SECRETARY FOR JUSTICE v. CHUNG KAM HO

[English Translation - 英譯本]
HCA 1643, 1644, 1645 and 2953/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1643, 1644, 1645 AND 2953 OF 2002

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JUDGMENT

Background

1. These are four actions of recovery of Government rent brought by the Secretary for Justice as the plaintiff on behalf of the Commissioner of Rating and Valuation (hereinafter “the Commissioner”), pursuant to section 13 of the Crown Proceedings Ordinance (Cap. 300 of the Laws of Hong Kong) and section 18 of the Hong Kong Reunification Ordinance (Cap. 2601 of the Laws of Hong Kong).  As the four actions involve the same parties, factual background and legal principles, they have been set down for trial before the same judge.  HCA 1643, 1644 and 1645 of 2002 concern the Government rent in respect of, respectively, the G/F, 1/F and 2/F of No. 151 Chung Uk Tsuen, Tuen Mun (i.e. the Remaining Portion of Lot No. 2830 in D.D. 124, Tuen Mun), whereas HCA 2935 of 2002 concerns the Government rent in respect of No. 68 Chung Uk Tsuen, Tuen Mun (i.e. Lot No. 42 in D.D. 124, Tuen Mun).

2. The defendant and his father Chung For Man are indigenous villagers of the New Territories.  Chung For Man was initially the Crown lessee of the lands on which the above four properties are situated.  On 7 August 1989, Chung For Man entered into a deed of assignment (Memorial No. 382677) by which the Remaining Portion of Lot No. 42 in D.D. 124, Tuen Mun was transferred to the defendant by way of assignment.  Likewise, on 13 April 1992, Chung For Man entered into a deed of assignment (Memorial No. 542879) by which the Remaining Portion of Lot No. 2830 in D.D. 124, Tuen Mun was assigned to the defendant.  During the periods relevant to these actions, by means of these two deeds of assignment, the defendant became the Crown lessee of the two lots occupied by the four properties.  The term of the Crown leases concerned should have expired by 30 June 1997 but have been extended to 30 June 2047 by virtue of section 6 of the New Territories Leases (Extension) Ordinance (Cap. 150 of the Laws of Hong Kong).

3. The basis of the plaintiff’s claims runs as follows.  Pursuant to section 3(a) of the Government Rent (Assessment and Collection) Ordinance (Cap. 515 of the Laws of Hong Kong) (hereinafter “GRACO”), the Government leases held by the defendant are covered by GRACO, and the defendant, who has become a lessee of applicable leases within the meaning of section 2 of GRACO, is liable to pay Government rent to the Commissioner from 28 June 1997 onward in accordance with sections 6(1) and 6(3) (a).  The Commissioner is also entitled under section 15 to impose a surcharge for late payment of Government rent.  The Commissioner issued to the defendant Demand Notes for Rates and/or Government Rent (with Surcharge) in respect of the abovementioned four properties, but the defendant has failed to pay the Government rent and surcharge.

4. The defendant does not dispute the basis of the plaintiff’s claims and puts forward the following grounds of defence:

(1)   Relying on articles 40 and 122 of the Basic Law, the defendant contends that, as an indigenous villager of the New Territories, he is entitled to exemption from payment of Government rent;

(2)   Sections 3(a), 6(1), 6(3)(a) and 15(4) and other relevant provisions of GRACO as well as other relevant domestic statutory provisions contravene the Basic Law and are therefore invalid; and

(3)   Pursuant to section 18 of the Limitation Ordinance (Cap. 347 of the Laws of Hong Kong), the limitation period for seeking recovery of the Government rent involved in these four actions has expired.

In addition, the defendant counterclaims against the plaintiff for damages for mental sufferings and other losses directly or indirectly suffered by the defendant as a result of defending these four actions over the past ten-odd years as well as for costs.  However, the defendant has not provided any particulars of such counterclaim.

Defence (1): right of exemption from payment of Government rent

5. The defendant’s main ground of defence is: his father was originally the lessee of the two lots of land involved in these actions and a lawful successor in the male line of an indigenous villager of the New Territories in 1898, and as such was protected by articles 40 and 122 of the Basic Law, by which he could continue to enjoy the life prior to the reunification of Hong Kong with China, including the right of exemption from Government rent; and as his father’s lawful successor in the male line, the defendant has become the lessee of the said lots and as such should also enjoy the right of exemption from Government rent.

6. Ms Wu, counsel for the plaintiff, does not dispute that the defendant and his father are indigenous villagers of the New Territories, and that his father was a lawful successor in the male line of an indigenous villager of the New Territories in 1898 and as such enjoyed the right of exemption from Government rent.  Ms Wu takes issue with the allegation that the defendant has become the lessee of the two lots by way of succession as a lawful successor in the male line.  There is no dispute over the factual background to these actions, and the issue between the parties is the correct interpretation of the term “lawful successor in the male line” in the Basic Law.

7. Ms Wu submits that this case is identical to Lai Hay On v Commissioner of Rating and Valuation and Director of Lands, CACV 130/2007.  In that case, the appellant’s father was an indigenous villager of the New Territories and had assigned one lot of land in the New Territories to the appellant.  The appellant refused to pay Government rent, relying on the same ground as that advanced in the present case.  The Court of Appeal held that succession could only take place upon the death of the relevant ancestor, and that an inter vivos gift took effect as a gift and not by way of lawful succession, and hence the appellant would not by means of a deed of assignment have become his father’s successor of the lot concerned.  On this basis, Ms Wu submits that the defendant has no defence at all.

8. The defendant holds a different view.  He accepts that the rulings of the Court of Appeal in Lai Lay On are correct but stresses that the issue in that case is different from that in the present one. He submits that the issue in Lai Lay On concerned the interpretation of domestic law, the determination of which was within the power of the Court of Appeal; on the other hand, he emphasizes that the issue in the present case concerns the interpretation of the Basic Law, and the power to interpret the Basic Law rests with the Standing Committee of the National People’s Congress (hereinafter “NPCSC”), not the Court of Appeal.  Therefore, he submits that the present case is not bound by Lai Lay On.

9. I do not agree with his submission.  The issue in Lai Lay On was no different from that in the present case, which concerns the interpretation of sections 3 and 6 of GRACO and articles 40, 121 and 122 of the Basic Law.  In Lai Lay On, Tang VP (as he then was) said at paragraph 8 of his judgment that:

“The critical issue in this appeal is whether the appellant held Lot 790A as his father’s ‘lawful successor’ as a result of the inter vivos gift.”

This issue of course concerns the interpretation of domestic law.  However, at paragraphs 63 to 83 of his judgment, Tang VP discussed whether GRACO was inconsistent with articles 40 and 122 of the Basic Law and held that article 122 of the Basic Law neither permitted nor required “lawful succession” to have a more extensive meaning than its interpretation in GRACO.  Tang VP also referred to the Court of Final Appeal decision in Secretary for Justice v Chan Wah (2000) 3 HKCFAR 459 in which Li CJ interpreted the “lawful traditional rights and interests” under article 40 of the Basic Law to “include various property rights and interests such as exemption from Government rent and rates in respect of certain properties held by indigenous villagers”.  Therefore, I accept Ms Wu’s submission that the present case is identical to Lai Hay On. The decision of the Court of Appeal in Lay Hay On on statutory interpretation is binding on me, and I am bound to follow the interpretation given by the Court of Appeal in that case on the relevant provisions in GRACO and the Basic Law.  This decision serves to resolve the disputes between the parties hereto and determine these four actions, and I have nothing to add to the authoritative judgment given by Tang VP in Lai Hay On.  It suffices for me to address in the following judgment some other arguments advanced by the defendant.

10. The defendant says that prima facie he satisfies the requirements under article 122 of the Basic Law and is entitled to exemption from Government rent.  He also submits that Hong Kong courts do not have the power to interpret the Basic Law; that the Commissioner is not entitled to levy Government rent against him unless, having interpreted the relevant provisions, the NPCSC has decided that he is not entitled to exemption from Government rent; and that, as there has been no such interpretation, he should be given the benefit of doubt.  With respect, the views of the law which form the basis of these submissions are clearly misconceived.  If his logic were to be followed, then he and not Hong Kong courts would be the one empowered to interpret the Basic Law.  His submission is plainly unreasonable and sophistry.

11. In respect of the power and procedures of interpretation of the Basic Law, article 158 of the Basic Law provides as follows:

“The power of interpretation of this Law shall be vested in the Standing Committee of the National People’s Congress.

The Standing Committee of the National People’s Congress shall authorize the courts of the Hong Kong Special Administrative Region to interpret on their own, in adjudicating cases, the provisions of this Law which are within the limits of the autonomy of the Region.

The courts of the Hong Kong Special Administrative Region may also interpret other provisions of this Law in adjudicating cases. However, if the courts of the Region, in adjudicating cases, need to interpret the provisions of this Law concerning affairs which are the responsibility of the Central People’s Government, or concerning the relationship between the Central Authorities and the Region, and if such interpretation will affect the judgments on the cases, the courts of the Region shall, before making their final judgments which are not appealable, seek an interpretation of the relevant provisions from the Standing Committee of the National People’s Congress through the Court of Final Appeal of the Region. When the Standing Committee makes an interpretation of the provisions concerned, the courts of the Region, in applying those provisions, shall follow the interpretation of the Standing Committee. However, judgments previously rendered shall not be affected.”

According to paragraph 2 of article 158, Hong Kong courts are authorized by the NPCSC to interpret of their own accord, in adjudicating cases, the provisions of the Basic Law which are within the limits of the autonomy of Hong Kong.  Furthermore, paragraph 3 of article 158 extensively authorizes Hong Kong courts to interpret other provisions, the only restriction being that, where a provision in the Basic Law concerns affairs which are the responsibility of the Central People’s Government or concerns the relationship between the Central Authorities and the Hong Kong Special Administrative Region, the Court of Final Appeal is required, before making their final judgments, to seek an interpretation of that provision from the NPCSC.  In other words, the courts of all levels below the Court of Final Appeal may interpret all provisions in the Basic Law, and any party dissatisfied with an interpretation may appeal to the higher court and all the way up to the Court of Final Appeal.  Nevertheless, before making its final judgments on the interpretation of the two types of provisions specified above, the Court of Final Appeal is required to seek an interpretation of those provisions from the NPCSC.  Therefore, in adjudicating cases, save and except those two types of provisions, the Court of Final Appeal is empowered to make final interpretations on the provisions in the Basic Law.

12. Pursuant to the mechanism set out in the Basic Law regarding interpretation of the Basic Law, the Court of Appeal in Lai Hay On had the power to interpret articles 40 and 122 of the Basic Law. Obviously, the levying of Government rent falls within the limits of the autonomy of Hong Kong, and article 122 is precisely this type of provision which can be interpreted by Hong Kong courts of their own accord.  I am bound to follow Lai Hay On which is currently the most authoritative precedent on the interpretation of sections 3 and 6 of GRACO and article 122 of the Basic Law.  I am also bound to follow Chan Wah in which the Court of Final Appeal has given an interpretation — which is of course the final one — on article 40.

13. The defendant has suggested a different interpretation on the Chinese term “jicheng” (transliteration of “繼承”).  I am bound to follow the determination of the Court of Appeal in Lai Hay On, which has put the interpretation of this term beyond dispute.  However, in order to remove the defendant’s doubt about the matter, I will deal with his submission and explain the legal principles on statutory interpretation.  The defendant submits that the Chinese version of the Basic Law should prevail in the interpretation of the Basic Law, and that each Chinese character carries a distinct and undisputable meaning.  He contends that “jicheng” is different from “chengji” (transliteration of “承繼”):  “jicheng” can take place before the death of the predecessor, while “chengji” can only take place after the death of the predecessor.  He refers to the following definition of the term “successor” in the Oxford Dictionary:

“successor: … 1 [(as, to)] a person who takes an office or position formerly held by someone else … 2 fml a person or thing that comes after another … ”

The Oxford Dictionary is not an authority in defining Chinese terms.  More importantly, it only provides the general meaning of the English term “successor”, but not the meaning of the Chinese term “jicheng” in the context of GRACO and the Basic Law.  I cannot rely on the above definition.

14. The defendant refers to the prospectus of China Construction Bank Corporation Limited and submits that the term “jicheng” is used there without involving succession after death.  He emphasizes that the prospectus is an authoritative judicial instrument.  With respect, I do not agree.  The prospectus may be a legal document, but it is not a judicial instrument and provides no guidance whatsoever on the interpretation of legal terms.  In that particular prospectus, the terms “jicheng” and “chengji” are often used interchangeably. This does not lend support to what the defendant says and, furthermore, highlights the fact that the two terms are used in the prospectus in a general sense only and not as legal terms, bearing only a general meaning and not the meaning in the context of GRACO and the Basic Law.

15. The defendant also quotes various sentences from newspaper reports, such as “Zen Ze Kiun ‘jicheng’ and became a cardinal” and “who is going to ‘chengji’” Nina Wang’s estate, to support his argument that “jicheng” refers to succession in lifetime and “chengji” succession after death.  I fail to discern such a distinction from the reports, which only show the commonly used meaning of these two terms but not their meaning in GRACO and the Basic Law.

16. In fact, in construing documents, contracts or statutes, one has to ascertain the intention of those who entered into or enacted those documents by looking at the words used in the documents, having regard to the factual matrix in which the documents were made.  It is not correct to merely find out the literal meaning of a word used in a document without taking into account the factual matrix in which the document was made and the effect of the combined use of the word in question together with other words in the document: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 897 at 912‑913 and Jumbo King Ltd v Faithful Properties Ltd & Ors [1999] 4 HKC 707.  I agree that the term “jicheng” is applicable to inter vivos assignments of family business, property, status, power and so on, or transfers after one’s death.  However, I have to emphasize that, in order to construe a document correctly, the court has to consider the factual circumstances in which the document was made.

17. In Lai Hay On, Tang VP thoroughly considered the legislative background of GRACO, including: the law usually applicable to New Territories lands prior to the lease of the New Territories to Great Britain in 1898, Joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People’s Republic of China on the Question of Hong Kong (hereinafter “Joint Declaration”), the New Territories Leases (Extension) Ordinance, the New Territories Ordinance, succession under Chinese customary law, and so on.  GRACO, the New Territories Leases (Extension) Ordinance and a series of relevant statutes were enacted for the purpose of implementing the Basic Law so as to discharge the responsibilities of the Chinese and British Governments under the Joint Declaration.  Paragraph 2 of Annex III to the Joint Declaration enables the current indigenous villagers of the New Territories to continue to enjoy certain perpetual rights and interests on land in the New Territories which were applicable prior to the lease to Great Britain in 1898.  It was after considering such historical background that Tang VP interpreted the terms “succession” (jicheng) and “lawful successor in the male line” in GRACO and the Basic Law to mean, respectively, succession after the death of the predecessor and the person who has the right of succession when the predecessor dies: see paragraphs 72 to 74 of the judgment in Lai Hay On (referred to in paragraph 21 below).

18. The defendant’s approach to interpretation is to take some general (not legal) meaning of the term “jicheng” which currently appears in documents made under irrelevant or different circumstances, and then transplant such meaning to the corresponding term in the Basic Law and GRACO, which has been adopted in light of the duancheng (transliteration of 斷承) system of succession of interests on land applicable over 100 years ago during the Qing Dynasty in China, in order to achieve at the interpretation that he argues for.  This term is a legal term in the Basic Law and GRACO and should be interpreted in the way spelt out by Tang VP in Lai Hay On.  The defendant’s interpretation completely violates the legal principles of statutory interpretation and is plainly wrong.

Defence (2): sections 3(a), 6(1), 6(3)(a) and 15(4) of GRACO are invalid for being inconsistent with the Basic Law

19. The defence submits that sections 3(a), 6(1), 6(3)(a) and 15(4) of GRACO are inconsistent with articles 40 and 122 of the Basic Law and hence invalid pursuant to article 11 of the Basic Law.  The effect of GRACO is that the Government leases held by the defendant are covered by GRACO and the Commissioner is vested with the power to demand rates and Government rent on those Government leases.  Therefore, the defendant contends that these sections are inconsistent with article 40 of the Basic Law which protects the lawful traditional rights and interests of indigenous villagers of the New Territories and article 122 which guarantees that their previous rent remains unchanged.  The defendant’s allegations are based on a misinterpretation of the term “lawful successor” in the Basic Law and GRACO.

20. Articles 40, 121 and 122 of the Basic Law provide as follows:

“ 40 The lawful traditional rights and interests of the indigenous inhabitants of the ‘New Territories’ shall be protected by the Hong Kong Special Administrative Region.

121 As regards all leases of land granted or renewed where the original leases contain no right of renewal, during the period from 27 May 1985 to 30 June 1997, which extend beyond 30 June 1997 and expire not later than 30 June 2047, the lessee is not required to pay an additional premium as from 1 July 1997, but an annual rent equivalent to 3 per cent of the rateable value of the property at that date, adjusted in step with any changes in the rateable value thereafter, shall be charged.

122   In the case of old schedule lots, village lots, small houses and similar rural holdings, where the property was on 30 June 1984 held by, or, in the case of small houses granted after that date, where the property is granted to, a lessee descended through the male line from a person who was in 1898 a resident of an established village in Hong Kong, the previous rent shall remain unchanged so long as the property is held by that lessee or by one of his lawful successors in the male line.”

21. In Lai Hay On, Tang VP held that section 4 of GRACO was not inconsistent with articles 40 and 122 of the Basic Law.  He said at paragraphs 63 to 83 in the judgment:

“63. I turn now to consider the principal submissions of the appellant, the HYK, and Mr Lam, namely, whether section 4 of GRACO is inconsistent with Articles 40 or 122. I deal first with Article 122.

Article 122

64. In Secretary for Justice v. Chan Wah (2000) 3 HKCFAR 459, Li CJ said the GRACO:

‘… implements art.122 of the Basic Law which has its origin in Annex III to the Joint Declaration’ at 465D

65. When dealing with different provisions in GRACO, Sir Anthony Mason NPJ said in Commissioner of Rating & Valuation v. Agrila (2001) 4 HKCFAR 83 at 112G that GRACO and the regulations made under it:

‘… were intended to and do give effect to the relevant provisions of the Basic Law which is itself to be interpreted in the light of the Joint Declaration’.

66. Mr Godfrey Lam submitted that as a matter of principle section 4 of GRACO ought to be interpreted in the light of Article 122 which in turn is to be interpreted in the light of paragraph 2 of Annex III to the Joint Declaration. However, it is also submitted that exemption from the annual rent is part of the ‘lawful traditional rights and interests of the indigenous inhabitants’ provided by Article 40 such that ‘lawful successor’ in Article 122 should be construed so as to include a person who has ‘succeeded’ to the relevant land by an inter vivos gift.

67. It is not disputed that the term ‘lawful successor’ in the male line in the Joint Declaration and the Basic Law includes a successor to the land concerned of the 1984 indigenous villager on his death. As noted, the question is whether it also includes a person who obtains the land in question by way of an inter vivos gift, especially if the inter vivos gift is the result of Fenjia (分家).

68. As stated by the CFA in Director of Immigration v. Chong Fung Yuen (2001) 4 HKCFAR 211 at 223H-224G, the correct approach to the interpretation of the Basic Law is to construe the language used in the text of the particular article of the Basic Law in the light of its context and purpose having regard to internal aids to interpretation such as other provisions in the Basic Law as well as extrinsic materials including the state of domestic legislation at the time of the adoption of the Basic Law (4 April 1990) and the time of the Joint Declaration (19 December 1984).

69. Both the Joint Declaration and Art. 122 provided for exemption from the annual rent ‘so long as’ the property is held by an indigenous lessee on 30 June 1984 or by one of his lawful successors in the male line. Counsel submitted and I agree that the phrase ‘so long as’ in Art. 122 is important because it implies continuity of holding by that person or his lawful successor. Both section 9(2) of the Extension Ordinance and section 4(1)(a) of GRACO give effect to the requirement of continuity. I note also that a condition for exemption is that the land ‘was on 30 June 1984’ held by an indigenous inhabitant. The exemption was only extended to land in the New Territories held by an indigenous person ‘on 30 June 1984’ and continued to be held by his lawful successor(s) in the male line thereafter. The exemption does not come with the status of being an indigenous inhabitant.

70. We are concerned with land in the New Territories to which Part II of NTO applies (I have referred to such land as land in the New Territories), in particular, land held under the government lease. The state of domestic legislation as at both 1984 and 1990 include section 8 NTO which declares that:

‘All land in the New Territories is hereby declared to be and to have been from 23 July 1900, the property of the Government, and all persons in occupation of any such land shall be deemed to be trespassers as against the Government, unless such occupation is authorized by grant from the Government …’

71. The effect of section 8 NTO is that whatever title or interest a person might have had prior to 23 July 1900, indeed whether he had any interest at all prior to 23 July 1900, is irrelevant.

72. Mr Lam reminded us that Lord Diplock in Winfat Enterprises (HK) Co Ltd v Attorney-General of Hong Kong [1985] 1 AC 733 at 744H said that prior to the lease of the New Territories to Great Britain in 1898, land in that region was generally held on common tenure and that it was a ‘perpetual interest, heritable and assignable and subject to no restriction upon building on the land’. But it is important to note that Winfat Enterprises decided (as summarised in the headnotes) that the government lease:

‘… substituted such leasehold tenure for that enjoyed by the inhabitants prior to 1898.’

73. It is also important to remember that but for the Joint Declaration and the Basic Law, no extension of such leases beyond 30 June 1997 could have been granted. In other words, for all intents and purposes the Joint Declaration and the Basic Law (Art. 121) enabled the government (during the period from 27 May 1985 to 30 June 1997) to extend such leases beyond 30 June 1997 and to 30 June 2047, at the annual rent. Such extension was made possible by the Joint Declaration and Art. 121.

74. I believe ‘lawful successors’ in Article 122 refers to a person who has become such by lawful succession. Article 122 does not permit or require lawful succession to have a more extensive meaning than as recognised by the law in Hong Kong. That is consistent with Article 8 which provides that:

‘The laws previously in force in Hong Kong, that is, the common law, rules of equity, ordinances, subordinate legislation and customary law shall be maintained, except for any that contravene this Law, and subject to any amendment by the legislature of the Hong Kong Special Administrative Region.’

75. At all relevant times, 19 December 1984 (Joint Declaration), 4 April 1990 (the adoption of the Basic Law), as explained above there were only three ways by which succession could take place. By 1 July 1997, only two were left, section 17 NTO having been repealed by the Exemption Ordinance on 24 June 1994.

76. It follows that in my opinion, section 4 of GRACO is not inconsistent with Article 122.

77. I turn to consider Article 40.

Article 40 – Traditional Rights and interests

78. Rent was payable under the government lease. It is not suggested that the rent was nominal when fixed. But as Mr Lam has pointed out, notwithstanding that the government lease contained a provision for a review of the rent after the first 10 years of the term, and that the rent for the new term of 24 years less 3 days was to be at a new rent to be fixed, the rent had never been revised. In time the rent has become nominal. Thus, no doubt for historical reasons, land in the New Territories have been treated more favourably.

79. The rationale was explained when the New Territories (Extension) Bill was moved in 1969:

‘Early in 1967 the matter was considered by the Executive Council and it was decided, with the approval of the Secretary of State, that although the Crown had the right to revise the Crown rent for these lots in 1973, which would in practice mean the right to increase the rent greatly, it should not exercise this right. Account was taken of the fact that the great majority of the lots affected had been in private ownership when the New Territories were first leased and that these lots are still largely in the same ownership, that is, mainly ownership by succession. Moreover, on a previous occasion, when the terms of the Block Crown leases permitted a review of the Crown rent, the Government, in response to representations by New Territories elders, did not take advantage of the opportunity to do so.’ (LegCo proceedings, 9 April 1969, p.232)

80. In contrast, when Crown leases in other parts of Hong Kong were deemed renewed under section 3 of the Government Leases Ordinance (Cap.40) enacted on 14 December 1973, a new Government rent was imposed which was fixed at 3% of the rateable value of the lot as at 1 July 1973 or the date of expiry of the lease whichever was the later.

81. Also, in ‘Unequal Treaty 1898-1997’, Peter Wesley-Smith, Revised Edition, refers to:

‘… a proclamation issued on 11 July 1906 promising not to raise rents during the term of the lease’. p. 136.

82. In Secretary for Justice v. Chan Wah (2000) 3 HKCFAR 459, Li CJ stated that there was no dispute that the lawful traditional rights and interests within Article 40 ‘include various property rights and interests such as exemption from Government rent and rates in respect of certain properties held by indigenous villagers’ (447E-F). In addition, he said (at 4771-J):

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

Both the applicant and the HYK placed heavy reliance on this dictum.

83.    The right to exemption from the annual rent is governed by Article 122 which is the specific provision dealing with exemption to pay the annual rent in respect of a lease renewed by virtue of Article 121.  For the reasons I have given above I believe ‘lawful successors’ in Article 122 refer to a succession on the death of the relevant ancestor and do not include an inter vivos transfer.  There is nothing in Article 40 which requires a different interpretation.  For the above reasons, I would dismiss the appeal.”

The above judgment concerns the question of whether section 4 of GRACO is inconsistent with the Basic Law.  However, similar to that question, the issue of whether sections 3(a), 6(1), 6(3)(a) and 15(4) are inconsistent with the Basic Law involves the interpretation of “succession” and “lawful successor”. The above judgment should therefore equally apply to the issues raised by the defendant in these actions.  I agree with — and indeed am also bound to follow — the legal principles and interpretations laid down in Lai Lay On.  Accordingly, I find that sections 3(a), 4, 6(1), 6(3)(a) and 15(4) of GRACO are not inconsistent with the Basic Law.

Defence (3): These actions are out of time

22. The defendant submits that the plaintiff, who is claiming Government rent from 1997 onwards, has not proceeded with the claims any further since 2002 when the case was brought up for mention.  It is submitted that the period of the plaintiff’s want of action, which has by now exceeded 10 years, far exceeds the 6-year limitation period stipulated in section 18 of the Limitation Ordinance, and the plaintiff’s claims are therefore time-barred.

23. This ground of defence stems from a misunderstanding of the Limitation Ordinance.  First, the time limit provided in the Limitation Ordinance starts to run from the date on which the cause of action accrued.  As long as a plaintiff brings an action after that date and before the expiry of the limitation period stipulated in the Ordinance, the action is brought within time.  Moreover, what the plaintiff here is seeking to recover are Government rent and surcharge on late payment under GRACO, which are sums recoverable by virtue of an ordinance as opposed to rent in general.  Therefore, in these actions, the applicable provision should be section 4(1)(d), not section 18, of the Limitation Ordinance, although these two provisions stipulate the same limitation period of 6 years.  The two provisions read as follows:

“4(1) The following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say –

… (emphasis added)

(d) actions to recover any sum recoverable by virtue of any Ordinance or imperial enactment, other than a penalty or forfeiture or sum by way of penalty or forfeiture: …” (emphasis added)

“18 No action shall be brought, or distress made, to recover arrears of rent, or damages in respect thereof, after the expiration of 6 years from the date on which the arrears became due.” (emphasis added)

The 6-year limitation period under section 4(1)(d) starts to run from the date on which the cause of action accrued.  As the Government rent claimed by the plaintiff is a sum recoverable by virtue of GRACO, the date on which the cause of action accrued should be determined in accordance with the provisions under GRACO.

24. Sections 6(5) and 15 of GRACO provide:

“6(5) The Government may demand the Government rent from –

(a) the lessee of an applicable lease; or

(b) the person who is liable to pay the rates for a tenement comprised in land held under the applicable lease.

The person on whom a demand is made is required to pay the sum demanded within the time specified in the demand. The demand may include any arrears and surcharge.” (emphasis added)

“15(1) Government rent not paid on or before the due date is in default and the Commissioner may order that not more than 5% of the amount in default be added to the Government rent and be recovered with the Government rent.

(2) The Commissioner may order that not more than 10% of the Government rent in default and any amount added under subsection (1) be added to the amount unpaid if the Government rent or the surcharge remains unpaid for a period of 6 months from the date when the Government rent was first in default.

(3) The Commissioner may seek and recover any arrears of Government rent and any surcharge as a debt due to the Government. The seeking or recovery of Government rent or the imposition, seeking or recovery of a surcharge does not prejudice any rights that the Government may have and does not operate as a waiver of the Government’s right to enforce the lease, including taking re-entry action or forfeiture.” (emphasis added)

Section 6(5) of GRACO authorizes the Commissioner to demand Government rent from relevant persons, and section 15 further authorizes him to impose a surcharge for late payment.  The Commissioner may, pursuant to section 15(3), seek and recover any arrears of Government rent and any surcharge as a debt due to the Government.  In case of failure to make payment by the specified date, the Commissioner then has the cause to bring an action against the relevant person, and this is the so-called “cause of action”.  The due date for payment specified in the demand note for Government rent and late payment surcharge is the date on which the cause of action accrued, and the limitation period under the Limitation Ordinance starts to run from that moment.  In China v Harrow Urban District Council [1954] 1 QB 178 (187‑188), the Queen’s Bench made the following ruling in respect of the calculation of the time limit in the corresponding English legislation on limitation periods.  Arrears of rates formed a debt.  Where the law required the debtor to pay only after receiving a demand note, the cause of action would only accrue after the due date set out in the demand note issued, and it was at that moment that time started to run.

25. Ms Wu submits that, according to the China case, even if a payer remained in default after the due date, provided that the Commissioner issued a fresh demand note for the Government rent in arrears and surcharge, time would run afresh from the date of the fresh demand note.  In other words, the Commissioner could simply ignore the Limitation Ordinance and issue demand notes as he wished so as to recover debts in respect of which the limitation period for bringing claims had expired.

26. I am astonished by Ms Wu’s submission.  In China v Harrow Urban District Council, the appellant was in default of payment of rates for the year of 1940.  He was engaged on war service and subsequently his whereabouts was unknown.  In 1953, the respondent managed to locate his residence and issued a demand note to him, but he still refused to pay.  The respondent applied to the Magistrates’ Court for a distress warrant.  The Magistrate granted the warrant, holding that recovery of arrears of rates was not an action, to which the Limitation Act was therefore not applicable.  The appellant’s appeal was allowed.  The issue between the parties focused on whether recovery of rates owed to the Government was an “action” within the meaning of the English provision corresponding to section 4(1)(d) of our Limitation Ordinance.  The three judges in the Queen’s Bench unanimously found that recovery of rates owed to the government was not an “action” in the sense commonly understood, but was legal proceedings; however, as the interpretation provision, which corresponded to section 2 of our Limitation Ordinance, defined “action” to include any proceeding in a court of law, the term also encompassed legal proceedings for the recovery of government rates.  The three judges went on to hold that the cause of action would accrue only after the due date under the demand note and allowed the appeal.  This ruling must have been made on the basis that the proceedings for recovery were already beyond the limitation period.  Lord Goddard CJ specifically pointed out that, viewing the other facts as a whole, the demand note would not have been issued later than July 1940.  The other two judges also pointed out that time should start to run from the due date under the demand note, and therefore the appeal was allowed.  These suggest that the three judges made their rulings on the basis of the due date under the demand note issued before July 1940 and not the one under the demand note issued prior to the institution of legal proceedings in 1953.  With respect, Ms Wu’s submission rests upon a misunderstanding of the China case.  In my view, under the Limitation Ordinance, time starts to run from the due date stated in the first issued demand note, and if, by reference to the date on which the cause of action accrued pursuant to the first demand note, the limitation period has already expired, then the Commissioner loses the cause of action in respect of the debt forever.  I also suggest that, in dealing with similar claims in future, the Commissioner should ascertain the limitation period in accordance with the above approach.

27. By the demand note issued in the year of 2002/2003, the plaintiff demanded the defendant to pay the Government rent and surcharge on late payment from 28 June 1997 onwards in respect of the properties concerned.  The statements of claim in these actions were delivered to the defendant and filed with the court on 29 June 2002 and 20 September 2002 respectively.  I do not accept Ms Wu’s submission on the calculation of the limitation period.  Nevertheless, assuming the due date under the first demand note was 29 June 1997 (this being the assumption most favourable to the defendant), the time limit for bringing the action would expire on 28 June 2003.  Therefore, these four actions have all been brought within the limitation period.

The amounts of Government rent and surcharge that the plaintiff claims

28. The defendant argues that the amounts of the Government rent and surcharge that the plaintiff claims are incorrect and at variance with the quarterly Government rent demand notes.  The plaintiff’s witness explained that the amount payable on a demand note for Government rent was rounded up to the nearest dollar and any fraction of a dollar would be carried forward to the next quarter.  Ms Wu suggests the trial be adjourned to enable the plaintiff to provide a breakdown of the calculation.  I do not consider it appropriate to waste time and money on disputes over these small amounts.  Section 15(4) of GRACO provides that in proceedings to recover Government rent or any surcharge, the court is not to have regard to a plea that the Government rent is not payable, is excessive, incorrect, subject to a proposal or an objection or is under appeal.  In my view, the amounts of the plaintiff’s claims should be subject to the amounts pleaded in his amended statements of claim and the evidence adduced, namely the amounts stated in the relevant demand notes for Government rent, whichever are the lower.  The plaintiff has only produced to the court the demand note for Government rent for the last quarter of each year instead of the demand notes for all quarters, and therefore it is not possible to match the amount stated in the demand note for the last quarter of each year with that for the last quarter of the preceding or following year.  As the amounts stated in those demand notes for Government rent are lower than those stated in the amended statements of claim, I take the demand note for Government rent of the last year, i.e. the year ended at 31 December 2011, as the basis of determining the amounts payable by the defendant.

Other arguments put forward by the defendant

29. I now deal with some other arguments advanced by the defendant which, nevertheless, do not constitute valid grounds of defence.

30. The defendant argues that he knew nothing about the law, that the assignments of the land lots in question were dealt with according to the instructions of the staff at the Lands Department and were not handled by any lawyer engaged by him, that he did not know the consequences of assignment and succession, and that he should not, by reason of the assignments, be deprived of the right of exemption from Government rent which was vested in him by the Basic Law.  However, in response to my questions, he admitted that he had approached the Lands Department on his own initiative to request to have the title of the land lots in question assigned to him.  That being the case, he should bear the consequences thereof and cannot shift that responsibility onto the staff at the Lands Department.

31. The defendant’s claim of ignorance of the law cannot exempt him from the legal consequences of his acts.  Furthermore, the rights and interests of indigenous villagers of the New Territories formed one of the main topics during the negotiation between the British and Chinese Governments on the question of Hong Kong, and paragraph 2 of Annex III to the Joint Declaration and the protection of the rights and interests in land held by indigenous villagers of the New Territories were extensively covered by the mass media.  As an indigenous villager of the New Territories who was concerned about succession of ancestral property, the defendant would not possibly have been unaware of the difference between an inter vivos assignment and succession on death, or have failed to seek legal advice before arranging the assignments of those two lots of land from his father.

32. The defendant says that, being his father’s son, he was a lawful successor of his father’s estate, and hence there should be no difference in legal consequences between an assignment during his father’s lifetime and succession after his death.  I do not agree.  By means of inter vivos assignments, the defendant could immediately enjoy the rights and interests in the two lots, such as the right to occupation, proceeds of rent and proceeds of sale.  More importantly, he could enjoy such rights immediately and ensure that his father could not change his mind during his lifetime by selling or gifting the lots to his brothers and sisters, close relatives or others, or passing the lots to other successor(s) by means of a will.  The loss of his right to be exempted from Government rent as a result of the assignments is not necessarily disadvantageous to him.  It was the plaintiff’s (sic) voluntary decision and arrangement that caused his father to assign the land lots in his lifetime.  It is not necessary for me to speculate what his motive was.  Suffice it to say that he has to bear the consequences of what he did.

33. The defendant also alleges that the plaintiff has unreasonably delayed in proceeding with his claims in the Small Claims Tribunal, which were only for a few thousand dollars, and has inflated the claims to one for almost $100,000 and had them transferred to the High Court for trial, all of which are unfair to the defendant.  The defendant’s allegation is in my view exaggerated.  In view of the issues of law arising from the claims, it was eminently proper for the plaintiff to have the claims transferred to a higher court for trial.  In addition, the defendant has been refusing to make full payment of the accumulated arrears of Government rent, surcharge on late payment and Government rent for the new quarter, drawing on the excuse that he is a “lawful successor”.  The size of the claims has increased mainly because he has never paid Government rent and surcharge over the past ten-odd years.  It may be said that he has no one to blame but himself.

Conclusion

34. In my judgment, the plaintiff’s claims are well-founded.  The statutory provisions being relied on are not inconsistent with the Basic Law, and the claims are not time-barred pursuant to the Limitation Ordinance.  On the contrary, there is no merit whatsoever in the defendant’s grounds of defence.  Therefore, I give judgment for the plaintiff on his claims, and the defendant is liable to pay Government rent and surcharge as claimed.  In respect of HCA 1643, 1644, 1645 and 2953 of 2002, the defendant is liable to pay Government rent and surcharge in the sums of $21,003, $17,410, $19,099 and $30,658 respectively, making a total of $88,170, together with interest thereon at the judgment rate from the respective dates of filing of the statements of claim.

35. As I have found in favour of the plaintiff, the defendant can only blame himself and not the plaintiff for the mental distress and other losses suffered by the defendant over these ten-odd years.  In any event, he has not discharged the burden of proving those alleged losses and mental sufferings by adducing direct or indirect evidence thereon.  I rule against the defendant on his counterclaim, which is dismissed accordingly.

36. I also order the defendant to pay the plaintiff’s costs in these actions on a party and party basis, such costs to be taxed if not agreed.

Translated by the Judgment Translation Unit of the Judiciary and vetted by Mr. Edmund Cham, Solicitor.