PRUDENTIAL HOTEL (BVI) LTD. v. THE ATTORNEY GENERAL

1995, MP3851

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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R E A S O N S

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1. The applicant is the operator of the Prudential Hotel at 222 Nathan Road, Kowloon. On 1 September 1993, the applicant was granted a licence under the Hotel and Guesthouse Accommodation Ordinance, Cap.349 ("the Ordinance") to operate the said hotel at the said building for a year until 31 August 1994. On 1 September 1994 the licence was renewed for another year until 31 August 1995. On 14 October 1994, a fire hazard abatement notice of the same date ("the Fire Notice") was issued against the applicant pursuant to s.9(1)(a) of the Fire Services Ordinance, Cap.95. Representations from the applicant raising objection to the notice led to meetings and further site inspections. On 15 September 1995, the Fire Notice was "converted" into a notice under section 19 of the Ordinance ("the Notice"). By this application, the applicant sought to judicial review the decision to issue the Notice.

History

2. Prompted by the alarming frequency of hotel and guesthouse fires during the late 1980s and early 1990s( a total of 68 between 1985 and 1992), the government was concerned to regulate the hotel and guesthouse industry, in particular to subject hotels and guesthouses to safety legislation. The attempt, not surprisingly, triggered an uproar from the industry. Notwithstanding concerted and vocal protest from the industry, the Ordinance was enacted in 1991 in its full rigour. The Ordinance was stated to be "An Ordinance to provide for the regulation, control and safety of hotel and guesthouse accommodation and for connected purpose". A licensing regime was introduced for all non-exempted hotel and guesthouse operations as from 1993. Control and regulation of the industry was entrusted to the Secretary for Home Affairs ("the Secretary") manifested as the Hotel and Guesthouse Accommodation Authority under section 4 of the Ordinance.

3. General guidelines were prescribed, in the Ordinance, on the manner the Secretary may exercise his discretion in the issue or renewal of a licence, or the refusal to issue or renew the same. One of the express grounds for refusal is for reason "connected with the protection of life and property under the Fire Services Ordinance" that the premises are not fit to be used for the purposes of a hotel or a guesthouse. (Section 8(3)(a)(ii)) Furthermore, the Secretary may impose such conditions on a licence as he thinks fit (Sections 8(2)(a) and 9(3)). Such conditions may be varied by notice in writing. (Section 10(a)). The Secretary may also refuse to renew, cancel or suspend a licence on grounds. (Section 10)

4. As the Ordinance only provided a framework guided by general principles in regulating the industry, it became necessary for the Secretary to negotiate with the industry to devise a practical and workable code. The inequity and ineptness of uniform application of an inflexible code to all cases without consideration of the ever different circumstances of the individual must also be apparent to the Secretary. In the premises, to mitigate the difficulties thrusted upon existing operations, some of which are accommodated in purpose built premises designed to comply with the then requirements of the law on safety, a compromise in the form of a code of Policy Guidelines were agreed by the Secretary with the industry after protracted bargaining through the Advisory Group on Implementation. One Mr Lee Tak Samuel, the chairman and executive director of the applicant, was prominent in those negotiations. The Policy Guidelines gave bone and flesh to the generalities of the Ordinance, and formed the foundation upon which the industry and the Secretary negotiated and defined the detail conditions to be imposed for each individual hotel and guesthouse.

The Issues

5. Pursuant to the pronouncement of the Policy Guidelines, the Secretary commenced inspection of the Hotel and, after protracted meetings and negotiations, agreed a schedule of conditions that would be imposed in the licence to be granted to the applicant. The successful conclusion of the negotiation made it possible for the first licence for the Hotel to be granted to the applicant in September 1993. It was the case of the applicant that it was due to a concession by the Secretary that the false-ceilings that were obstructing sprinklers in the corridor to 16th floor ("the Sprinkler Problem") were not required to be removed in the agreed conditions imposed in the first licence. A second licence was granted on the same agreed basis in September 1994. Shortly after the issue of the second licence, and the applicant alleged to its surprise, the Fire Notice was served on the applicant on 14 October 1994 alleging the Sprinkler Problem constituted a fire hazard and required removal of the false-ceiling or the installation of a layer of sprinklers under the false-ceiling forthwith. (Though the Fire Notice referred to the 4th basement, it was not disputed that it was intended to be a reference to the corridor of the 16th floor.) That action caused protracted arguments between the Secretary and the applicant by correspondence and in meetings. Notwithstanding the discovery of the mistaken location, the Fire Notice was never formally withdrawn. Pursuant to the protracted arguments and after a further inspection on 13 July 1995, the Fire Notice was "converted" into the Notice. The Notice effectively required identical remedial actions as the Fire Notice to be taken by the applicant, save that the applicant was given 12 months for compliance. Time for compliance to avoid criminal prosecution expired on 14 September 1996. Notwithstanding issue of the Notice, the licence of the Hotel was further renewed for the third time until 31 August 1996 upon the same conditions as before without the addition of the requirements under the Notice.

6. Policy Guideline 7 provided :

"Once a scheduled licence is issued, no new conditions would be imposed on the licence when the licence is renewed unless the building layout or use or facilities are material changed or a threat to safety is apparent."

Absent any material change over the building layout or use or facilities, or an apparent threat to safety existed, the Secretary promised not to impose any new condition on the renewed licence. It was common ground there had been no change of the building layout or use or facilities since the first schedule of conditions were agreed. The government only alleged a threat to public safety existed at the Hotel.

7. It was submitted by the applicant that the Policy Guidelines set the "goal-post" for regulating the requirements imposed on the industry. By agreeing on the schedule of conditions, without inclusion of any remedial work for the Sprinkler Problem, it was submitted the government had accepted no apparent risk to public safety existed. As none of the 2 conditions for addition of new conditions was fulfilled, the Fire Notice and the Notice were, therefore, attempts to move the "goal-post". By so doing, it was alleged the legitimate expectation of the applicant that no new condition would be imposed, save as permitted by the exceptions pronounced in the Policy Guidelines, was violated by the Secretary. It was also submitted by the applicant that the renewal of licences without addition of the requirement under the Notice in the schedule of conditions was inconsistent with the decision to issue the Notice. It was further submitted by the applicant that the Secretary was guilty of misconduct in that the issue of the Notice carried an "unexpressed view" of the Secretary that in some way the applicant had led the Secretary into the oversight on the Sprinkler Problem.

8. The government disputed and submitted that there can be no enforceable legitimate expectation when the decision under attack concerned a policy. It was further submitted by the government that even if a reasonable expectation was to exist, it could not be a legitimate expectation if it would be incompatible with the Secretary's statutory duty to ensure public safety. It was also the government's submission that there was an overriding public interest.

The Factual Disputes

9. In support of its submissions, it was alleged by the applicant that during the negotiations and inspections of the Hotel prior to the agreement on the conditions to be imposed to upgrade the premises to an acceptable standard for the issue of a licence, the Sprinkler Problem at the 16th floor corridor was discussed and conceded by the Secretary not to be a matter requiring remedial action to be taken. The government disagreed with the applicant's allegation. Both sides have placed lengthy affidavits and affirmations before the court over the Secretary's knowledge of the Sprinkler Problem, or the lack of it, prior to the agreement on the schedule of conditions. This was the first dispute on facts.

10. Both parties also placed before me affidavit evidence from experts on the issue of whether the Sprinkler Problem would constitute a fire hazard or would increase risk to public safety as alleged by the government. Though Mr Kwok suggested there was no need to adduce such evidence to discharge the admitted burden on the government to prove an overriding public interest, he never submitted that such evidence was irrelevant or inadmissible, or should never have been adduced before the court. This was the second issue of fact in dispute.

The Law - Legitimate Expectation

11. There was little disagreement between the parties on the substantive law in this issue. The doctrine of legitimate expectation is founded on a duty to act fairly. There was no dispute that there can be a legitimate expectation of substantive benefits besides a procedural right to be heard. R. v. Secretary for the Home Department, Ex parte Ruddock [1987] 2 All ER 518 is an authority for the existence of such judicial supervisory jurisdiction.

12. Both parties approached Policy Guideline 7 as a promise and/or policy statement giving rise to a legitimate expectation of substantive benefits. It was the submission of the applicant that there was a legitimate expectation enforceable against the Secretary not to change the "goal-post". The government submitted that as it was a pronouncement of policy, the Secretary could not be bound by it as a matter of law. It was submitted that there could be no legitimacy in the alleged expectation as the government cannot, in law, be expected to be bound by a declaration of policy. It was further submitted by the government that if a legitimate expectation could arise from a pronouncement of policy, the government could not be held to such pronounced policy if so to do would conflict with a statutory duty or that there was an overriding public interest.

13. The applicant did not rely on any actual decision in the agreed schedule of conditions giving rise to a legitimate expectation that, in the absence of any change of circumstances, the same decision should continue to be binding upon the government in that no remedial work should be required for the Sprinkler Problem. There is a subtle distinction between a pronounced policy and a decision the validity of which should be continued without change absent change of circumstances. I shall leave open the implication, if any, of this subtle distinction in the legal principles to be considered hereinafter.

Absolute discretion over policy?

14. The government submitted that in law no expectation can be born of a pronouncement of policy, as the government is always free to change its policy. Or alternatively, any expectation that the government would not change its policy in the discharge of its statutory duty and power cannot be said to be legitimate.

15. Heavy reliance was placed by the government on a judgment of Keith J. In Vo Thi Do v. Director of Immigration, MP.No.3434 of 1996, decision delivered on 19 October 1996; when he held at pp. 7 - 8 :

"However, it does not begin to follow that such expectation as the Applicants had gave them the right in law to have that expectation fulfilled. The crucial question, in my view, is whether the Applicants had any expectation that that policy would continue to be the policy of the Hong Kong Government when they arrived in Hong Kong. If they had no expectation of that, they could have had no legitimate expectation that they would be permitted to remain in Hong Kong as refugees pending their resettlement elsewhere. All they would have had was a hope that the policy would not be changed in the meantime. Call that hope an expectation if you will. But that expectation could not, in my view, have given rise to a right in law for the expectation to be fulfilled unless they had good reason to think either that the policy was cast in stone, or that even if it was changed while they were on their way to Hong Kong the old policy would still apply to them. Since their individual expectations were based on anecdotal stories about the experience of others, and since those stories only related to what had happened in the past, there was nothing in what they had heard which could have given them reason to believe the policy of the Hong Kong Government would not change or that any new policy would not be applied to them. Accordingly, I do not think it arguable on the evidence which has been filed that the Applicants had a legitimate expectation that they would be permitted to remain in Hong Kong as refugees pending their resettlement elsewhere. The only legitimate expectation they had was that, if the policy had not changed by the time of their arrival in Hong Kong, they would be permitted to remain in Hong Kong as refugees pending their resettlement elsewhere."

16. It was submitted the decision supported the proposition that there cannot be any legitimate expectation arising from a pronouncement of policy. However, I do not find the decision helpful to the issue at hand. First, Keith J. was dealing with a case when the applicant only heard of the alleged policy statement indirectly through rumours from other countrymen. Policy Guideline 7 was directly pronounced to the industry with an intent to mitigate the hardship of the full rigour of the new legislation. There was no suggestion at that time that such agreement with the industry could be changed in future without reason. Change was expressly permitted under two conditions only. There was, and could be, no doubt on what were the contents of the promise. The promise was made direct and in very clear terms to the applicant through Policy Guideline 7 and the consequential agreement on the first schedule of conditions. This is a far cry from the unsatisfactory circumstances surrounding the alleged reliance by the refugees on the refugee policy in Vo Thi Do.

17. In any event, it was held in that case that it ought to have been realised the government's first asylum policy was unlikely to last indefinitely. Such policy would have to be matched by a programme of resettlement internationally. Keith J. seemed to be of the view that if the promise consisted of a matter of policy, the unlikelihood of the indefinite duration of such promise apparent from the surrounding circumstances could prevent a legitimate expectation arising from such a promise. In other words, it would not be reasonable for any applicant to expect the promise to be of an indefinite duration giving rise to perpetual enjoyment by the applicant of the benefit of such promise. I readily accept that before a legitimate expectation can be said to have arisen from a promise, it is crucial for the alleged expectation first to be reasonable. The law would be lacking common sense if otherwise. It was on those special facts that the court held no legitimate expectation could arise.

18. The distinction between a reasonable expectation and a legitimate expectation was highlighted by Lord Diplock in Council of Civil Service Unions v. Minister for Civil Service [1985] AC 374. Dealing with his "class (b)" protected interest, which included benefits or advantages that the applicant could legitimately expect to be permitted to continue to enjoy, Lord Diplock observed at page 408 :

"I prefer to continue to call the kind of expectation that qualifies a decision for inclusion in class (b) a 'legitimate expectation' rather than a 'reasonable expectation', in order thereby to indicate that it has consequences to which effect will be given in public law, whereas an expectation or hope that some benefit of advantage would continue to be enjoyed, although it might well be entertained by a 'reasonable man', would not necessarily have such consequences."

19. Further, it was "hinted" by the government that the Secretary was entitled to change his policy without reason if he was given an unfettered discretion under the Ordinance to issue the Notice. The hint was made by reference to the observation of Taylor L.J. in R. v. Secretary of State for Health, Ex parte United States Tobacco International Inc. [1992] 1 QB 353, at p.369, that:

"However, a minister cannot fetter a discretion given him under statute. Providing he acts within his statutory powers, rationally and fairly, he is entitled to change his policy." (emphasis added)

It is clear to me there could be nothing in that comment justifying the hinted proposition of law. The general observation was clearly qualified by the need for the government to exercise such discretion rationally and fairly. If not taken out of context, the observation was subject to the rider that the policy change must be required by a public interest. The judgment went on to say this:

"In the present case, if the Secretary of State concluded on rational grounds that a policy change was required and oral snuff should be banned in the public interest, his discretion could not be fettered by moral obligations to the applicants deriving from the earlier favourable treatment of them. It would be absurd to suggest that some moral commitment to a single company should prevail over the public interest." (emphasis added)

That was clearly a case of an overriding interest, on grounds of pubic health, justifying the change of government policy.

20. Mr Kwok also relied on another observation of Keith J in Vo Thi Do, at p.9 of the judgment, that:

"There will often be a tension between on the one hand a policy-maker's wish to change a policy with immediate effect, and on the other the effect of that change of policy on those whose interests will be damaged if the change is implemented immediately. The balancing exercise between those conflicting interests is for the policy-maker and not for the courts to resolve. The policy-maker must, of course, give proper weight to the impact which an immediate change of policy will have on those who had a legitimate expectation that they would continue to be treated in accordance with the existing policy. But suppose that, having considered that, the policy-maker concludes that the policy considerations which caused him to change his policy made it necessary or even just desirable, for the change of policy to take effect immediately, and that there should be no exception to it. Provided that that decision cannot be attacked on the ground of irrationality or as an abuse of discretionary power, the change of policy can still be lawful even though legitimate expectations are thereby thwarted." (emphasis added)

Notwithstanding the swiping words at the beginning, it was clear to me that the judge never intended to differ from the established principle that a change of policy must be justified. The decision is currently under appeal with judgment of the Court of Appeal reserved.

21. Mr Kwok further relied on the observation of Sedley J. in R. MAFF, ex parte Hamble Fisheries [1995] 2 All ER 714 at 728-9 that:

" What then is the legal alchemy which gives an expectation sufficient legitimacy to secure enforcement in public law? Where the expectation has been raised by a public promise made by government 'it is in the interest of good administration that it should act fairly and should implement its promise, so long as implementation does not interfere with its statutory duty,' (see A-G of Hong Kong v Ng Yuen Shiu [1983] 2 All ER 346 at 351, [1983] 2 AC 629 at 638 per Lord Fraser).

But where the expectation is based upon practice, the issue is more elusive. A promise is, precisely, a representation about future conduct, making it relatively straightforward to decide whether the promisor should be held to it. Practices may, but do not necessarily, have the same character. Where the material practice is generated by a policy which is itself liable to change, the practice cannot be logically expected to survive a policy change, and policy change may not be able to be withheld consistently with the statutory duties or powers under which the policy has been brought into existence."

Again, the rather swiping general observations were ultimately qualified by the ending rider that a policy change would be permitted if inconsistent with statutory duty.

22. It has never been the law, as I understood it, that there can be an unfettered or absolute discretion for a government official to change his pronounced policy without reason whenever he likes to the prejudice of an applicant. The change must be justified on grounds of the pronounced policy being incompatible with his performance of public duty or an overriding public interest. An unjustified change of policy to the detriment of an applicant would be open to attack on grounds of irrationality and an abuse of discretionary power.

23. In the premises, I do not accept any proposition that with a statutory power to determine policy, the government has an unfettered and unchecked right to change its pronounced policy without any justification at all.

Was there legitimacy in the expectation?

24. As a fall back submission, Mr Kwok also submitted that the expectation could only be said to be legitimate provided the promise would not be inconsistent with the performance by the Secretary of his public duty. In the premises, he submitted the Secretary could not make any promise he would not exercise his statutory power or discharge his duty in future. In support, he referred to the often-cited passage of Lord Denning M.R. in Reg. v. Liverpool Corporation, Ex parte Liverpool Taxi Fleet Operators' Association [1972] 2 QB 299 at 308 which was approved by the Privy Council in A.G. of Hong Kong v. Ng Yuen Shiu [1983] 2 AC 629 :

"It is said that a corporation cannot contract itself out of its statutory duties. In Birkdale District Electric Supply Co. Ltd. v. Southport Corporation [1926] A.C. 355 Lord Birkenhead said, at p. 364, that it was 'a well-established principle of law, that if a person or public body is entrusted by the legislature with certain powers and duties expressly or impliedly for public purposes, those persons or bodies cannot divest themselves of these powers and duties. They cannot enter into any contract or take any action incompatible with the due exercise of their powers or the discharge of their duties.' But that principle does not mean that a corporation can give an undertaking and break it as they please. So long as the performance of the undertaking is compatible with their public duty, they must honour it."

25. In line with the conclusion I have reached earlier, I have no quarrel with the well-established principle pronounced by Lord Denning. In R. v. Inland Revenue Commissioners, ex parte M.F.K. Underwriting Agents Ltd. [1990] 1 WLR 1545, it was therefore held that no legitimate expectation could arise from an ultra vires relaxation of the relevant statute by the body responsible for enforcing it.

26. In the premises, the issue was whether the promise embodied in Policy Guideline 7 compatible with the Secretary's public duty under the Ordinance, or alternatively, was there any overriding public interest?

27. In investigating the aforesaid issue, how far can the court go? Would it be open to the court to query the correctness or merits of the Secretary's decision in issuing the Notice? Or should the court only intervene when such decision was Wednesbury irrational?

28. Sedley J. observed in Ex parte Hamble Fisheries Ltd, at p.730-1, that :

" In a recent article 'Making legitimate use of legitimate expectation' (1994) 144 NLJ 1215 at 1215 Rabinder Singh puts the consequent law neatly in this propositions :

' Legitimate expectation cannot be used to defeat a duty which public law imposes on a body nor to extend the power of a public body beyond what legislation has prescribed but it can be used to ensure that an act which is intra vires is performed if the public body has given rise to a legitimate expectation that it will be.'

Thus it is the obligation to exercise powers fairly which permits expectations to be counterposed to policy change, not necessarily in order to thwart it but-as in the present case-in order to seek a proper exception to the policy within the British Oxygen principle.

These considerations, I think, bring one closer to some conceptual understanding of what makes an expectation legitimate. Legitimacy in this sense is not an absolute. It is a function of expectations induced by government and of policy considerations which militate against their fulfilment. The balance must in the first instance be for the policy-maker to strike; but if the outcome is challenged by way of judicial review, I do not consider that the court's criterion is the bare rationality of the policy-maker's conclusion. While policy is for the policy-maker alone, the fairness of his or her decision not to accommodate reasonable expectations which the policy will thwart remains the court's concern (as of course does the lawfulness of the policy). To postulate this is not to place the judge in the seat of the minister. As the foregoing citations explain, it is the court's task to recognise the constitutional importance of ministerial freedom to formulate and to reformulate policy; but it is equally the court's duty to protect the interests of those individuals whose expectation of different treatment has a legitimacy which in fairness outtops the policy choice which threatens to frustrate it."

29. Ex parte United States Tobacco International Inc., supra, was an example where the court examined if a change of policy was justified by an alleged overriding public interest. Sedley J. had this to say about that decision :

"It was not because of any legitimate expectation of continued benefit but because of the want of fairness in arriving at the policy without giving the applicants a chance to have their say, that the decision in question was struck down. The US Tobacco case thus illustrates two important aspects of this developing branch of the law: first, that legitimate expectation is now in effect a term of art, reserved for expectations which are not only reasonable but which will be sustained by the court in the face of changes of policy; secondly, that whether this point has been reached is determined by the court, whether on grounds of rationality, of legality or of fairness, of all of which the court, not the decision-maker, is the arbiter."

30. Sedley J.'s judgment was the subject of extensive analysis by Lord Irvine of Lairg in his work, "Judges and Decision-Makers: The Theory and Practice of Wednesbury Review" [1996] PL 59. He opined, after referring to Sedley J.'s judgment, at p.72 :

" I would respectfully suggest that this is part right part wrong.

It is part right in the sense that just as the availability of the protection of natural justice is a hard-edged decision for the court so also it is for the court to decide whether a legitimate expectation exists and if it does what it requires.

But Sedley J. is wrong I submit insofar as he holds that the issue whether the Secretary of State may override a legitimate expectation properly recognised by him as such is also a hard-edged decision for the court. This is surely contrary to the essence of the decisions in both Wednesbury and Bind, which hold that this kind of issue is for the designated decision-maker. To fail to recognise that at this stage the primary judgment is for the Secretary of State and only the secondary judgment for the court and to strike down the overall decision on the basis of the Secretary of Sates refusal to treat a legitimate expectation acknowledged by him as trumping the policy change in the particular case is no more than judicial irredentism: it is to advance from a hard-edged decision on the existence and extent of a legitimate expectation (which is proper) to a hard-edged review of the merits of the Secretary of State's overall decision as to whether that legitimate expectation may be overridden (which is improper). The court may only properly intervene where it can hold that the Secretary of State in exercising his primary judgment was unreasonable in a Wednesbury sense in deciding that there was a public interest which should override a recognised legitimate expectation. Only thus can due weight be given to the constitutional imperative of respect for the merits of public decisions." (emphasis added)

31. To give effect to the court's secondary jurisdiction over a legitimate expectation that was alleged to be thwarted by a public interest or a statutory duty, it must be open to the court to question the existence or otherwise of the alleged public interest or statutory duty. It cannot be that the courts are bound to accept the correctness of such allegation by the government. To hold otherwise would cause absurd results. Without an investigation into such matters in the judicial review, I fail to see how the government official's decision to change policy on ground of a public interest or incompatibility with public duty can ever be challenged in the Wednesbury sense.

32. It must be open to the court to strike down a government official's decision on the alleged existence of a public interest or incompatibility with public duty, on the ground that on the evidence and facts before him it was irrational for him to come to the conclusion he did. Lord Irvine expressly acknowledged this jurisdiction of the court at the end of his criticism of Sedley J.'s judgment. In the premises, it was clearly the author's view that provided the test of Wednesbury irrationality is properly applied to the determination of the alleged existence of a public interest or incompatibility with statutory duty, there can be no objection to the court's intervention on the issue.

33. It must also be open to the court to hold that on the known facts before the government official it would be Wednesbury irrational for him to conclude that there was a need to change the pronounced policy to the detriment of the applicant; i.e. that his decision that the public interest or statutory duty necessitated a change in policy was irrational.

34. However, the above would be as far as the supervisory jurisdiction of the court in a judicial review can go. It would be wholly inappropriate, and improper, for the court to attempt to usurp the Secretary's discretion on matters of policy by venturing beyond a consideration of the rationality of the decision under any pretext of unfairness..

Admissibility of Evidence

35. Lengthy affidavit evidence on whether in the deponent's views the Sprinkler Problem would constitute fire hazard or otherwise increase risk to public safety was placed before me. Regrettably it is often unclear if the deponent was saying the contents of his affidavit or affirmation represented facts placed and considered by the Secretary in his decision to issue the Notice; or were fresh facts coming into existence after the Notice. The former would be admissible in the consideration of the rationality of the Secretary's decision. The latter would be wholly inadmissible as being irrelevant to the issue at hand. The court would not be concerned with the issue if a fire hazard or increased risk to public safety did exist on facts known subsequent to the Notice.

36. Only evidence setting out the state of expert opinion placed before the Secretary at the time of issue of the Notice, not the expert evidence available to the parties at the time of the judicial review should be adduced for the consideration by the court in these proceedings. The relevant issue was the rationality of the Secretary's decision on the available conflicting expert opinions before him then. The issue was not whether his said decision was amenable to judicial review had the expert opinion contained in the affidavits adduced in these proceedings been placed before him.

Burden of Proof

37. It was common ground that the burden was with the government to establish that the promise was incompatible with its public duty or power, or that there was any overriding public interest. This consensus of the parties is supported by the observation of the court in R v. Jockey Club, Ex parte RAM Racecourses [1993] 2 All ER 225 at 237.

Non-disclosure

38. It was further alleged by Mr Kwok that to avail itself of the promise, it was encumbered upon the applicant to be entirely frank in disclosure of facts material to the making of the promise. In this respect, it was alleged by the various fire department officers, and officers in the Authority, that the applicant was guilty of concealing the Sprinkler Problem. This was part of the first dispute of fact on whether the government had expressly conceded on the lack of a need to ratify the said irregularity. The duty was held to exist in R. v. Inland Revenue Commissioner, Ex parte M.F.K. Underwriting Agents Ltd. [1990] 1 WLR 1545. I agree with the principle so submitted.

Finding on Facts

39. I would firstly observe that it was wholly inappropriate for the parties to thrust it upon the court to resolve disputed facts of the nature as in these proceedings on affidavits and affirmations. The conflict of facts could not be explained by innocent reasons. One side must be withholding the truth from the court. In such circumstances, it could not be fair to anyone, in particular the deponents, for findings of untruthfulness be made against them without their evidence tested in court. Notwithstanding the obvious need for viva voce evidence, or at least cross-examination of the deponents; and despite comments from the bench, the refusal to ratify the unsatisfactory state of evidence remained.

The First Issue in Dispute

40. Mr Tse Yiu Hing, the Divisional Officer in charge of safety matters relating to the licensing of hotels and guesthouses; and Mr Ma King Wong, the Senior Station Officer who inspected the Hotel; denied in their affirmations the Sprinkler Problem had ever been discussed before the schedule of conditions was agreed. It was denied the irregularity of the Sprinkler Problem was ever discovered by the inspecting fire officers. Against that, the applicant adduced affidavit evidence of Miss Lucy Bennett and Mr Lionel Lau, a chartered engineer and a chartered architect respectively engaged by the applicant at the material time, describing the discussion of the said issue with the government officials at the meetings, and their record of such discussion.

41. After the issue of the Fire Notice, the applicant made formal written complaint to the Secretary and to the Fire Services Department on the specific ground that the Sprinkler Problem had already been conceded by the government after lengthy negotiation with the applicant's consultants. The same allegation was repeated numerous times by the applicant during meetings with Mr Howes and other government officials during 1994-1995 when discussing the Sprinkler Problem. There was no response from the government, let alone denial, against such an allegation. Mr Howes failed to respond at all when such accusation was made in his face. Government's late denial of such accusation in affidavits and affirmations filed 6 months after commencement of these proceedings appeared surprising in the circumstances. Against this, the applicant has been maintaining a consistent and clear stance on the issue as soon as the Fire Notice was issued.

42. I prefer the affidavit evidence of the applicant to that of the government when they conflict on this issue. I would add that the speculation by Mr Howes, the signatory to the Notice, in his affidavit that the fire officers did not carry out a full inspection of the Hotel but had only "ascertained the equipment installed from documentation", was wholly unwarranted as that has never been alleged by the inspecting fire officer himself. On the unsatisfactory state of evidence before me, unsatisfactory for lack of testing by cross-examination, I was satisfied on a balance of probabilities that the Sprinkler Problem was discussed during the meetings and inspections that led to the agreement on the schedule of conditions. I was also satisfied, from the records of meetings and inspections as well as the documented history of bargaining that led to the agreed schedule of conditions, that the Secretary had made concession on the general requirement for sprinklers to be provided at corridors (as required by paragraph 2.14 of "Part II : Fire Safety Conditions" of the Code of Practice for Minimum Fire Service Installations and Equipment issued by the Fire Services Department, which had been incorporated in a very generalised form in Measure No.2 of the Safety Requirements and Specifications in the Policy Guidelines).

43. Furthermore, the Secretary was under a duty to satisfy itself of the safety condition of the Hotel before agreeing with the applicant on the schedule of conditions. Mr Kwok refused to concede that the government was in any way careless in the discharge of its duty during the inspections and negotiations. I find such stance surprising in view of the evidence of Mr Ma, the fire officer who carried out the inspections, that he did not notice and was never aware of the Sprinkler Problem at the corridor of the 16th floor when it was clearly his duty to discover and find out these irregularities. Even a casual glance at the false-ceiling would have clearly revealed the said irregularity. Further, the alleged unauthorised additional accommodation that was repeatedly discussed by the parties (an agreed fact), was immediately adjacent to the corridor in question. It was in fact that addition of the unauthorised VIP rooms adjacent the said corridor that caused the Sprinkler Problem. Notwithstanding the obvious nature of the irregularity, the failure to notice it had never been explained by the government.

44. As Mr T.D. Stephenson, acting on behalf of the Secretary, said in his written reply of 13 September 1995 to the applicant's complaint :

"The standards imposed on hotels are issued in accordance with the Policy Guidelines drawn up by the Advisory Group on Implementation of the Hotel and Guesthouse Accommodation Ordinance. The individual Schedules for the hotels were agreed between the operators and the OLA, taking into consideration the age, size and fittings of each of the hotels concerned. You will appreciate that the very fact that hotels have been given individually tailored Schedules is evidence of the OLA carrying out its statutory duties in a reasonable and practical manner, taking into account the individual circumstances of each hotel." (emphasis added)

45. For reasons appearing above, I was satisfied that the government expressly accepted the condition of the Sprinkler Problem and conceded the absence of a need to ratify the irregularity when the schedule of conditions was agreed. In the premises, I also found the alleged non-disclosure of the irregularity wholly without merits.

46. I would further add that it is regrettable that the government did not see fit, despite repeated opportunities being opened to it, to adduce viva voce evidence to assist the court on such an important issue involving risk to public safety. Government could and should never allow itself to attempt proving a case of alleged risk to public safety in such an inadequate and unsatisfactory manner if there was any truth in its allegation. Such a weighty matter should only be considered and ruled upon by the court upon proper and adequate evidence.

The Second Issue in dispute

47. The task for the court was to consider the rationality of the Secretary's conclusion that the expert evidence before him entitled him to find an increased risk to public safety or fire hazard. It is to this limited extent that the expert evidence should be considered. I would not, therefore, venture to resolve and make findings upon the experts' opinions when they conflicted.

48. I have already observed the uncertainty inherent in the affidavits and affirmations of the experts on whether the totality of such evidence was before the Secretary at the time of the decision-making. Regrettably, the evidence adduced by the government on the Secretary's knowledge of expert opinions on the issue was dismally scanty. In the affidavit of the Secretary, the evidence on that issue consisted of two sentences : "Prior to the endorsement of the issue of the section 19 notice, STL-20 pages 393 and 394, I have read the relevant files and have carefully considered the circumstances of this case. Having had regard to the aforesaid and the legal advice, I consider that the issue of section 19 notice is the appropriate course to take."

49. The Sprinkler Problem was discussed during protracted negotiation process with the Secretary as I have already found supra. It was also common ground that more debates ensured after the issue of the Fire Notice but before the Notice. During 1994 and until issue of the Notice in 1995, the applicant repeatedly accused the government of conceding on the Sprinkler Problem after expert opinions from its consultants were placed before the Secretary. If the Secretary had not previously been aware of the existence of such expert evidence, he could no longer maintain such an allegation after such repeated reminders. If notwithstanding such repeated reminders of the existence of expert evidence from the applicant, the Secretary still failed to ask for them (if they were not already placed before him), he would have been guilty of approving issue of the Notice without giving any due or proper consideration of representations made by the applicant. He would be guilty of failing to consider relevant facts and expert opinions most pertinent to his decision. That alone would have rendered his decision irrational on a fatal procedural irregularity. If that assumption was to be made, that would be the short answer to these proceedings. However, this was never the case of the applicant and any inference to that effect could not be proper. Furthermore the expert affidavits and affirmations were placed before the court by both counsel for consideration who must be taken to be aware of the inadmissibility of fresh evidence not considered by the Secretary at the material time. For the above reasons, I accepted that all the expert evidence before me, on both sides, were also before the Secretary at the material time for his consideration and that he had considered them.

Reason for Issue of the Notice

50. No reason was ever given by the Secretary to the applicant for the change of policy, as he never really admitted there was any change in policy. All along the only reason given in answer to the complaint against the Fire Notice was that a fire hazard existed. Before the issue of the Notice, at a meeting held on 11 July 1995, Mr Howes indicated the Sprinkler Problem would be referred to the Fire Services Department for possible re-issue of another Fire Notice. Following that meeting, Mr Ma again inspected the Hotel, including the 16th floor corridor, and learnt that the Sprinkler Problem was not redressed. Then, on 13 July 1995 Mr Howes agreed to the advice given in an internal memorandum dated the same date from one Law Muk-shan (DO/LA) that :

"2. After the meeting we have reviewed the situation concerning this matter. My opinion is that we have difficulty to enforce the Licensing condition in terms of proper maintenance and efficient working order of the ESI. In actual fact, the existing sprinkler system is properly maintained and in efficient working order. It was certified by the registered contractor. The existing sprinkler heads in the 16/P. corridor are functional to the additional floor (UBW) but leaving the corridor below the UBW unprotected. As the U3W has been tolerated by this office without any conditions at the early stage of issuing the licence, we cannot make additional requirements to the licence in accordance with the Policy Guidelines. However, we can make use of S.19 of HAGAO directing the operator of the hotel to provide adequate equipment to protect the corridor against fire or other hazard.

3. I have a meeting with my DCPO(P) OQ 12.7.95 concerning this matter. He expressed that the building is fully protected by the sprinkler system. UBW and the sprinkler protection on the 16/P. corridor are separate issued (sic.). FSD did not waive the requirement of sprinkler protection to the 16/F corridor. If this office cannot rectify the situation in accordance with the agreement on complaints of fire protection matters in hotels and guesthouses, case should be formally referred back to FSD for action under fire hazard abatement cover.

4. Before referring the case back to PSD, I opine that the following action should be taken by this office at the first instant :-

(i) Issue S.19 but legal advice must be sought for whether it would be appropriate or not.

(ii) 3D to be informed of the UBW requiring the operator to submit alternation plan to BD for formal approval."

It is unknown what, if any, legal advice was given. However, it would be reasonable that legal advice would have been sought as agreed by Mr Howes. It would also be reasonable to assume that it gave the "go ahead" to the suggestion. Then, the Notice was issued on 15 September 1995.

51. In addition to the above, Mr Lam (the Chief Fire Officer) explained in his affidavit that :

"I agreed to the issue of section 19 notice instead of the reissue of the fire hazard abatement notice (with 16/F identified) for the following reasons :

(i) for reasons referred to in paragraph 6 herein,

(ii) as a matter of procedure, in situations where a fire hazard abatement notice is defective, we would normally withdraw it and reissue it. I agree in this case not to reissue it at that stage because of the possible implications of dual handling which arises as a result of the introduction of the licensing regime under the Hotel and Accommodation Ordinance, Cap 349;

(iii) the effects of the fire hazard abatement notice and the s. 19 notice are the same i.e. to abate the fire hazard as identified."

52. Mr Howes said, in his affidavit, that he was of the "opinion therefore that the Director of Fire Services has the ability to continue to enforce a Fire Hazard Abatement notice under the said Code and the Fire Services Ordinance Cap.95" He further emphasised that he had explained "the effect of the Section 19 and Fire Hazard Abatement Notice being the same" to the applicant during the series of meetings.

53. As no objection was taken by the applicant on the admissibility of fresh affidavit giving after-event justification of the decision to issue the Notice, I have taken the explanations offered by Mr Lam and Mr Howes in their affidavits into consideration. Such subsequent affidavit evidence purporting to give the true reason for the decision should, of course, usually not be admissible. (See: R. v. Westminster City Council, Ex parte Ermakov [1996] 2 All ER 302; Chan Sau Mui & others v. Director of Immigration C.A.No.60 of 1992, unreported, page 8 of the judgment.)

54. In conclusion, the reason for issuing the Notice was that the Fire Notice was proper, save as to the mistaken location of the alleged fire hazard. There was in truth a fire hazard that could be enforced against the applicant by the issue of another Fire Notice. However, in view of the centralised administration concept ( the "one-stop" approach), that was one of the purpose for the new legislative scheme under the Ordinance, it was decided that the Notice, instead of another the Fire Notice, would be issued to eradicate the fire hazard.

The Conclusions

Legitimate Expectation

Reasonableness

55. On the facts before me, it must be reasonable in the prevailing circumstances for the applicant to harbour an expectation that without fulfilling any of the 2 expressed qualifications, no new condition would be added to the schedule of conditions in a renewed licence. It would be reasonable to conclude that in the discharge of its statutory duty, the Secretary would not have failed to impose a condition necessary to ensure public safety when the schedule of conditions was first agreed. This appeared to be implicit in the Secretary's letter of 13 September 1995 referred to supra. It must be on this reasonable assumption of due discharge of the Secretary's duty to ensure public safety when agreeing to the schedule of conditions, that the first qualification for new condition was agreed to be a material change in the building layout, use or facilities. Presumably as a further safeguard, the second qualification of apparent threat to public safety was inserted to cater for any oversight in the first agreed schedule of conditions, or when new technology or knowledge come into existence subsequently; rendering the accepted condition of the premises no longer safe or could be made more safe. This analysis of the two qualifications was clearly supported by an examination of the history leading to the agreement on the final version of the Policy Guidelines, and the different versions of Policy Guideline 7 in the several drafts produced for negotiation.

56. Furthermore, in the said internal memorandum dated 13 July 1995 to Mr Howes, the government apparently conceded the binding effect of Policy Guideline 7 against any attempt to introduce new condition for a renewed licence. The officer advised that new condition could not be imposed under any pretext for maintenance. He further advised that as the Sprinkler Problem "has been tolerated by this office without any conditions at the early stage of issuing the licence, we cannot make additional requirements to the licence in accordance with the Policy Guidelines." To this Mr Howes endorsed his agreement.

57. For reasons aforesaid, I am satisfied Policy Guideline 7 could plainly give rise to a reasonable expectation that absent fulfilment of the two qualifications, no new condition would be imposed upon the applicant in its operation of the Hotel. In fact, it would be unreasonable to think otherwise.

Rationality of the Notice

58. The reason for issuance of the Notice was to substitute the Fire Notice that was issued on the ground of the Sprinkler Problem being a fire hazard. The rationality of such a reason should be approached in two perspectives. Firstly, the rationality of concluding a fire hazard existed and could be the subject of another fire hazard abatement notice. Secondly, the rationality of substituting the Notice for another five hazard abatement notice.

59. The only evidence adduced by the government in respect of this controversial issue was to be found in a few paragraphs of the affidavit of one Lam Chun Man, a Chief Fire Officer of the Fire Protection Bureau of the Fire Services Department. Apart from being appointed to this rank since 1 October 1995, Mr Lam was a fellow member of the Institution of Fire Engineers. Besides explaining in his affidavits that sprinklers are required in corridors as a general rule and that covering them would constitute a fire hazard under the Fire Services Ordinance as it would "materially increase the danger to life and property ....... and hamper the Fire Services Department in the discharge of its duties in the event of fire", Mr Lam only made a few general comments on the evidence of the applicant's expert, Dr. Charles Ian Smith. It was based on such general observations on the general rule, without any real technical analysis of the applicant's expert opinions, that Mr Howes concluded (without any further explanation) "a threat to safety is apparent with the non-provision of sprinklers".

60. Dr. Smith is a fire engineering consultant from England having experience in this field for over 20 years, and has specialised in fire safety for over 10 years. Dr. Smith also has to his credit many impressive professional qualifications in various jurisdictions. In his affidavit he gave detailed explanations for his conclusion that the obstructions of the sprinklers at the 16th floor corridor would not significantly increase any risk to public safety. He further explained in detail his opinion that the other fire precaution or detection equipment that was provided to the said corridor was adequate for public safety. He also explained the pressurisation of corridors, that was not objected to by the government, was indicative of the government's view that fire risk at the corridor was unlikely to be of great concern. He strengthened his view of low fire risk at the corridor by explaining how a fire could be started in the corridor. In conclusion, he said provision of sprinklers at the corridor would be of negligible benefit.

61. I was compelled by the impressive evidence of Dr. Smith, as against the weak and general response of Mr Lam, to conclude that no reasonable tribunal judging such overwhelmingly one-sided expert evidence would have concluded a threat to public safety was apparent. In coming to this conclusion, I have not ignored the uncontroversial fact that it would probably always be beneficial to have more fire precaution equipment provided; and that I am dealing with an important matter involving risk to public safety in a hotel. The task of the Secretary was, however, to distinguish necessity from perfection, and hence to strike a reasonable and proper balance between idealistic and acceptable standards.

62. It was the Secretary's stance that the Sprinkler Problem was not known, or even apparent, to the responsible government officials until 15 September 1994 (according to Mr Howes' affidavit), a month before the issue of the Fire Notice. Thereafter, the Secretary simply stood by the Fire Notice. Even if the Secretary was to be held not to be aware of the applicant's overwhelming expert opinions supporting the lack of a need for sprinklers in the 16th floor corridor prior to the Fire Notice, his attention was indisputably drawn to such evidence prior to the issue of the Notice. It was in my view wholly irrational for the Secretary to continue to stand by the opinion of an apparent threat to public safety against such lopsided evidence.

63. Was it also irrational for the Secretary to substitute the Fire Notice with the Notice after making the concession that no additional condition could be imposed upon the applicant in its operation of the Hotel under a renewed licence? It would be so if the considerations for the issue of the Notice and adding a new condition to a renewed licence were identical in that both decisions could only be justified on the basis of the existence of an apparent threat to public safety.

64. The Secretary has power to refuse application for a licence if it appears to him that for reasons connected with the protection of life and property under the Fire Services Ordinance the premises are not fit to be used as a hotel or guesthouse (s.8(3)(a)(ii)). Pursuant to s.10(a) of the Ordinance, the Secretary has power to refuse to renew a licence, to cancel or suspend a licence or amend or vary any condition of a licence on any ground that would have entitled him to refuse to issue a licence under s.8(3)(a). Power under s.19 can be exercised to secure that safety of guests in the hotel or guesthouse is promoted in a proper manner; or that adequate apparatus and equipment required as safeguards against fire or other hazard are provided in such premises (s.19(1)). I am unable to find any real distinction between the requirements imposed under sections 8, 10 and 19. All of those sections empower the Secretary to perform his statutory duty on grounds of public safety against fire risks. The standard for fire risk considerations must be identical under all 3 sections. Mr Kwok has not sought to suggest otherwise.

65. The Secretary sought to justify his reversal of opinion on the safety requirements over the Sprinkler Problem by saying the fire officer who inspected the premises at the material time had not noticed the irregularity. I have already found against the Secretary and concluded that the Secretary had expressly conceded on the lack of any need to redress the Sprinkler Problem on 3 other occasions when the matter was considered by him in relation to the schedule of conditions. If it was compatible with his duty to concede the issue on those occasions, it must likewise be so compatible when he considered the issue of the Notice, there being no difference in circumstances.

66. The Notice was in truth an addition of new condition to the renewed licence. The government submitted that it could not be so construed. It could not be disputed that the Notice was physically a separate document from the licence or its attached schedule of conditions. The Notice was never expressly required as a condition for the licence to be renewed. However, it is also beyond peradventure that a failure to comply with the Notice would not only have the same effect as not renewing the licence, it would bring criminal sanction against the applicant. The consequences of the Notice are far more severe than having the same requirement inserted as a new condition for a renewed licence. The Notice was not the same as adding a new condition to the renewed licence only in the sense that it was imposing a more onerous burden on the applicant. I have no hesitation to hold that the Notice was a clear attempt to add new conditions for the continued operation of the Hotel. By issuing the Notice the government was doing precisely what it was expressly prohibited by Policy Guideline 7 from doing. It would therefore be an undoubted breach of its promise as contained in Policy Guideline 7 if the government were to issue the Notice without satisfying any of the 2 express conditions contained in the said guideline. The said internal memorandum had clearly exposed the government's reason for issuing the Notice. The reason given must be irrational for reasons given supra.

67. In the premises, I am satisfied that the applicant had a legitimate expectation that without fulfilment of any of the 2 express conditions of Policy Guideline 7, no new conditions would be added to a renewed licence; either by physical addition in the schedule of conditions attached thereto, or indirectly (and of a more draconian nature by virtue of its criminal sanction) by the issue of a section 19 notice requiring performance of such condition under the disguise of remedial safety works. For reasons particularised supra, I was convinced that the Secretary's decision in issuing the Notice was irrational and was in clear breach of the legitimate expectation of the applicant that absent any change of circumstances or existence of any apparent threat to public safety, the Secretary's express concession on the Sprinkler Problem would not be withdrawn.

Entitlement to Defeat the Legitimate Expectation

Compatibility with statute duty

68. Was the express concession on the Sprinkler Problem compatible with the Secretary's statute duty to ensure public safety under the Ordinance? The government submitted not, notwithstanding contrary view being expressed in the said letter of 13 September 1995, a month before issue of the Notice, that "the very fact that hotels have been given individual tailored Schedules is evidence of the OLA carrying out its statutory duties in a reasonable and practical manner, taking into account the individual circumstances of each hotel." The alleged oversight of the Sprinkler Problem had been dismissed on the evidence. The evidence was overwhelmingly against existence of an apparent threat to public safety. Policy Guideline 7 was never meant to be, and was not, an abandonment of the Secretary's right to determine future policy. It was a recognition by the government, arrived at after detail and in-depth consideration with the assistance of experts, that : (i) the pronounced policy was a proper and sufficient discharge of the Secretary's statutory duty under the Ordinance to safeguard public safety; and (ii) therefore, it followed that the only reasonable grounds for changing the pronounced policy were those provided therein. The quoted passage in the Secretary's letter of 13 September 1995 was clearly supportive of this recognition. It has, therefore, never been the government's stance, nor has Mr Kwok ever suggested, that such recognition by the government was in anyway unreasonable or incompatible with a proper discharge of the Secretary's statutory duty under the Ordinance.

69. In the premises, it must follow that the concession made by the Secretary in omitting any requirement for remedial work to redress the Sprinkler Problem would be compatible with the performance of his statutory duty and power. In the premises, the government's alleged incompatibility must fail.

Overriding Public Interest

70. The alleged overriding public interest relied on by the Secretary was the alleged apparent threat to public safety caused by the Sprinkler Problem. In the premises, the same criteria for consideration of the second qualification under Policy Guideline 7, and the rationality for issuing the Notice to substitute the Fire Notice, applied. I have already come to the conclusion that the Secretary had acted irrationally in alleging such apparent threat to public safety on the flimsy expert opinions from the government officers. On the overwhelming evidence before him, the Secretary could only have come to one reasonable conclusion on the issue, i.e. no such apparent threat to safety existed as alleged by his subordinates and fire services officers. In the premises, it followed that the Secretary had failed to demonstrate any overriding public interest entitling him to thwart the applicant's legitimate expectation.

71. In the premises, the Secretary had failed to demonstrate any justifiable ground for his change of policy in requiring remedial works to be carried out in respect of the Sprinkler Problem contrary to his express concession made in the agreed schedule of conditions to be found in the first licence as well as all subsequent renewals.

72. An order of certiorari was, therefore, made for the quashing of the Notice with costs against the government.

(Jerome Chan)

Judge of the High Court