professional fees undersection 10(2)(e)(ii) of that Ordinance (disturbance payments).

8. Just like owner-occupiers, tenants of commercial properties resumed by the Government have the right to make statutory claims for disturbance payments under the Lands Resumption Ordinance as described in paragraph 7(b) above. They may also receive the same EGA as set out in paragraph 7(a) above.

9. The current arrangement has two less-than-satisfactory aspects. First, many owner-occupiers and tenants of commercial properties resumed by the Government encounter a problem with statutory claims as they find it difficult to produce documentary evidence to prove business loss. Second, when compared with owner-occupiers and tenants of domestic properties who are entitled to the HPA and rehousing respectively, the amount of EGA for owner-occupiers and tenants of commercial properties is relatively modest.

10. Having reviewed the existing ex gratia payment policy, we propose that owner-occupiers of commercial properties be offered the open market value of their properties, plus an EGA equivalent to four times the amount of rateable value of the resumed properties. The new EGA would be paid partly in lieu of the right to claim disturbance payments (deemed to be equivalent to three times the amount of the rateable value) and partly as a solatium (set at the amount of the rateable value).

11 We also propose that owners of tenanted or vacant commercial properties be offered the open market value of their properties, plus an EGA of the amount of the rateable value of the resumed properties as a solatium. This EGA is partly to cover any temporary loss of rental income as a result of the resumption and partly to make up for the fact that the owner is forced to give up his property.

12. For tenants of commercial properties, we propose to pay the open market value of their lesser interest in the properties, if any (for example, long term lease at below market rent), plus an EGA equivalent to three times the amount of the rateable value of the resumed properties they are occupying. The new EGA would be paid in lieu of the right to claim disturbance payments.

13. The proposed EGA for owners and tenants of commercial properties is generally more generous than the current EGA.

(C) Application

14. We expect that most of the future resumption of land under the Lands Resumption Ordinance would be carried out for projects of the URA. However, there would be other cases of resumption for public works, rail or other non-URA projects. For equity reasons, we propose that the new HPA and SA and the new EGA for owners and tenants of commercial properties should be made applicable to all land resumption exercises under any relevant ordinance.

FINANCIAL IMPLICATIONS

15. …

…

BACKGROUND INFORMATION

18. The URA Bill was passed by the Legislative Council on 27 June 2000. Members had views on our earlier proposed compensation package for owners and tenants affected by land resumption. Accordingly, we undertook to review the package and to invite the Finance Committee to approve a revised proposal before bringing the URA Ordinance into operation.

19. We briefed the Legislative Council Panel on Planning, Lands and Works on our proposals on 27 February 2001 and discussed the proposed package with the Panel on 1 March and 2 March 2001. [ie, under the 2001 PLW Paper]” (emphasis added)

30.  Mr Ismail for the Director has confirmed the position that there has not been a change of the Policy since 2001.  It is therefore obvious that the most important documents that contain and reflect the Policy are the 2001 PLW Paper and the 2001 FC Paper.[9]  For the present purpose, both Mr Chan and Mr Ismail also agree and point out that the 2001 FC Paper in substance repeats what have been stated in the 2001 PLW Paper concerning the Policy.  Hence, there is no material difference between the two papers for the purpose of construing the meaning of the Policy.  In the premises, I would principally look at the 2001 PLW Paper for the purpose of construing the Policy.  In this respect, my observations below in relation to the 2001 PLW Paper are equally applicable to, and supported by, the 2001 FC Paper.

31.  Reading the 2001 PLW Paper objectively in proper context and as a whole, I am of the view that, properly construed, the Policy is one that upon resuming a tenanted or vacant commercial property under the LRO, the Government will offer the owner a compensation package which consists of what the Government regards as the open market value of the property and a solatium equalling the property’s rateable value.  The Policy is not that the owner is entitled to and will be paid a solatium whether or not the offer is accepted.  I will explain why.

32.  As emphasized by Mr Ismail, consistently throughout the papers, the policy bureau has used the word “offer” or “offered” to describe the ex gratia allowance of the solatium.  The plain and ordinary meaning of this word is that the person making the offer is to present something so that it may be accepted, rejected or considered.  It does not denote the meaning that what is contained in the offer is something the offeror is bound to give to the offeree in any event even without an acceptance by the offeree.

33.  This meaning of the word “offer” as used in the 2001 PLW Paper is made even clearer when understood in the following proper context.

34.  As set out at paragraph 16 of the 2001 PLW Paper, the Bureau referred to “offer” made by the Land Development Council (the predecessor of URA) in negotiating the acquisition of land for development projects.  It then compared that with the “offer” made by the Government under the then existing compensation package (which was less generous than the URA offers) when the land had to be resumed under the LRO as the Land Development Council was not successful in its negotiation.  It was in that context the Bureau considered it necessary to rationalize and enhance the ex-gratia allowance to be offered by the Government when resuming land.  In this context, it is clear that when the Bureau used the word “offer” in the paper, it was intended to mean what it is understood ordinarily but not something which the offeree is entitled to have without the need to accept it.

35.  Further, one of the underlying contexts of the Policy is resumption of land under the LRO.  As mentioned above, under section 6 of the LRO, the Government is required to either make an offer of compensation to the affected party or to serve a notice on the party inviting it to make a claim.  What is contained in a section 6 offer is clearly not intended to be the offeree’s entitlement unless and until it accepts it (see also section 10).  When objectively understood in this context, the use of the words “to offer” or “be offered” a compensation by the Government when resuming land in this paper must also be intended to mean that it is to present the compensation package to the offeree for its consideration and acceptance.  It does not mean that what is contained in the “offer” amounts to the offeree’s unconditional entitlement.

36.  This is even more so given that under the Policy, it is stated in the 2001 PLW Paper that the affected owners be offered “the open market value of their properties, plus an ex gratia allowance of the amount of the rateable value of the resumed properties as solatium” (for example, see paragraph 21).  In other words, the use of the word “offer” is to refer to both the Government’s assessed open market value of the property and the solatium as a one and complete offer.  It cannot be seriously suggested that, objectively and properly understood, when the Bureau used that word “offer” in the same reference, it intended to use the same word to describe the open market value as an offer as ordinarily understood, but to the solatium as the offeree’s entitlement not conditional upon acceptance.

37.  It is also important to note that, as stated expressly in the 2001 PLW Paper, the proposal contained therein was to improve the then existing policy after reviewing it.  The then existing policy was only to make an offer for various items of compensation to “facilitate clearance and to help finance [the affected owners and tenants’] move from the property resumed” (see paragraphs 1, 4, 5, 14 - 16 and 19).  There is no suggestion, and Mr Chan is also not suggesting that, under the then existing policy, the affected parties were entitled to any of the offered payments without the need of an acceptance.[10]  In the circumstances, when describing the proposed changes or additions to the policy by reference to and use of the same word “offer”, objectively, the Bureau must have intended to adopt the same policy of making an offer to the affected persons albeit with an improved content of the offer.

38.  Moreover, it is common ground that solatium is not a compensation that a party is entitled to under the LRO or other ordinances.  In that case, it would be objectively very unusual for the Government to have intended to provide these owners a solatium effectively as a matter of right and absolute entitlement (under the applicant’s construction) by way of a policy.  If the Government did intend to do so, objectively, she would have to set it out in the clearest term instead of simply including this as part of an “offer” for compensation together with the open market value of the property.

39.  Finally, this construction is also plainly consistent with the plain and ordinary meaning of the term “ex gratia allowance” which is used to describe the solatium, meaning that it is a discretionary allowance in contrast to an entitlement.

40.  In this respect, Mr Chan submits that the word “ex gratia” can also be understood to mean only that it is payment outside any statutory entitlements.  However, leading counsel also fairly accepts that given the express use of the words “ex gratia allowances” to refer to the solatium and that there is no statutory entitlement or right to it, there must indeed still be a discretionary element in it.  The problem I have with this submission is, when asked as to what is left in the discretion if his construction of the meaning of the Policy vis-à-vis the solatium is correct, Mr Chan can only come up with the suggestion that there may well be some undefined circumstances where the owners may still not get the solatium, although he cannot identify or provide any realistic examples.  I am therefore unable to accept this submission.

41.  In the premises, on an objective, proper and practical reading of these documents in their proper context, it clearly shows that the Policy is that the Government will make a compensation offer to owners of resumed tenanted or vacant commercial properties, and such offer as a whole will comprise of the Government’s assessed open market value of the property and an ex gratia allowance of a solatium equalling to the rateable value of the property.

42.  Notwithstanding the above, Mr Chan has raised a number of contentions to support the applicant’s construction of the Policy that the Government upon resuming a land would give the owner (a) a section 6 offer based on the open market value of the property as an alternative to the owner’s statutory compensation, and (b) an unconditional solatium payment to compensate the owner’s injured feeling and the giving up of the property.  I will consider these arguments in turn.

43.  First, Mr Chan submits that, as emphasized in the 2001 PLW Paper, the inclusion of a solatium in the “offer” was considered to be an improvement of the then existing policy.  Under the then existing policy, an owner of a tenanted commercial property was only given an offer based on the open market value of the property.[11]  Mr Chan then asks rhetorically, how could the offer of a solatium be an improvement if that forms part and parcel of an offer including the open market value.  This is so because if the owner does not agree with the Government’s valuation of the property, and decides to refer it to the Lands Tribunal for proper assessment, something which he is entitled to do so under the LRO, he would never get the solatium, even if at the end of the day he is successful (as in the present case) to secure a higher assessment than the Government’s valuation.  In other words, if the owner decides to refer the compensation assessment to the Lands Tribunal even if he has every right under the LRO to do so, he would be “punished” by having the solatium taken away.  Mr Chan emphasizes it cannot be the intention of a responsible Government to punish people who simply seeks to exercise a right he or she is entitled to do under the statute.

44.  Although Mr Chan’s argument has initial attraction, on reflection, I am not persuaded by it.

45.  The fallacy (if I may say so) of this argument is that it presupposes that the “policy” concerned is one which is to provide an affected owner a guaranteed and unconditional item of compensation.  In other words, it presupposes that the applicant’s own construction of the Policy to be correct in the first place.  This however is incorrect.

46.  As mentioned above, as shown in the 2001 PLW Paper, the then “existing compensation policy on ex gratia payment” was still and only a policy that the Government would “offer” a compensation package which she considered fair and reasonable to the affected persons (including the owners) to “facilitate clearance and to help finance their move from the property resumed” (see for examples, paragraphs 2, 14 and Annex C).  It was not, and it is also not the applicant’s case, that under the then existing compensation policy, the affected owner was provided with any guaranteed and unconditional payment.  It was a policy to make an offer to compensate.

47.  Hence, under the then existing policy, the owner-occupiers and the owners of tenanted (or vacant) commercial properties were not “offered” any item of compensation when there was no equivalent alternative statutory claim.  The revised policy proposed (ie, the Policy) in the 2001 PLW Paper suggested to mandatorily include in the offer additionally a compensation in the nature of solatium to compensate injury to feelings or for being compelled to part with the resumed property.  In the premises, this proposal to always include a solatium in the offer is an improvement to the offer made under the then existing policy.  It is an added advantage (and thus a “carrot” in Mr Chan’s alternative description) to attract the offerees to accept the offer and hence to “facilitate clearance and to help finance their move from the property resumed”.

48.  There is also no question that the offer would in effect become a “punishment” (or a “stick” in Mr Chan’s alternative description) for the offerees who do not accept the part and parcel offer.  The contention of “punishment” is again premised upon the presumption that the solatium was a guaranteed payment in the first place.

49.  However, as Mr Chan himself has pointed out, the owners do not have any statutory right to be paid a solatium (whatever that value may be).  All they are entitled to as a matter of rights, is they have a right to be paid the open market value of the properties resumed and a right to have that value assessed by the Lands Tribunal.  Hence, they are not worse off (and therefore not punished) if they decide not to accept the Director’s offer (which includes the solatium and the open market value of the properties) as they would still be able to get the open market value as assessed by the Lands Tribunal as they are entitled to.  No more no less.

50.  I would therefore reject Mr Chan’s submissions.

51.  Second, Mr Chan says it is pertinent to note that at paragraph 4(d) and (e) of the 2001 PLW Paper, the Bureau expressly described the offer of certain items of compensation (ie, three times the rateable value of the resumed properties) as “in lieu of” the right to claim various statutory compensations.  However, it did not describe the “solatium” as “in lieu of” any alternative rights to compensation, which must be correct since under the LRO, the affected parties have no right to claim any statutory payments in the nature of a solatium.

52.  Mr Chan then submits this distinctive and express use of the term “in lieu of” shows that the Government clearly had in mind the distinction between what was intended to be a real offer in nature (being something offered “in lieu of” other statutory rights and thus is subject to acceptance), and something which was intended to be a substantive additional and unconditional payment on top of the already available statutory rights, which was not dependent on acceptance.  In particular, says Mr Chan, the exact calculation (ie, equalling the rateable value) provided for the solatium supports the intention that it is an unconditional payment to the owners.

53.  I am unable to agree.

54.  It is again plain in the context that, where an offer for an item of compensation has no relevant alternative equivalent statutory compensation which the offeree can make a claim to, it is not only unnecessary but also inappropriate to use the term “in lieu of” to describe that offered item of compensation, as there is nothing for that offer if accepted to substitute or replace with (hence made “in lieu of”).  The absence of the use of the term “in lieu of” in referring to the offer of a solatium is thus neither here nor there.  It certainly does not then logically mean that the offer is not intended to be only an offer in nature.

55.  The exact calculation argument similarly does not further support Mr Chan’s contention.  It is equally consistent with an intention to make an offer only as a matter of policy.  As explained in the 2001 PLW Paper (at paragraphs 17 - 18), the proposal to use a rateable value was only to provide a more consistent and reliable measure of the commercial property’s worth.

56.  Third, Mr Chan submits that in construing the above documents, one should not apply the legal meaning of “offer” to them, as one should not assume the Bureau would use the term in a legal technical meaning.  In other words, Mr Chan submits that the Bureau did not intend to use the word “offer” in its legal meaning.

57.  Quite to the contrary, Mr Chan contends that properly read in context, the Bureau used the word “offer” and “entitlement” or “pay” flexibly and interchangeable.  Hence, he says one should not attach too much weight to the word “offer” as used in construing these documents and the use of the word “offer” would in these circumstances include the meaning of “entitlement”.  Leading counsel further says his above submissions are buttressed by the following.

58.  The Bureau at Note 1 of the 2001 PLW Paper has described solatium as “a sum of money paid over and above the open market value as a solace…” (emphasis added).  Thus, Mr Chan argues it is clear that the Bureau intended that the solatium be paid to the owners notwithstanding it had used the word “offered” in the main text (see for example, paragraph 4(d)).

59.  Further, Mr Chan draws the court’s attention to the information guidelines published by the LandsD entitled “Lands Resumption and Compensation in the Urban Area – Guidelines for Owners, Occupiers and Surveyors” dated December 2001 (“the 2001 Guidelines”).  It provides relevantly as follows (footnote omitted):[12]

“1. PURPOSE

This pamphlet briefly outlines the procedures and compensation provisions for private land resumed in Urban Area (defined as Hong Kong Island, Kowloon and New Kowloon). Resumption proceedings are instituted under the relevant Ordinances for different purposes. As the procedures and compensation provisions of various Ordinances differ, the following paragraphs only intend to give a general guideline on resumption matters. Any person whose interest is affected by a land resumption project is advised to refer to the provisions of the respective Ordinances for details or consult professional consultants.

2.   LAND RESUMPTION

The Government may acquire private land by resumption for the implementation of public projects such as a road scheme, a public housing development, an urban renewal project, an open space, a drainage improvement project, a new market, a school or any item in the Public Works Programme. According to the purpose of public projects, resumption proceedings may be instituted mainly under the provisions of:-

(a) the Lands Resumption Ordinance, Chapter 124;

(b) the Roads (Works, Use and Compensation) Ordinance, Chapter 370;

(c) the Railways Ordinance, Chapter 519;

(d) the Land Acquisition (Possessory Title) Ordinance, Chapter 130;

(e) the Land Drainage Ordinance, Chapter 446;

(f) the Urban Renewal Authority Ordinance, Chapter 563;

(g) The Mass Transit Railway (Land Resumption and Related Provisions) Ordinance, Chapter 276.

The Director of Lands is given the authority to implement resumption and compensation provisions of these Ordinances.

…

4. OFFER OF COMPENSATION

When the private land is resumed or otherwise adversely affected by the actions of the Government, the Ordinance under which the legal interest is extinguished or affected provides for the payment of compensation. The former owner or persons having an interest in the land such as the tenant, will be entitled to statutory compensation for the value of the land and building (if any) or other land interests resumed in accordance with the provisions of the Ordinance.

(a) For land resumed under the Lands Resumption Ordinance (Chapter 124), the Government will make an offer of compensation in respect of the resumption to the former owner and to any person having an estate or interest in the land immediately before reversion under an instrument registered in the Land Registry or invite claims for compensation from them within 28 days from the date of reversion. Any person who considers that he has a compensatable interest in the land resumed, and who has not been offered compensation nor been invited to claim compensation may, within one year from the date of reversion, submit a claim stating the nature of his estate or interest in the land and the amount of compensation which he claims for the resumption of that estate or interest.

…

(c) The amount of compensation will be assessed on the basis prescribed in the respective Ordinances. Upon acceptance of the amount of compensation offered and the proof of title to the satisfaction of the Government, the claimant is required to sign necessary documents. Thereafter, the release of compensation will be arranged accordingly. In straightforward cases, cheques for the amount of compensation offered will be made available for collection within 4 weeks following receipt of acceptance and proof of title.

…

6. STATUTORY AND EX-GRATIA COMPENSATION TO DIFFERENT PARTIES

The type of compensation to a party affected by a land resumption scheme may vary according to the type of property in question and the legal interest held by the party in the property. The details are set out in the following paragraphs.

…

6.2 COMMERCIAL PROPERTY

(a)  Compensation to owner-occupiers

Legal owner-occupiers of commercial properties are entitled to the existing use value of the resumed properties as at the date of reversion, plus one of the following additional payments: –

(i) an ex-gratia allowance equivalent to four times the amount of rateable value of the resumed properties prevailing as at the date of reversion and where appropriate, severance payments to employees under the Employment Ordinance, Chapter 57; or

(ii) where an owner believes that his business loss is greater than the amount of the ex-gratia offer, he has the right to claim business loss (if substantiated by documentary evidence) under section 10(2)(d) of the Lands Resumption Ordinance, removal costs under section 10(2)(e)(i) and professional fees (also see paragraph 10 below) under section 10(2)(e)(ii) of that Ordinance.

With regard to paragraph 6.2(a)(ii) above, owner-occupiers may submit statutory claims for business loss and related loss and expenses as a result of total extinguishment or removal of the business from the resumed property. The various heads of claim for statutory compensation may include :-

(I) Permanent or temporary loss of business profit;

(II) Loss on forced sale of fixtures & fittings and stock;

(III) Loss of business goodwill; and

(IV) Severance payments to employees under the Employment Ordinance, Chapter 57.

The above items may not be taken as exhaustive and each case will be considered on its own merits.

In appropriate cases where the redevelopment value for the land resumed is higher than the existing use value as at the date of reversion, the former will be offered as a statutory compensation. However, the owner-occupier is not entitled to claim compensation as referred to in paragraph 6.2 (a)(ii) above if the land resumed is assessed on redevelopment value.

(b) Compensation to owners (not in occupation)

Legal owners of tenanted or vacant commercial properties will be offered the higher of (i) the redevelopment value of the resumed properties as at the date of reversion (if established) and (ii) the existing use value of the resumed properties plus an ex-gratia allowance of the amount of the rateable value of the same prevailing as at the date of reversion.

(c)  Compensation to tenants

Legal tenants are entitled to the open market value, if any, of their interest in the commercial properties (for example, the value of an unexpired lease term subject to an existing rent below the prevailing open market rent), plus one of the following additional payments:-

(i) an ex-gratia allowance equivalent to three times the amount of the rateable value of the resumed properties prevailing as at the date of reversion and where appropriate, severance payments to employees under the Employment Ordinance, Chapter 57, or

(ii) the right to make statutory claims for compensation under the Lands Resumption Ordinance as described in paragraph 6.2 (a)(ii) above.

…” (emphasis added)

60.  Mr Chan points out at paragraph 6.2(a)(i) of the 2001 Guidelines, the LandsD has stated that the owner-occupiers of resumed commercial properties were “entitled” to various compensation payments.  These payments included the solatium (because it referred to the ex-gratia allowance equivalent to four times the rateable value of the property, which included the allowance of solatium).[13] Thus, it shows not only that the Government used the words “offer” and “entitlement” flexibly in these documents, but also that the solatium was indeed intended to be an entitlement.

61.  With respect, I am not convinced by these contentions.

62.  As I have explained above, in construing the documents to find the objective meaning of the Policy, I have not attached any technical legal meaning to the word “offer”.  I have only looked at its meaning as ordinarily and commonly used and understood.

63.  Insofar as the use of the word “paid” at Note 1 is concerned, it is obvious that that was used in the context of explaining the meaning of a “solatium”.  In that context, plainly the word “paid” is used to describe what is the use and purpose of a solatium payment. Used in that context, it is certainly not inconsistent with the use of the word “offer” in the main text to explain the proposal that the Government would make an offer to pay a solatium as part of the offered package of compensation.

64.  Insofar as the use of the word “entitled” is concerned in the 2001 Guidelines, again when considered in context, it was not intended to mean that the affected owner-occupiers are “entitled” to the payment of solatium.

65.  As made clear at paragraph 1 of the 2001 Guidelines, what were stated therein were only intended to give a “general guideline” on resumption matters.  This was not intended to give and be read as detailed and technical descriptions and explanations of the relevant matters, including offers and claims for compensations, relating to land resumption.

66.  One therefore must read the 2001 Guidelines bearing this intended general nature of the document in mind.

67.  When paragraph 6.2(a) is read in its entirety, in particular noting the references to the “ex gratia offer” at paragraph 6.2(a)(ii), and the sentence “the former will be offered as a statutory compensation” at the last paragraph of paragraph 6.2(a) (as underlined in the above quote), it is objectively plain that what was intended to be stated there is that the owner-occupiers were “entitled” to an offer of ex gratia allowance in the items stated at paragraphs 6.2(a)(i) as an alternative to the entitled statutory compensation.  However, owner-occupiers who believed they should be able to get more than the offered ex gratia compensation, they could instead make a claim as provided under the statute.  The section read as a whole does not objectively mean, as Mr Chan submits, the owner-occupiers were entitled as a matter of right to the stated ex gratia allowances.

68.  The position is even clear when one reads paragraph 6.2(b), which deals with specifically the circumstances of legal owners of tenanted or vacant commercial properties as in the present case.  In that paragraph, the LandsD singly used the word “offered” instead of “entitled” to describe the compensation package that the Government would provide to them.  This package included the solatium.  This is clearly consistent with the meaning that the Government will make an offer to compensate the owners which included an offer to pay a solatium.

69.  For all the above reasons, I reject all of Mr Chan’s submissions in support of his construction of the meaning of the Policy.

70.  I therefore conclude that, properly construed, the relevant Policy is that the Government will make a compensation offer to owners of resumed tenanted or vacant commercial properties, and such offer as a whole will comprise of the Government’s assessed open market value of the property and an ex gratia allowance as a solatium equalling to the rateable value of the property.

71.  To avoid any doubt, properly construed, under the Policy, the solatium is not intended to be an unconditional and independent payment which the owners are entitled to receive even if they do not accept the offer as a whole because they disagree with the open market value of the properties as offered by the Director.

72.  With this conclusion on the meaning of the Policy, I can now quickly deal with specifically the grounds of judicial review below.

C3.  The ultra vires ground

73.  This ground must fail given the above construction on the meaning of the Policy.  The Decision to refuse to pay the applicant the solatium is not inconsistent with the Policy, as the applicant had already been offered the solatium as part of the offered compensation.  It however refused to accept the offers, and the offers had lapsed after the time stated for acceptance (as respectively set out in the offer letters and provided under section 6 of the LRO) had expired.

C4.  The legitimate expectation ground

74.  This ground should similarly fail.  As submitted by Mr Ismail, the legitimate expectation under the Policy is only that the owners will be offered a compensation package which comprises of a solatium.  The applicant in the present case had been so offered.  It had refused to accept the offer.  There is thus no question of any breach of the legitimate expectation.

C5.  Lack of reasons

75.  Again, there is no substance in this ground.  In light of the meaning of the Policy as now properly construed, the reason for the Decision is an obvious one.  The applicant had refused the offers of compensation which included the ex gratia allowance of a solatium, and the offers had lapsed.  For that reason, it would not be paid the solatium.

76.  The applicant therefore fails on all its grounds of judicial review.

C6.  Application to set aside the ex parte leave

77.  Other than opposing the merits of this application, the Director has also asked the court to set aside the ex parte leave granted to the applicant on the basis of delay.  It is Mr Ismail’s contention that there is serious delay on the part of the applicant to make the leave application.  This is so because it should have regarded the Director’s reply contained his letters respectively dated 13 October 2011 and 28 December 2011 as the decision to refuse its claim for solatium.  In the premises, the applicant should have applied for leave for judicial review promptly or in any event within three months from:

(1) The Director’s letter dated 13 October 2011 (at the earliest); or

(2) The Director’s letter dated 28 December 2011 (at the latest) because two months had lapsed after the Director’s earlier letter and the Director gave no time frame for a substantive reply.

78.  With respect, there is no merit in this complaint of delay.

79.  In the Director’s reply letter dated 28 December 2011, he indeed expressed appreciation of the applicant’s patience in waiting for his reply, and stated that he would give the applicant “a substantive reply” once he was in a position to do so.  Viewed as such, it must be objectively reasonable for the applicant to regard that the Director was still seriously considering its claim for a solatium at this stage.  This is further underlined by the fact that the Director even in his subsequent letter dated 18 August 2014 stated expressly again that the applicant’s request for solatium “is being considered by our headquarters and [he] shall revert to [the applicant] in due course”.  In the premises, it is not open to the Director to now say that the applicant should have treated his earlier reply in late December 2011 effectively as a decision to refuse the claim.

80.  As mentioned above, the applicant made his leave application within three months of the 18 August 2014 reply letter.  In the premises, there is no delay in the leave application.  I would therefore refuse the Director’s application to set aside the ex parte leave.[14]

D.  CONCLUSION

81.  For all the above reasons, the applicant fails in this judicial review.

82.  There is no reason why costs should not follow the event.  However, taking into account the Director’s unsuccessful application to set aside the ex parte leave application, I would make an order nisi that three-quarters of the costs of this application be to the Director to be taxed of not agreed. This costs order shall become absolute 14 days from today unless any of the parties applies by summons to vary it.

83.  Lastly, I would like also to thank counsel for their assistance in this matter.