THE HONG KONG & CHINA GAS CO. LTD. v. THE DIRECTOR OF LANDS

1998, No. 10
(Civil)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

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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 Keith, J. who on 21 November 1997 dismissed an application for judicial review made by the Hong Kong & China Gas Company Limited ("the applicant") against a decision of the Director of Lands ("the respondent"). The respondent's decision was to refuse to extend a lease of land granted to the applicant on 18 September 1963. The applicant complains that this decision defeats a legitimate expectation, which the applicant entertained under a policy statement made by the Hong Kong Government ("the Government") that its lease would be extended. The issues between the parties are whether the applicant was entitled to entertain such an expectation; and, if so, whether the respondent was wrong to deny it the extension of its lease for which it has asked.

The facts

2. On 18 September 1963, the applicant was granted a lease of a plot of land in Tsuen Wan. It contained a permanent prohibition against assignment. As to the purpose for which it was granted, the judge in his judgment said this :

"The undisputed facts show that the purpose for which the lease was originally granted was to enable LPG/Air to be produced at the site to meet the temporary needs of Tsuen Wan pending the extension of the gas mains system to enable towngas to be supplied there."

3. The Special Conditions include special condition 2, which reads as follows :

"2. The lot shall be used for the production and storage of gas and for commercial purposes specifically associated with selling gas and providing gas services only."

4. They include also special condition 5, which reads as follows :

"5. If it is at any time shown to the satisfaction of the Governor that the lot or any part thereof or any building or part of any building thereon has ceased to be used for the purposes specified in Special Condition 2 above (as to which the non-user thereof for such purposes for a period of three months shall be conclusive) or that the extent of the user thereof for such purposes has so diminished that the retention of the lot or any part thereof for such purposes is no longer justified, it shall be lawful for the Crown to re-enter upon and take back possession of the lot or any part thereof and all buildings thereon without notice and the rights of the grantee in and to the same under this Agreement shall thereupon absolutely cease and determine."

5. In April 1987, the Government released a pamphlet containing a policy statement relating to the extension of leases in the New Territories. In the introduction to the pamphlet, the Government mentioned the New Territories Leases (Extension) Bill 1987 and said that the purpose of the pamphlet was to explain how that Bill would, if enacted, extend to 30 June 2047 the term of most Government leases in the New Territories which were due to expire before 30 June 1997, and how the Government intended to deal with those leases which would not be extended by the Bill. It said this of the pamphlet :

"It should be read by everyone who holds a lease of land from the Government in the New Territories (including New Kowloon)."

6. The pamphlet explained the need for legislation. In paragraph 2, it said this :

"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."

7. In paragraph 3, the procedure for the extension of the leases was set out. Paragraph 3 (so far as is material) reads as follows :

"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. ....."

8. As adumbrated, the pamphlet contains special provisions relating to leases for special purposes. I will read first part of paragraph 10 :

"10. Leases for special purposes are those granted, usually by private treaty, for specific purposes such as public utilities ..... [and other specific purposes are mentioned] ..... 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."

9. The lease with which we are concerned in this case is a lease of Lot 473 Demarcation District 4443. It is listed under the heading "Public Utilities" in the Appendix. It is accordingly one of the leases for special purposes to which paragraph 10 relates.

10. Paragraph 11, so far as is material, reads as follows :

"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."

11. In paragraphs 13 and 14, the pamphlet announces the Government's policy on extension of leases for special purposes. Paragraph 13 is of particular importance for the resolution of the issues for determination in the present litigation.

12. Paragraph 13, so far as is material, reads as follows :

"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. ....."

13. Paragraph 14 sets out the main categories of leases for special purposes and indicates separate policies for each of them. In relation to Public Utility Leases, the policy is stated to be as follows :

"(a) Public Utility Leases

Leases held by companies subject to a franchise or licence ..... [and the companies are listed] will be extended for a term that takes account of the franchise or licence. Leases held by companies which are not subject to a franchise or licence (China Light and Power Company Limited, Hongkong Electric Company Limited and Hong Kong and China Gas Company Limited) will normally be extended to 30 June 2047."

14. Other leases, namely, leases for special industries, educational, welfare and religious leases, leases for staff quarters and leases for Civil Servants' Co-operative and Government Built Housing Schemes are also said to be leases which would "normally" be extended to 30 June 2047. Other special provisions are made to which I need not refer.

15. Paragraph 15 of the pamphlet refers to procedures for the extension of leases for special purposes. It reads, so far as is material, as follows :

"15. The extension of leases for special purposes will be dealt with as quickly as possible. However, it will take some years to examine the individual circumstances of all such leases. Once it has been decided that a lease for a special purpose should be extended, the appropriate lease documentation will be completed. The opportunity will be taken to include, where necessary, modern lease conditions. Thus, for example, a clause, now standard in new leases, providing for the surrender of the land should it no longer be needed for the purpose for which it was originally granted will be incorporated. ......"

The dispute between the parties

16. The applicant, anxious to have its lease extended, applied to the Director of Lands for that purpose. But it had to face this fact. Some years after its lease was originally granted it became possible to supply the Tsuen Wan area with towngas from the mains; and the original need for the supply of LPG/air to that area came to an end. For a very long time thereafter, however, the Government took no steps to re-enter on the applicant's land. The Government continued to permit the applicant to use the land for commercial purposes related to the selling of gas and the provision of gas services. In these circumstances, it fell to the Director of Lands to consider whether or not the applicant's request for an extension of its lease should be granted.

17. His decision was adverse to the applicant. I need refer only to certain of the correspondence. By a letter dated 7 March 1996 from the Lands Department to agents for the applicant, the Chief Estate Surveyor/Estate Management (Re-grant Unit) said this :

"Under the published guidelines for extension of special purpose leases, the lessee is entitled to expect extension unless the site is no longer being used for the purposes for which it was granted or that the land is required for a public purpose.

The captioned lot [a reference to the applicant's land] was originally granted for the production and storage of gas and for commercial purposes specifically associated with selling gas and providing gas services only. As the lot is no longer being used for the purpose it was granted and indeed it is unlikely that Government would now wish the lot to be used for these purposes, it is therefore considered that the lease should not be extended."

18. On 24 June 1996, the Chief Estate Surveyor/Estate Management wrote in answer to some points which had been taken by the applicant as follows :

"(1) The user clause (Special Condition No. 2) of the existing lease conditions is comprised of two parts. Firstly, the production and storage of gas; and secondly, the commercial purposes specifically associated with the selling of gas and the provision of gas services. As the users are rather special, both users are required to be implemented and so it follows that the subject lot, being put to a use that is only part of the user, constitutes a breach of Special Condition No. 2.

(2) Under the published guidelines for extending special purpose leases, each extension before it is approved is examined, having regard to whether the land is required for a public purpose and whether the site is being used for the purposes for which it was first granted.

(3) Government now considers that the subject lot is not essential for the operation as a maintenance dept. by your client. The Company can readily operate such a facility from practically any ordinary industrial building in the vicinity and space in these types of buildings is currently available.

Therefore, taking into account the above, I must re-affirmed that Government will not extend the lease of the subject lot beyond 27 June 1997, and that possession of the site will be taken back by the DLO/TW at that time."

19. The applicant appealed to the Director of Lands, who turned down its appeal. By a letter dated 16 June 1997, which is the letter containing the decision of which a judicial review is sought, the Director of Lands wrote to agents for the applicant in the following terms :

"I have carefully considered your appeal and regret to inform you that I am not prepared to recommend that an extension of the lease be granted to your client because the land has not been used for the purpose for which it was originally granted.

I note that you argue that your client requires a maintenance depot to deal with emergencies arising in Tsuen Wan and its neighboring areas, but I fail to see that this warrants a private treaty grant of the site because as pointed out by the Director of Electrical and Mechanical Services, there is no reason why the depot could not be accommodated in an industrial building.

The District Lands Officer/Tsuen Wan will contact you regarding the recovery of the possession of the site on 28th June 1997."

20. On these facts, the applicant contends that it has been wrongly deprived of an extension of its lease, which it had a legitimate expectation would be granted to it.

The issues

21. As it seems to me, the first question which falls to be considered is a question as to the construction of the special conditions in the lease. So far as use of the land was concerned, condition 2 limited the use to which the applicant was entitled to put the land and condition 5 demonstrates that it was bound to use the land for those purposes.

22. But what were those purposes? There are two possibilities. On the true construction of clause 2, must the land be used both for the production and storage of gas and for commercial purposes specifically associated with selling gas and providing gas services only? Or, may the land be used either (1) for the production and storage of gas; or (2) for commercial purposes specifically associated with selling gas and providing gas services only?

23. The applicant argues that the second, disjunctive construction is the correct one. It says its lease was granted to it for two purposes, the production and storage of gas, on the one hand, and for commercial purposes specifically associated with selling gas and providing gas services, on the other hand. It says (and it is not disputed) that although it is no longer using the land for the production and storage of gas, it is using the land for commercial purposes specifically associated with selling gas and providing gas services. The respondent, on the other hand, says that on the correct construction of condition 2, both users are required to be implemented.

24. The judge favoured the applicant's construction, but thought it unnecessary to consider further the matter. For my part, I think it would be helpful to go a little further. Like the judge, I think that on this question of construction of the lease the applicant's contention is correct. I say this because, had the applicant's construction of the lease been incorrect, that would, as Mr. Barlow, for the applicant, accepted, be the end of the applicant's case. But, since (as I think) the applicant's construction of the lease is the correct one, that is not the end of the case: we now have to go on to consider the true construction of the reference in paragraph 13 of the policy statement to "the purpose for which [the lease] was originally granted".

Here, the applicant says that the purpose for which the lease was originally granted was as set out in condition 2; in other words, is to be equated with the permitted use of the land. The respondent says that is wrong; the purpose for which the lease was originally granted was the purpose described by the judge, that is to say, to enable LPG/air to be produced at the site to meet the temporary needs of Tsuen Wan pending the extension of the gas main system to enable towngas to be supplied there. The respondent, supporting the judge, says that the fact that clause 2 of the Special Conditions also permitted the site to be used for other purposes, which included the purpose for which the site is currently being used, does not mean that the site is now being used for the purpose for which the lease was originally granted. I have not found this point altogether easy; but I conclude in the end that the respondent is correct. I think that, as a matter of construction, those words in the policy statement "the purpose for which [the lease] was originally granted" mean, in our case, as the judge held, the purpose of enabling LPG/air to be produced at the site to meet the temporary needs of Tsuen Wan pending the extension of the gas mains system to enable towngas to be supplied there.

The result

25. That, in my judgment, is the end of the applicant's case. Unlike the judge, I do not myself think that there is anything unclear or ambiguous about the policy statement. I think the applicant was perfectly entitled to say that under the policy statement it was legitimately entitled to expect that, in the absence of some abnormal feature, its lease would be extended if it could show that it was using the land for the purpose for which it was originally granted. But the applicant's case founders on the facts, since, as I have concluded, the land is no longer being used by the applicant for the purpose for which it was originally granted. That being so, the Government is entitled to refuse to extend the applicant's lease, for the simple reason that the applicant has not brought itself within the terms of the policy statement.

26. For these reasons, which differ somewhat from those which compelled the judge to the same conclusion, I like him would dismiss this application for judicial review and hence this appeal.

Rogers, J.A. :

27. I agree.

28. In my view, the decision in this case turns upon the meaning of Clause 13 of the policy statement entitled "Extension of Leases in the New Territories" issued on the 18th April 1987. As it has just been recited, there is no need for me to recite it but in my view, the meaning of the words "is no longer being used for the purpose which it was originally granted" is not a meaning which restricts the Government to considering solely the terms of the leases which were granted. Those are ordinary words and their ordinary meaning is the exact purpose for which the land was sought from the Government and the reason why the Government granted it.

29. Taken to its logical conclusion, it seems to me that if the Applicant's argument were acceded to, all tenants of all leases who were not in breach of the clauses relating to use might be able to bring themselves within the meaning of those words in the policy statement.

30. I too would dismiss this appeal.

Nazareth, V.-P.:

31. I agree that the appeal must be dismissed for the reasons relied upon by Godfrey JA and Rogers JA for that conclusion in their judgments. I would only add by way of emphasis that I agree in particular that the judge was right in what he said in rejecting the company's argument at p. 9 of his judgment. There he was addressing the company's argument that:

"Since the site was still being used for at least some of the purposes identified in clause 2 of the special conditions of the lease, it followed that the site was still being used for the purpose for which the lease was originally granted."

What he said in respect of that was this :

"This argument equates the permitted use of the site with the purpose for which the lease was originally granted. That is said to be justified because it is said that the purpose for which the lease was originally granted has to emerge from the lease itself. I do not agree. The permitted use of the site is not the same thing as the purpose for which the lease was originally granted. The undisputed facts show that the purpose for which the lease was originally granted was to enable LPG/Air to be produced at the site to meet the temporary needs of Tsuen Wan pending the extension of the gas mains system to enable towngas to be supplied there."

32. Ordinarily, the question of what are the purposes of a lease would be considered for the purpose of the lease and in the context of the lease, and would be determined by the contents of the lease. Here, however, we are concerned with the meaning of the words "the land is no longer being used for the purpose for which it was originally granted" in the policy statement and for the purpose of an assertion to a legitimate expectation claimed to arise from that statement and not the lease. In my view, the judge was entirely right in the passage I have just quoted.

33. Accordingly, I find nothing wrong or unfair in the decision of the Director of Lands in his letter of 16 June 1997 which is sought to be reviewed, i.e. not to recommend the extension of the lease because the land has not been used for the purpose for which it was originally granted.

34. I express no view on the construction of special condition 2 in the lease.

35. Accordingly, the appeal is dismissed.