KAISILK DEVELOPMENT LTD. v. SECRETARY FOR PLANNING, ENVIRONMENT AND LANDS

HCAL148/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW

LIST NO.148 OF 1999

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J U D G M E N T

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THE APPLICATION

1. The applicant is the owner of the following properties, namely, Nos.10-16 Wan Chai Road ("the Site") and 3rd Floor and Roof, No.18 Wan Chai Road and No.48 Stone Nullah Lane ("the Units"), collectively referred to as "the Properties". The Properties are near the old Wan Chai Market and are earmarked for urban renewal by the Land Development Corporation ("the Corporation"). The applicant applies for a certiorari to quash the decision of the Secretary for Planning, Environment and Lands ("the Secretary") made on 6 October 1999 under section 15 of the Land Development Corporation Ordinance ("the LDC Ordinance") recommending to the Chief Executive-in-Council resumption of the Properties under the Lands Resumption Ordinance. In the event of the certiorari being granted, it also asks for an order remitting the matter to the Secretary to reconsider the decision and reach a decision in accordance with the findings of the court.

2. The Corporation appeared at the hearing as an interested party.

STATUTORY FRAMEWORK

3. Urban renewal schemes involve the operation of three ordinances : the LDC Ordinance, the Town Planning Ordinance and the Lands Resumption Ordinance. The operation of these Ordinances had been considered in cases such as Silver Mountain Investments Ltd v. AG [1994] 2 HKLR 297, Tsang Kam Lan v. Yook Tong Estates Ltd (MP325 of 1997) and more recently in Wong Tak Woon v. Secretary for Planning, Environment and Lands, CACV339 of 1999, decision of 11 January 2000.

The LDC Ordinance

4. Briefly this is how the Ordinances work. I will start with the LDC Ordinance :

(1) The purposes of the Corporation are, among other things, to improve the standard of housing and environment in Hong Kong by undertaking, encouraging, promoting and facilitating urban renewal (section 4).

(2) The Corporation is required to conduct its business according to "prudent commercial principles" (section 10).

(3) The Corporation may, with the approval of the Secretary, prepare development schemes for any area in which the corporation may acquire property (section 13(1)).

(4) A scheme plan prepared under section 13 may be submitted to the Town Planning Board for approval (section 14).

The Town Planning Ordinance

5. A plan approved by the Board may be deemed to be a draft plan prepared by the Board for the purpose of the Town Planning Ordinance. Section 5 of the Town Planning Ordinance provides that the draft plans have to be exhibited, advertised and gazetted. Persons affected may raise objections and the Board has to consider the objections (section 6). After consideration of the objections, the Board must submit the draft plan to the Chief Executive-in-Council for approval with a schedule of objections which have not been withdrawn (section 8). The Chief Executive-in-Council may approve or refuse the draft plan. If approved, the plan must be exhibited for public inspection and gazetted (section 9(1) and (5)). Approved plans are to be used by all public offices and bodies as standards for guidance in the exercise of any powers vested in them.

Recommendation for resumption

(1) Section 15(1) of the LDC Ordinance enables the Corporation to request the Secretary to recommend to the Chief Executive-in-Council the resumption of land under the Land Resumption Ordinance when, among other things, the Corporation has been unable to acquire any land within the area of a draft plan.

(2) The Secretary shall not make a recommendation unless two conditions are satisfied :

(i) The application is made to him not less than 12 months or such further period, as the Secretary may allow, after the approval by the Chief Executive-in-Council of the draft plan.

(ii) He is satisfied that the Corporation has taken all reasonable steps to otherwise acquire the land including negotiation for the purchase thereof on terms that are fair and reasonable. (emphasis added) (section 15(3))

(3) A resumption in pursuance of the recommendation by the Secretary shall be deemed to be a resumption for the purpose of a public purpose within the meaning of the Lands Resumption Ordinance.

(4) Matters relating to compensation to the owner of the resumed property will be dealt with in the Lands Tribunal.

FACTS

6. In 1994, the Secretary gave approval under section 13(1) of the LDC Ordinance for the preparation of a scheme plan for the Wan Chai Road/Tai Yuen Street area. The Properties fall within the scheme. On 12 May 1995, the Board approved the scheme plan. The applicant had made objections to the scheme plan and its objections were considered but not upheld by the Board. The Properties are located in an area which is required to be redeveloped. Over half of the existing buildings within the area were completed before 1966, some were in poor or very poor conditions. Hawkers in the area obstructed traffic and create hygiene problems. The narrow lanes and unsatisfactory street patterns are incapable of accommodating traffic and are causing congestion.

7. On 24 September 1996, the Governor-in-Council approved the scheme plan. On 16 January 1998, the Board approved a master layout plan No.H9/MLP/1. The plan described the development proposals.

8. On 22 September 1997, the Corporation submitted to the Secretary a request for resumption of the Properties. On 24 October 1999, the Secretary decided to recommend resumption and notified the applicant of his decision. The applicant was invited to make representations to the Chief Executive-in-Council within 14 days.

9. On 30 November 1999, the Chief Executive-in-Council approved the resumption. On 6 December 1999, the Resumption Orders were gazetted.

GROUNDS OF CHALLENGE

10. The challenge to the decision of the Secretary is now based on three grounds :

(1) The Secretary breached section 15(5) of the LDC Ordinance in that he consulted a public officer, i.e. the Director of Lands, to assist him in forming an opinion on which to base his decision in respect of the negotiation.

(2) The Secretary appointed Messrs Albert So Surveyors Ltd ("the Government Consultant") to assist him in forming an opinion on which to base his decision under section 15(3) of the LDC Ordinance. This report was not disclosed to the applicant.

(3) The Secretary failed to take into account a relevant consideration, namely, a valuation report prepared by Ian Cullen & Associates ("Cullen"), the surveyor instructed by the applicant.

CONSULTING A PUBLIC SERVANT

Section 15(5)

11. Section 15(5) of the LDC Ordinance provides that :

" For the purpose of this section, in considering whether or not the Corporation has negotiated for the purchase of the land on terms that are fair and reasonable, the Secretary may consult any person not being a public officer whom he considers may be able to assist him in forming an opinion on which to base his decision in respect of that negotiation."

Basis of complaint

12. It is argued that the Secretary may only consult anyone under section 15(5) who is not a public officer. In this case, the consultation took the form of the Secretary seeking advice from the Land Development Corporation Section ("LDCS") of the Lands Department, and acting on a report submitted by LDCS on 17 August 1999, which was designed to help him make a decision under section 15(3) of the LDC Ordinance. LDCS is under the control and direction of the Director of Lands who is a member of the Corporation appointed under section 3(2)(d) of the LDC Ordinance.

Government financing the Corporation

13. Mr Dykes SC, counsel for the applicant, referred to the LDC Ordinance which shows that the operation of the Corporation is financed by the government. Section 6 provides that the resources of the Corporation shall consist of, among other things, money paid by the government. The Financial Secretary, on behalf of the government, may grant guarantees in respect of payment of loans made to the Corporation (section 8(1)). Any sum required for fulfilling the guarantee provided by the government shall be charged out of the general revenue, and any sum received by the government by way of repayment of a sum so paid shall be paid into such general revenue (section 8(3)). Where there is excess of revenue of the Corporation over the total sum required by it, the Financial Secretary may give the Corporation directions requiring it to pay the whole or part of the excess to the government (section 10). Section 12 provides that the Corporation shall be indebted to the government for the money provided by the government and all expenditure incurred by the government for its benefit.

Rationale of section 15(5)

14. Mr Dykes submitted that since the Corporation is financed by the government, a public officer is put into an invidious position if he is asked to comment on whether the terms offered by the Corporation to acquire the property is a fair and reasonable one. There is a perceived incentive for a public officer to opt for a lower valuation. The prohibition on consulting public officers in section 15(5) is meant to avoid the obvious conflict of interest that would arise if the Director of Lands is put in a situation such as this.

Reliance by the Secretary on government officials

15. Mr Yu SC, counsel for the Corporation, referred to the Carltona principle in which, under the ministerial system of government in England, a minister (who came into office by virtue of his party's win in an election) and the government department of which he is the head is treated as one and the same. Lord Diplock in Bushell & Ors v. Secretary of State for the Environment [1981] AC 75 at page 95 stated : "Discretion in making administrative decisions is conferred upon a minister not as an individual, but as the holder of an office in which he will have available to him in arriving at his decision the collective knowledge, experience and expertise of all those who serve the Crown in the department of which, for the time being, he is the political head".

LDCS's role

16. Hong Kong does not have the ministerial system of government. However, in my view the Secretary is clearly entitled to rely on the collective knowledge, experience and expertise of the government officials serving directly or indirectly under his Bureau. The only restriction is on matters such as valuation which are relevant in deciding whether a fair and reasonable offer had been made by the Corporation.

17. The Lands Department is one of the departments under the Planning and Lands Bureau ("the Bureau") (formerly known as the Planning, Environment and Lands Bureau) headed by the Secretary. The Bureau is responsible for policy formulation. The departments under it, including the Lands Department, are responsible for policy implementation. The LDCS was set up specifically to give support to the Secretary in processing resumption applications by the Corporation. One of the duties of the Chief Estate Surveyor (Land Development Corporation) of the LDCS is to advise the Secretary on resumption applications of the Corporation. The post was approved by the Legislative Council in July 1995.

18. As pointed out by Mr Ho Siu Shun, the Assistant Secretary in the Urban Renewal Unit of the Bureau, in relation to section 15 applications by the Corporation, the LDCS receives instructions from and reports to the Secretary directly. The Director of Lands did not play any part in the Secretary's decision to recommend, or in the advice or report prepared by the LDCS to the Secretary.

Prohibition versus enabling

19. The Secretary and the Corporation argued section 15(5) is not a prohibition section at all. It is an enabling section which enables the Secretary to consult a person, such as a valuer, who is not a public officer, in order to assist him to form an opinion on whether the Corporation had negotiated for the purchase of land on terms that are fair and reasonable.

20. Mr Dykes argued that that section is not an enabling section because the conferring by an enactment on a public authority of a power to make a decision by implication imports the public law decision-making rules : Statutory Interpretation by Bennion, 3rd ed., section 329. One of the rules is found in section 40(1) of Interpretation and General Clauses Ordinance which provides that :

" Where any Ordinance confers upon any person power to do or enforce the doing of any act or thing, all such powers shall be deemed to be also conferred as are reasonably necessary to enable the person to do or enforce the doing of the act or thing."

This is also the common law position as shown in A.G. v. The Directors of the Great Eastern Railway Co. (1880) 5 H.L.(E.) 473 in which Lord Selborne LC (at 478) held that :

".... (the doctrine of ultra vires) ought to be reasonably, and not unreasonably, understood and applied, and that whatever may fairly be regarded as incidental to, or consequential upon, those things which the Legislature has authorized, ought not (unless expressly prohibited) to be held, by judicial construction, to be ultra vires. ...."

This being the case, Mr Dykes argued that there is no point in making it clear in section 15(3) that the Secretary has the power to consult the opinion of an independent valuer in order to help him to make the decision. The concept of incidental power is well known to drafting counsel.

My view

21. Whatever may be the position of drafting counsel, the fact that section 15(3) is drafted in this manner does not mean this is not an enabling section, but must necessarily be a prohibition. One really has to look at the wording of the section itself. In my view section 15(5) is both an enabling and a prohibition section. The prohibition, however, only restricts the Secretary from consulting a public officer on matters such as valuation which are relevant to determine whether a fair and reasonable offer had been made. If the interpretation of the applicant is correct, then the Secretary cannot even rely on the public officers under him when it comes to applications for resumption by the Corporation. This cannot be right. In any event, his reliance on the assistance of the LDCS is not by way of consultation at all. The work of LDCS is a necessary part of the process in order to enable the Secretary to reach a decision on the matter. It is unrealistic to expect the Secretary to read all the primary documents. Summary of the objections together with the response by the Corporation and the opinion of the Government Consultant was prepared by LDCS. I can see no objection to this. It was the Government Consultant who is not a public officer that dealt with matters of valuation in this case.

No conflict of interest

22. Further, it is difficult to accept that a conflict of interest situation will necessarily arise because public officials sit on the managing board of the Corporation. Three public officers, namely, the Director of Planning, Director of Home Affairs and Director of Lands are members of the Corporation by reason of their ex-officio capacity. These officials are present in the Corporation clearly because their work and expertise are relevant to urban renewal schemes undertaken by the Corporation. As Waung J in R. v. Town Planning Board, ex parte, Kwan Kong Co. Ltd [1995] 5 HKPLR 261 pointed out "In making a town planning board better by giving it members from different disciplines including those from the government departments, the board does not become less independent or impartial". See also Real Estate Developers Association v. Town Planning Board [1996] 6 HKPLR 179. The same reasoning applies here.

HISTORY OF NEGOTIATION BETWEEN THE PARTIES

23. Before I deal with the other two grounds relied by the applicant, I will go into the history of negotiation between the applicant and the Corporation so as to set out the context in which these two grounds are made.

Three offers by the Corporation

24. The Corporation had made three offers to the applicant to purchase the Properties. The first offer was made on 11 November 1996 when the Corporation offered to purchase the Site and the Unit at $102,960,000 and $3,607,000 respectively. The offer was based on the higher of the two independent valuations obtained by the Corporation. On 11 August 1997, the second offer was made at $123,838,000 and $4,294,000 respectively. The third offer was made on 4 May 1998 for $132,816,000. This offer covered the Properties and other properties of the applicant. The price for the Site was $107,150,000 and the Unit $2,142,000.

25. The third offer of 4 May 1998 stated that the offer was open for acceptance for a period of 14 days until 19 May 1998 and it was the last and final offer by the Corporation. At that stage, the Corporation had already submitted the request to the Secretary for recommendation of the resumption.

The counter offers of the applicant

26. On 18 May 1998 within the deadline of 14 days, the applicant's solicitors wrote to the Corporation and counteroffered $138.3 million for the Site and $4.194 million for the Unit. This was rejected by the Corporation on 22 May 1998. On 29 May 1998, the applicant made a counter offer of $137.5 million for the Site. The applicant also agreed to adopt the approach of the Corporation's consultant in having the Site valued on the basis of residential development and not based on potential for commercial redevelopment. On 4 August 1998, the Corporation rejected the counteroffer.

27. On 21 August 1998, the applicant made a further counteroffer of $132,900,000. On 28 August 1998, the Corporation rejected the counteroffer for the Unit and indicated that it would only be prepared to continue discussion with the applicant on the basis of current market values. On 9 September 1998, the Corporation rejected the applicant's revised valuation of the Site and also stated that it would only continue negotiation on the Site on the basis of current market values.

28. On 21 September 1998, the applicant offered to sell the Site and the Unit on terms set out in the third offer of the Corporation. On 28 September 1998, the Corporation wrote to the applicant stating that it was not prepared to continue negotiation on the basis of the third offer but only on the basis of current market values.

Fall in the market value of the Properties

29. When the Corporation made the first offer on 11 November 1996 to purchase the Properties, the property market in Hong Kong was rising. It continued to rise until the second offer was made on 11 August 1997. When the third offer was made on 4 May 1998, the property market had already fallen. The third offer was substantially higher than the market value of the Properties at that time. It was based on the June 1997 valuation. The applicant does not dispute that the third offer, based on the historic June 1997 figure, was substantially higher than the then market value. The Government Consultant's valuation of the market value as of 4 May 1998 of the Site was $67,010,000 (the Corporation's third offer was $107,150,000) and the Units was $1,610,000 (the Corporation's third offer was $2,142,000).

Fair and reasonable offer based on market value

30. The proper basis for assessing whether an offer made by the Corporation is fair and reasonable is on the market value of the Properties. As pointed out in Tsang Kam Lan, what is fair and reasonable must mean what is in the normal market condition fair and reasonable. Recently, in the Court of Appeal case of Wong Tak Woon, Keith JA stated that :

"It may well be the case that the words 'on terms that are fair and reasonable' in section 15(4)(c) should be construed as referring to terms which are fair and reasonable in the light of the provisions for the assessment of compensation under the Lands Resumption Ordinance. Section 10(2)(a) of the Lands Resumption Ordinance provides that the Lands Tribunal is to determine the compensation on the basis of the value of the land resumed and any buildings erected thereon at the day of resumption."

Ribeiro JA, in the same case, stated that :

".... Given that the section (i.e. section 15) prescribes a negotiation against the backdrop of machinery for resumption in the event that agreement cannot be reached, it is in my view clear that when formulating purchase offers intended to be 'fair and reasonable', it is entirely proper that the LDC should be guided by considering the level of compensation which the landowner could achieve if he were to reject that offer and compel the LDC to invoke the machinery for resumption. The LDC may, in other words, steer a 'fair and reasonable' course by reference to what is possible under the LRO."

31. The Secretary stated that he was satisfied that the offer made by the Corporation to the applicant was fair and reasonable because based on the valuation of the Government Consultant, the third offer exceeded the open market value of the Properties. Once it is accepted that the proper basis for assessment is based on the market value, then the inevitable conclusion is that the decision of the Secretary is unassailable. It is against this background that one considers the challenge now raised by the applicant.

Corporation being unreasonable?

32. The applicant submitted that the Corporation had acted unreasonably in rejecting the applicant's offer, which was in exactly the same terms that the Corporation had itself offered to the applicant. I fail to see the logic of this argument. Whatever was offered by the Corporation was not accepted by the applicant within time. Considering the history of negotiation between the parties, it can hardly be said that 14 days were too short a period for the applicant to consider the offer.

33. The Corporation is further required by legislation to work on prudent commercial principles. There really is no basis for the applicant to expect that the Corporation would be bound to continue the negotiation on historic June 1997 figures. The applicant is not relying on the concept of legitimate expectation. In any event, such a concept has no place in the conduct of negotiation between the Corporation and the applicant on the terms of the purchase even though it may be a public body : Polarace Investment Ltd v. Director of Lands [1997] 1 HKC 373, Hang Wah Cheong Investment Co. Ltd v. A.G. [1981] 1 HKLR 336 and Canadian Overseas Development Co. Ltd v. A.G. [1991] 1 HKC 288).

DISCLOSURE OF THE GOVERNMENT CONSULTANT REPORT

Principle of fairness

34. The applicant relied on Fok Lai Ying v. Governor in Council and Others [1997] HKLRD 810 in which the Privy Council stated that fairness would very often require that a person who might be adversely affected by the decision would have an opportunity to make representations on his own behalf either before the decision was taken with a view to producing a favourable result, or after it was taken, with a view to procuring its modification or both. Since the person affected usually could not make worthwhile representations without knowing what factors might weigh against his interests, fairness would very often require that he was informed of the gist of the case he had to answer. The case of Caltex Oil (Hong Kong) Ltd v. Governor in Council [1995] 1 HKC 80 was also relied upon.

35. The applicant argued that the Secretary made his decision relying in part upon the contents of the valuation report prepared by the Government Consultant. Procedural fairness required the Secretary to disclose the report to the applicant and give it a chance to make representations on it before making a decision. The Secretary failed to do this.

Right to representation?

36. It was argued on behalf of the Corporation and the Secretary that after the scheme had been approved by the Governor-in-Council in September 1996, the Properties either had to be purchased by the Corporation or resumed by the government. The Secretary's role is strictly administrative, not judicial or quasi judicial. His only role is to consider whether to recommend resumption or not. There is no lis for him to decide. Considering that the applicant had the opportunity of making objections to the Town Planning Board and will have the further opportunity of dealing with matters of valuation in the Lands Tribunal, it is submitted that the court should not impose a further right to make representation under the LDC Ordinance. I was urged to adopt the same approach I had made in the recent case of Incorporated Owners of Wah Kai Industrial Centre, Texaco Road & Others v. Secretary for Justice, KCRC & Others (HCAL120/1999), in which I held that the right of representation should not be carved out in the Railway Ordinance, considering that a system of objection is expressly provided for in that Ordinance.

Applicant not entitled to the report

37. It is not necessary for me to come to a conclusion whether there is a right of representation when the Secretary is to consider whether the Corporation had negotiated with the owners of land on a fair and reasonable basis. It is clear in this case that the Secretary had given an opportunity to the applicant to make representations. Two detailed submissions were submitted by the applicant in March and April 1999 to the Lands Department setting out the objections.

38. In my view, the applicant is not entitled to the Government Consultant's report for two reasons. First, it is not a material that the applicant is entitled to in the first place. In Bushell, the challenge was that the Secretary of State had not disclosed the departmental advice he received after the close of an enquiry under the motorway schemes. Lord Diplock at page 102 stated that :

".... No one could reasonably suggest that as part of the decision-making process after receipt of the report the minister ought not to consult with the officials of his department and obtain from them the best informed advice he can to enable him to form a balanced judgment on the strength of the objections and merits of the scheme in the interests of the public as a whole, or that he was bound to communicate the departmental advice that he received to the promoting authority and the objectors."

39. In this case, the Government Consultant's report was not prepared by the Corporation, but by an independent valuer in order to assist the Secretary in his decision-making. In my view, this is not a document that the applicant was entitled to.

40. Second, disclosure of this report will not make any difference to the applicant's case. Irrespective of what this report may say on the technical aspects of the valuation, the fundamental principle is that the basis of assessment must be on the market value. This is not challenged by the applicant. The Secretary was clearly entitled to come to the view that the third offer was fair and reasonable because it was higher than the market value. This being the case, whether the report was disclosed or not would have no effect on the outcome of the decision.

FAILURE TO TAKE RELEVANT CONSIDERATION

41. The applicant, in its submissions to the Lands Department dated 5 March 1999, had enclosed a valuation report of Cullen. This report was not referred to in the summary prepared by LDCS to the Secretary. The applicant submitted that if the Secretary had considered this report, he might come to a different view on this matter. In Din (Taj) & Another v. Wandsworth London Borough Council [1983] AC 657, a housing authority was required to provide accommodation for a homeless person if they were satisfied that certain conditions were fulfilled. Lord Wilberforce at page 664 stated that :

" The words 'are satisfied' must be noted: they leave the decision, on these issues of fact, to the local authority. On well-known principle, there is no appeal to a court against such a decision, but it may be subject to 'judicial review' for error in law including no doubt absence of any material on which the decision could reasonably be reached."

As pointed out in R. v. Chief Registrar of Friendly Societies, Ex parte New Cross Building Society [1984] 1 QB 227, that in practice, the discretionary remedy of judicial review would only be afforded if it was satisfied that the relevant error had, or might have, materially influenced the decision. Griffiths LJ stated that :

".... In a decision involving the weighing of many complex factors it will always be possible to point to some factors which should arguably have been taken into account or left out of account; even if they should have been, the court should not intervene unless it is convinced that this would have resulted in the decision going the other way. ...."

This approach was approved by the Privy Council in George Tan Soon Gin v. His Honour Judge Cameron and The Attorney General of Hong Kong [1992] 2 HKLR 254.

42. Mr Wong, counsel for the Secretary, had gone into detail the matters regarding the valuation. It is not necessary for me to go into them. What is clear is that the report of Cullen is a critique of the method of valuation in the third offer by the Corporation. The third offer was based on the historic June 1997 market value. Once the Secretary was satisfied that the assessment should be based on market value, then the Cullen's report would not have influenced him at all. In other words, what was said in the report was academic and no longer had any relevance if at the time of the third offer, the market value of the Properties was substantially lower than what was contained in the third offer.

DISCRETION

43. It is well established that the remedy of judicial review is a discretionary one. It was pointed out that the quashing of the decision will delay the implementation of the urban renewal scheme; the redevelopment is made in conjunction with a partner who is entitled to withdraw from the joint venture in the event of delay; it also affects other property owners who had concluded their negotiation with the Corporation, it affects the resettlement of occupiers in the affected area; the resumption covers other properties as well and the applicant has not challenged the resumption ordered by the Chief Executive-in-Council.

Exercise in futility

44. In the light of my decision, it is not necessary for me to deal further on the issue of discretion. I would, however, add this. It is clear that what is now pursued by the applicant is an exercise in futility. Once it is established that the third offer was substantially higher than the market value of the Properties, then inevitably the Secretary would have to conclude that the offer made the Corporation was a fair and reasonable one. This is not a matter of second guessing the opinion of the Secretary, but accords with reality. The applicant had decided not to accept the third offer and it has to face the consequence of a falling market.

CONCLUSION

45. The application is accordingly dismissed. The applicant is to pay the costs nisi of the application to the Secretary and the Corporation.