KAM LAN KOON AND OTHERS v. SECRETARY FOR JUSTICE for and on behalf of THE DIRECTOR OF LANDS

CACV 197/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 197 OF 1998

(On appeal from HCAL 42/1997)

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This is an appeal from (1) an order of Yeung J. made on 3 July 1998, whereby the judge dismissed the appellants' application for a judicial review of a decision of the respondent Director of Lands to refuse the appellants an extension of a lease of land known as Lot No. 1943 in Demarcation District 121 in Tong Yam San Tsuen, Yuen Long, New Territories, being an extension to which the appellants claim to be entitled under the terms of a "policy statement" made in 1987 by the Hong Kong Government in relation to the extension of leases of land in the New Territories; (2) an order of the same judge made on 3 September 1998, whereby he refused an application by the appellants that provision be made for payment by the respondent of their costs of certain interlocutory proceedings in the appellants' application for judicial review, being (a) an unsuccessful application by the respondent to set aside the leave granted by the judge for the appellants to proceed with their application for judicial review; and (b) a successful application by the appellants for specific discovery of documents in relation to the appellants' application for judicial review.

The facts

2. On or about 30 October 1964, one CHEUNG Kung-leung assigned to himself, CHEUNG Yiu-kui, CHEUNG Yuk-kwai, CHENG Chi-ching, CHEUNG YIU Piu-luen, WONG Lung, and the 3rd applicant WONG Ting-wing Lots 533 and 534A in Demarcation District 121 for building an ancestral hall of some 3,000 sq. ft. in size for placing memorial tablets of their ancestors; and on that day the assignees requested approval, from the District Officer, Yuen Long of plans submitted by them for the purpose.

3. On 21 December 1964, after officials had expressed doubts about the genuineness of the application (the plans appeared to be more in keeping with some form of residential development than with an ancestral hall), the District Officer, Yuen Long rejected the proposal.

4. On 30 March 1965, approval was requested for the construction of a (smaller) village type house, of approximately 1,000 sq. ft, again for use as an ancestral hall; this time the District Officer, Yuen Long decided that the request was genuine, and, on 14 August 1995, officials proposed a surrender of Lots 533 and 534A in exchange for other land (being the land with which we are now concerned) for the construction of a building to be used as an "Ancestral Temple". This proposal was accepted and on 6 April 1966, the transaction was completed by an agreement for the grant of that other land for a term of 99 years commencing on 1 July 1898. Special Condition 3 of the grant provided that the land should "be used only for the erection and maintenance of an ancestral temple (Chi Tong)"; and Special Condition 4 provided as follows :-

"4. The grantee shall not assign, mortgage, charge, demise, underlet, part with possession of or otherwise dispose of or encumber the lot or any part thereof or any building or part of any building thereon or enter into any agreement so to do, the said lot having been granted on the special terms herein set forth for use for the particular purpose stipulated." (Emphasis added)

5. By Special Condition 10 it was provided that the total roofed over area should not exceed 1,000 sq. ft.; but in 1974 this was modified, in consideration of a premium, to permit a total roofed over area of 2,000 sq. ft.

6. On 20 February 1967, one of the grantees wrote to the District Officer, Yuen Long referring to the "permission to build a Chi Tong"; stating that it had been completed; and asking for an "early inspection and issue of occupation [permit]".

7. However, the building was put to use, not as a Chi Tong (for the veneration of ancestors) but as a Taoist temple (for public worship). Although this use was open and notorious and was indeed the subject of a number of protests, nothing was done about this until 1992. In 1992, it came to the attention of the District Lands Officer, Yuen Long that some of the grantees had disposed of their interests in the land, in breach of Special Condition 4 of the grant. By a letter dated 6 November 1992 addressed to the grantees, he complained of this, and of the user of the building as a Taoist temple (instead of as a Chi Tong for ancestral worship purposes) in breach of Special Condition 3 of the grant, and called for the rectification of these breaches. On 30 June 1997, the grantees' interest expired. The breaches, or alleged breaches, had not been rectified. But for the "policy statement" of 1987 on which the appellants now rely, that would have been the end of the matter. To this "policy statement", therefore, I must now turn; for the respondent denies the appellants' claim to be entitled to rely on it.

The "policy statement" of 1987

8. This is contained in or evidenced by a booklet published by the then Hong Kong Government under the title "Extension of Leases in the New Territories (including New Kowloon)". The Introduction reads as follows :-

"Introduction

The New Territories Leases (Extension) Bill 1987, which was published in the Government Gazette on 16 April 1987, will shortly be introduced into the Legislative Council. This pamphlet explains how that Bill will, if enacted, extend to 30 June 2047 the term of most Government leases in the New Territories which expire before 30 June 1997, and how the Government intends to deal with those leases which will not be extended by the Bill. It should be read by everyone who holds a lease of land from the Government in the New Territories (including New Kowloon)."

9. The need for the legislation mentioned in the Introduction is explained in para. 2 as follows :-

"Need for Legislation

2. All leases in the New Territories will expire on 27 June 1997, with the exception of a few which will expire before then. Under the terms of paragraph 2 of Annex III to the Sino-British Joint Declaration on the Question of Hong Kong, all leases which expire before 30 June 1997, except short-term tenancies and leases for special purposes, may be extended, if the lessee so wishes, for a period expiring not later than 30 June 2047 without payment of an additional premium. There are over 30,000 leases in the New Territories, many of them in multiple ownership, and it would be impossible in practice to extend each of them individually. The only practicable way of extending so many leases is by legislation."

10. The machinery is explained in para. 3, which reads, so far as is material, as follows :-

"Extension of Leases beyond 1997

3. The New Territories Leases (Extension) Bill will, if enacted, automatically extend all leases in the New Territories, with the exception of short-term tenancies and leases for special purposes (see paragraphs 9 to 12 below), from their existing expiry dates until 30 June 2047 without requiring payment of a premium ....."

11. Apart from certain changes as to rent, etc., it was declared that leases would "remain after they are extended, subject to the same conditions as now" : see para. 7.

12. It is common ground in these proceedings that the grant with which we are concerned is for the purpose of the "policy statement" to be treated as a "lease for special purposes". To such leases, the provisions of paras. 10 to 15 (inclusive) of the "policy statement" apply. Paras. 10 to 13 and (so far as is material) para. 14 read as follows :-

"Leases for Special Purposes

10. Leases for special purposes are those granted, usually by private treaty, for specific purposes such as public utilities, subsidised schools, welfare facilities, recreational clubs, petrol filling stations, kerosene stores, piers, churches, civil servants' co-operative and Government built housing schemes, special industries and airport support services and industries. There are 842 leases for special purposes in the New Territories. A full list of leases for special purposes is given in the appendix to this pamphlet.

11. A common feature of most leases for special purposes is a permanent prohibition against assignment of the land (permanent means that the prohibition applies for the full term of the lease). Leases for special purposes are therefore defined as leases which contain a permanent prohibition against assignment. There are in addition 28 leases for special purposes which for various reasons do not contain such a prohibition; these are listed in Part I of the Schedule to the Bill. There are also certain leases which, although not granted for special purposes, do contain a permanent prohibition against assignment. They are leases granted for commercial and residential development to the Hong Kong Housing Authority, Hong Kong Housing Society, Mass Transit Railway Corporation and Kowloon-Canton Railway Corporation, as well as the leases for the three individual lots listed in Part II of the Schedule, namely Lot No. 758 in DD 379, Tuen Mun Town Lot No. 238 and Sha Tin Town Lot No. 143. These leases are specifically excluded from the definition of lease for special purposes, and will therefore be extended by the Bill.

12. To avoid any uncertainty of title to land, the Registrar General (Land Officer) will indicate leases for special purposes by making a note to that effect on the Land Office register. After the Bill comes into operation, the note on the Land Office register will be conclusive proof that the lease in question is for a special purpose and has not been extended by the Bill. Conversely, the absence of such a note on the register will be conclusive proof that the lease is not a lease for a special purpose and that it has been extended by the Bill.

Policy on extension of leases for special purposes

13. Each lease granted for a special purpose will be examined before a decision is taken on extension. However, in general, leases for special purposes will be extended unless the land is required for a public purpose or is no longer being used for the purpose for which it was originally granted. Most extensions will be to 30 June 2047; some might be for a shorter period if the land is likely to be required for a public purpose before that date or is unlikely to be needed for its original purpose for the full period. When a lease for a special purpose is extended, no premium will be charged. However, an annual rent equivalent to 3 per cent of the rateable value will be charged from the date the original lease term expires, and will be adjusted in step with any changes in the rateable value thereafter.

14. The main categories of leases for special purposes and, subject to the general principles outlined in paragraph 13, the policies for dealing with each category are as follows :-

.....

(c) Educational, Welfare and Religious Leases

Leases granted for educational, welfare and religious purposes on concessionary terms will normally be extended to 30 June 2047."

The appellants' case

13. The appellants contend that the land the subject of the grant here is still "being used for the purpose for which it was originally granted" (see para. 13 of the "policy statement"), i.e. religious purposes. Accordingly, the grant should be extended to 30 June 2047 in accordance with the policy for such grants (see para. 14(c) of the "policy statement").

The respondent's case

14. The respondent says that the purpose for which the land was originally granted was not for religious purposes generally, but for specific purposes, i.e. a Chi Tong (Ancestral Temple). The land is no longer (if it ever was) being used for that specific purpose. Further, says the respondent (1) the applicants, not being the original grantees (even the 3rd applicant is only one of these) are not entitled to claim the extended lease ; (2) in any case, the matter is one not of public law but of private law, between the grantees as tenants and the respondent as landlord, so these proceedings are inappropriate; (3) the breaches of the conditions of grant by the assignments made by some of the original grantees would disqualify them, as the only persons entitled to claim the grant of an extended lease from being granted one; and finally (4) that the grant of such an extension is a matter for the discretion of the respondent anyway, the exercise of which cannot be challenged if it is (as it was) exercised reasonably.

The judgment below

15. The judge concluded that the land, being used as a Taoist temple and not an ancestral temple, was not being used for the purpose for which it was originally granted; that the assignments made by the original grantees had "completely destroyed the very feature of a lease for special purposes"; and that the respondent was entitled to come to the conclusion that he did - to refuse the extension of the lease. He held that the 1st and 2nd applicants, "being unrelated to the grant of the lease, do not have any independent status to seek an extension of the lease, be it in private or public law". But his "primary decision", as he called it, was that the decision of the respondent not to extend the lease was a decision made in the sphere of private law and so was not judicially reviewable at all. We have to consider whether the judge was right on any of the matters in dispute; only if he was wrong about all of them can this appeal succeed.

16. In deference to the judge, from whom as will appear I differ on the point, I deal first with the issue the subject of his "primary decision", as to whether the decision of the respondent here is judicially reviewable at all.

Is the respondent's decision judicially reviewable?

17. On this point, the judge correctly observed as follows :-

"The entitlement of the Government to have its right and duties under leases granted to individuals determined in accordance with private law have been well recognised. The Government's decisions on such matters are not susceptible to judicial review."

18. But a decision taken by the respondent to extend, or, not to extend a lease for special purposes, whatever the reasons for that decision, is a decision taken in the exercise of his public function as Director of Lands. This was the view of Keith J. expressed in Hong Kong & China Gas Co. Ltd v. Director of Lands [1997] 3 HKC 520 (in a judgment affirmed by this court on 22 May 1998). I agree with Keith J. that such a decision is one taken in the sphere of public law, in the exercise of a public function. As was submitted in the present case below and in this court, there is a public and not merely a private element involved in the decision. This is so, as it seems to me, even if the reasons for the decision are (as here) reasons relating to the conduct of the grantee. I would hold that the decision here is judicially reviewable; and I turn to the issues raised by the other objections taken by the respondent to the grant of relief to the applicants.

What was "the purpose for which the land was originally granted"?

19. Like the judge, I am of the opinion that "the purpose for which the land was originally granted" was "the particular purpose stipulated" (see Special Condition 4 of the grant); i.e. an ancestral temple (see Special Condition 3), and that this purpose, of private worship, cannot be equated with public worship, even if both purposes can properly be described as "religious" and even if the respondent by his acquiescence in the use of the land for the latter purpose might have been unable to enforce the "permitted user" covenant in the grant in proceedings against the grantees. Accordingly, I would uphold the judge on this point, with the consequence that the grantees, since they are not using the land "for the purpose for which it was originally granted" cannot claim that the "policy statement" led them legitimately to expect that the grant would be extended. The "policy statement" expressly excluded from its ambit cases where the land was required for "a public purpose or is no longer being used for the purpose for which it was originally granted" : see para. 13.

20. That is sufficient to dispose of this appeal; but in deference to the arguments both sides addressed to us, I will deal briefly with the respondent's other objections to the applicants' claim in these proceedings.

Are the applicants, not being the original grantees, entitled to maintain these proceedings?

21. In my judgment, they are not. The 1st applicant is not a legal entity at all; if it is duly constituted as an unincorporated association, we were not shown its constitution and cannot recognise its existence. It should have been struck out as an applicant and should now be struck out as an appellant. The 2nd applicant is a stranger to the grant and has no standing to claim an extension of the grant in favour of itself or of others. The 3rd applicant cannot claim an extension of the grant in his own favour to the exclusion of the other grantees, whose joinder as applicants would have been essential for these proceedings to be properly constituted. So the application fails on this ground, too, there being no-one properly entitled to maintain the proceedings.

Was the respondent entitled in his discretion to refuse to extend the grant on the ground of breaches by some of the original grantees of the covenant against assignment?

22. In my judgment, he clearly was. The whole essence of a special purpose grant is that the grantees' interests thereby created should be non-assignable. A refusal to extend the grant to persons other than the original grantees seems to be not only reasonable but inevitable.

Conclusion

23. The judge was right to dismiss this application. I would affirm him; dismiss this appeal; and order the appellants to pay the respondent's costs of the appeal.

24. So far as the appeals on the interlocutory orders as to costs below are concerned, I would give the applicants their costs of the respondent's unsuccessful application to set aside the leave granted below for the appellants' application for judicial review. This was a discrete exercise. The judge was wrong to depart from the general rule, that costs follow the event, in relation to this application. There was, in my opinion, no warrant for doing so. As to the application for specific discovery, however, I think it was well within the proper exercise of his discretion to make no order as to the costs of that application. It follows that the order for costs we make should provide for the taxation of the respondent's costs of this appeal and of the costs below other than her costs of these two interlocutory applications. The costs of the appellants of the respondent's unsuccessful application to strike out the proceedings should also be taxed. The applicants should be ordered to pay the respondent her said costs when so taxed after setting off against those costs the appellants' said costs when so taxed.

Rogers, J.A. :

25. I agree that this appeal must be dismissed.

26. The first question which arose on the appeal is as to whether the decision of the Director of Lands was subject to judicial review. It was maintained on behalf of the Secretary for Justice that the decision made by the Director of Lands not to renew the lease was the equivalent of a decision of a private landlord and was therefore not amenable to judicial review. The argument was based upon the proposition that the issues involved were issues which a private landlord would consider in the ordinary course of events. It was said that the Agreed Minute No. 10 of the Sino-British Land Commission did not compel the Government to extend the term of a lease for special purposes even should the Applicant fall within the terms which would have justified an extension. The term used was simply that the Government may extend the leases and not that it must extend the lease.

27. Clearly the Government in exercising rights in respect of leases is exercising the same powers as an ordinary landlord. For the most part, decisions made in this regard are not judicially reviewable. However, the Policy Statement which was reflected in the booklet entitled Extension of Leases in the New Territories (including new Kowloon) expressed the Government's policy. Those affected had a legitimate right to expect the implementation of the Government policy in relation to the extension of leases following upon the agreement in the Sino-British Land Commission. To this extent, therefore, the decision to extend leases for special purposes in the New Territories is not simply a decision of a private landlord but it is one which the Director of Lands takes as part of his public function. In my view, any such decision is amenable to judicial review.

28. The primary point taken on behalf of the Applicants is that although it may be that the lease was originally granted to the 7 original lessees for the purposes of a Chi Tong, there was, from the inception, an open and public use of the land as a religious temple. The Applicants contended that the Government was well aware of this use.

29. For the purposes of this case, I proceed upon the basis that the Government was aware of the use of the land as a religious temple and not as a Chi Tong. Yeung J. pointed out that a religious temple and a Chi Tong are quite different. There is no dispute about that. His finding of fact, therefore, that the land was not being used for the purposes for which it was originally granted cannot, in my view, be assailed. The fact that the lessees might have been in breach for nearly 30 years and have used the land in a manner which did not accord with the purposes for which the lease was originally granted and may have used the land in breach of covenant would merely dictate that the Government, as a private landlord, might be debarred from relying upon the existing use as being in breach of covenant. It cannot make the present use of the land use for which the lease was originally granted.

30. Indeed to interpret paragraph 13 of the Policy Statement contained in the booklet as being as statement that a lease would be extended provided that the Government could not object to the use to which the land was currently being put despite the fact that it was in breach of covenant, would, it seems to me, fly in the face of the true intent of the policy. The intent was to enable special purposes leases to be extended provided the special purposes were still being attained.

31. For the reasons given by the Judge, there have also clearly been breaches by the assignment by four of the original lessees and these can hardly have been in keeping with the special purposes for which the lease was originally granted.

32. As Godfrey J.A., I fail to see the relevance of the presence of the 1st and 2nd Applicants in these proceedings.

33. I also agree with the Judgment of Godfrey J.A. in relation to the costs orders and the order proposed.

Mortimer V-P:

34. For the reasons given I also agree that the applicants' appeal against the judge's refusal of the application for judicial review should be dismissed. Although we disagree with the judge on two issues, there is nothing I can usefully add.

35. As to the applicants' appeal on costs, I agree that they should have their costs of the respondent's unsuccessful application to set aside leave. There was no good reason for the judge to depart from the general rule that costs should follow the event. As Godfrey JA has said, these were discrete interlocutory proceedings.

36. On the other hand in making no order for costs on the applicants' successful application for specific discovery, the judge acted appropriately within the exercise of his very wide discretion. I am not persuaded that there are any good reasons for disturbing this order.

37. Therefore, I agree with the order for costs prepared by Godfrey JA. The respondent shall have the costs of the appeal. She will also have the costs below save for the two interlocutory applications. The applicant shall have the costs of the respondent's unsuccessful application to set aside leave. If not agreed, all these costs should be taxed and the applicants' costs of the application to set aside leave should be set off against the costs awarded against them in the other proceedings.