RANK PROFIT INDUSTRIES LTD v. DIRECTOR OF LANDS

FAMV No. 7 of 2009

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

 MISCELLANEOUS PROCEEDINGS NO. 7 OF 2009 (Civil)

(ON APPLICATION FOR LEAVE TO APPEAL FROM
CACV No. 94 of 2007)

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 D E T E R M I N A T I O N

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Mr Justice Ribeiro PJ:

1.  On 18 June 2009, we dismissed this application for leave to appeal with costs and with reasons to be given later.  We now provide our reasons.

2.  The facts are fully discussed in the judgments of Hartmann J[1] and of the Court of Appeal[2].  The background to this application involves an action for damages alleging a derogation from grant on the government’s part (“the Action”) which was the subject-matter of an application for leave to appeal[3] heard at the same time.  We adopt the description of the events relating to the Action and adopt the abbreviations used in our Reasons for Determination in that application which are to be handed down at the same time as the present Reasons. 

3.  As noted in those other Reasons, in the light of the rezoning of other lots in the KBIA to permit commercial user, Rank Profit engaged in negotiations with the government for a lease modification to permit the Lot’s commercial development untrammelled by the car park requirement.  At the time, the Action remained on foot and was obviously viewed in very different terms on either side.  As indicated by the government’s striking-out application, it considered the Action baseless.  Rank Profit obviously took the view that it had a substantial claim.

4.  In the course of such negotiations, two offers were made by the government setting out proposed lease modification terms.  Rank Profit takes objection to some parts of those offers and applied for judicial review of the government’s decisions taken in relation to those offers.  Rank Profit’s complaint is that the government sought to impose as conditions additional to the payment of premium in each case, the requirement that Rank Profit should accept the offered modification in full and final settlement of the Action, agreeing to discontinue the same and to pay the government’s costs on an indemnity basis (“the additional conditions”). 

5.  It contends that the decisions to impose the additional conditions are susceptible to judicial review on two bases. 

(a) First, it is said that since the government has published its general policy in relation to the calculation of the premium payable on a lease modification, namely, to arrive at a premium reflecting the difference between the value of the land under the previous conditions and its value under the modified conditions, this makes it vulnerable to judicial review.   Thus, where the applicant is able to show that the terms offered for a particular modification exceed or are inconsistent with such guidelines it may seek judicial review on the basis of the government violating its legitimate expectation concerning the terms to be offered for the modification sought.  Judicial review, Rank Profit argues, is available in the present case on this basis in consequence of the government imposing the additional conditions. (“the first proposition”)

(b) Secondly, it is argued that the additional conditions introduce an element of bad faith in that they involve conditions imposed for an ulterior and improper purpose, made all the worse because they involve interfering with Rank Profit’s constitutional right of access to the courts. (“the second proposition”)

6.  In our view, the first proposition can only be accepted as a basis for the grant of leave if it is reasonably arguable that the principles established in the line of authority commencing with the Privy Council’s decision in Hang Wah Chong Investment Co. Ltd v A-G,[4] are to be overturned.  It has to be reasonably arguable that the government is subject to judicial review as a matter of public law in relation to the terms it seeks as landlord to extract in return for lease modifications on the basis that its published guidelines give rise to legitimate expectations on the part of government lessees in general. 

7.  In Hang Wah Chong, the Privy Council recognized that the Director of Public Works, the then relevant official, played a number of separate roles in relation to land matters including that of the Crown’s land agent.  It held that when acting in that role and demanding a premium for a lease modification, there was no requirement to establish the reasonableness of such demand.  He was simply acting as a landlord responding to a lessee’s request for modification of the terms of the lease.   Lord Edmund Davies stated:

“It is sufficient, for present purposes, simply to say that, the applicants’ seeking a concession from their landlords in relation to the development of land leased, the landlords were entitled to make the granting of that concession conditional upon the payment of a premium.”[5]

8.  In Raider Ltd v Secretary for Justice,[6] Bokhary PJ stated:

“It was established by the decision of the Privy Council on appeal from Hong Kong in Hang Wah Chong Investment Co Ltd v A-G [1981] HKLR 336 that the Government as lessor of Government land is just as entitled as a private landlord to name its price for any modification of the conditions on which land is held from it. …”

9.  The private law capacity in which the government acts when dealing with lease modifications was emphasised by Lord Millett NPJ in Director of Lands v Yin Shuen Enterprises Ltd,[7] in the following terms:

“... in deciding whether to grant or withhold its consent to a modification of the terms of a lease, the Government does not exercise a public law function but acts in its private capacity as landlord: see Hang Wah Chong Investment Co Ltd v A-G [1981] HKLR 336 (PC). It thus has an absolute right if it chooses to demand a premium, however large, for granting a modification of the terms of the lease, or to withhold its consent altogether, however unreasonably: see Lord Tredegar v Harwood[1929] AC 72.”

This was a case where the Court noted the government’s stated policy in relation to premium calculations.[8]

10.  In our view, the first proposition cuts across the principles firmly established by these authorities and is not reasonably arguable.  Mr Nigel Pleming QC[9] submits, however, that the first proposition should not be viewed as a frontal challenge to the Hang Wah Chong line of authority but that those cases should be regarded as laying down only a partial statement of the applicable law.  He submitted that the present case is capable of co-existing with those authorities on the basis of the approach adopted in Hong Kong and China Gas Co Ltd v Director of Lands,[10] a case approved by the Court of Appeal in Kam Lan Koon v Secretary for Justice.[11] 

11.  We do not consider it necessary to express a view in these Reasons as to whether those two cases were or were not correctly decided.  It is however important to note that they were both cases involving special purpose leases, that is, leases granted by the government for defined special purposes subject to a permanent prohibition against assignment.  Both cases arose out of the passage of the New Territories Leases (Extension) Ordinance[12] and the government’s stated policy of considering extensions of such special purpose leases on a case-by-case basis, with the decision whether to extend being dependent on investigation into whether the land was no longer being used for its original purpose or unlikely to be so used for the full period or whether the land was required for a different public purpose.[13]  The decisions relating to the grant and extension of special purpose leases in the aforesaid context were therefore strongly coloured by public purposes.

12.  The Hong Kong and China Gas case was concerned with the gas utility company’s challenge to the government’s decision in 1996 refusing to extend the special purpose lease which the company had been granted in 1963 on the basis that the land was no longer required for the purpose for which it had been originally granted, namely to supply the Tsuen Wan area with a substitute form of gas on a temporary basis before the fully supply of towngas could be provided.  Keith J’s decision turned on his characterisation of the Director’s decision on the facts of that case as one made in the exercise of his public functions, making it amenable to judicial review.  A similar approach was adopted in Kam Lan Koon in relation to the government’s refusal to extend a lease granted for the limited special purpose of use as an ancestral temple which had in fact been used as a Taoist temple. 

13.  The decisions sought to be attacked in the present case, discussed further in the next paragraph, are simply not comparable and the aforesaid cases do not provide a reasonably arguable basis for an appeal.

14.  We do not think, with respect, that there is any substance to the second proposition.  As Mr Godfrey Lam SC, appearing for the government, points out in his skeleton argument, the Action was centred on the very lease that was the subject of modification negotiations between the parties.  Rank Profit had issued a writ seeking rescission or alternatively damages suffered as lessee.  In the course of the negotiations, Rank Profit itself had claimed that there should be deducted from any premium calculated, the value of the losses it had allegedly suffered “on the basis of a full and final settlement of [the Action]”.  Both sides were therefore treating the Action as a matter which should be taken into account in determining the price Rank Profit should have to pay for the modification sought.  There was nothing improper in each side pressing its view of the value of the claim and we fail to see how the demand that the Action be discontinued can properly be described as something involving bad faith, an improper or ulterior motive or interference with Rank Profit’s right of access to the courts.  The last allegation is obviously falsified by the fact of these proceedings.  Complaint is made of the government threatening re-entry if negotiations could not be successfully concluded.  It was suggested that this was somehow sinister, but forfeiture is plainly the remedy open to a landlord where such a course is justified by breaches of covenant which have not been obviated by a negotiated settlement. 

15.  We are therefore of the view that no reasonably arguable basis exists for an appeal and leave to appeal was accordingly refused.