Clp Power Hong Kong Ltd v. Commissioner of Rating and Valuation

CACV 202/2015

CIVIL APPEAL NO. 202 OF 2015

(ON APPEAL FROM LDGA NO. 241 OF 2004 and

LDRA NOS. 365-369 OF 2004)

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J U D G M E N T
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Hon Cheung JA :

I. The appeal

1.1CLP Power Hong Kong Limited (‘CLP’) is one of the two electricity companies in Hong Kong.  It supplies electricity to customers in Kowloon, the New Territories and outlying islands through its electricity generation, transmission and distribution operation.  It operates three power stations in Hong Kong :

1) Castle Peak Power Station (‘CPPS’) at Tap Shek Kok, New Territories.  CPPS comprises two stations, Station A and Station B, each with four generating units.  Coal is the primary fuel source but the design of the station allows oil to be used as an alternative.  In 1996, two of Station B’s generating units were modified to burn natural gas.

2) Black Point Power Station (‘BPPS’) is along the coast approximately four miles north of CPPS.  BPPS is a combined cycle gas fired power station, comprising eight generating units.

3) Penny’s Bay Power Station (‘PBPS’) is on Lantau Island.  PBPS comprises three 100MW gas turbines and provides standby capacity to the CLP network.

1.2The Commissioner of Rating and Valuation (‘Commissioner’) was of the view that the following items formed a part of CLP’s tenement and were rateable under section 8A of the Rating Ordinance (‘the Ordinance’) (Cap. 116):

1) The integral supporting steelwork from which the boilers hang at CPPS station B;

2) The pressure water cooling circuits at CPPS station B and BPPS taking water under pressure from the pump houses to the condenser of each steam turbine; and

3) the ancillary pipework and electrical cables connecting the non-rateable main and auxiliary equipment within CPPS stations A and B, BPPS and PBPS.

(Collectively known as the ‘disputed items’).

1.3CLP contended that the value of these disputed items should have been disregarded under section 8(b) of the Ordinance in that they were machinery in or on the tenement for the purpose of manufacturing operations or trade processes.

1.4The Lands Tribunal (Au J, President and Mr W K Lo, Member) upheld the Commissioner’s view.  CLP now appeals, with leave granted by the Court of Appeal on 28 August 2015.

II.  The Statutory Scheme

2.1Rating in Hong Kong is governed by the Ordinance.  Rates are assessed annually on the rateable value of a unit of property known as a tenement.  By virtue of section 21, the owner and the occupier of a tenement are both liable for the payment of rates, although in the absence of agreement to the contrary, rates are to be paid by the occupier.

2.2The Commissioner is required by section 11 to prepare a valuation list in which all tenements liable to be rated are identified together with their rateable values.  New valuation lists are prepared periodically. 

2.3Section 7 of the Ordinance deals with the general rule in the ascertainment of rateable value and section 7A deals with the rateable values in the new valuation list.  The amount of rates payable is a percentage of the rateable value of the tenement.

2.4Tenement is defined in section 2 as:

‘ any land (including land covered with water) or any building, structure, or part thereof which is held or occupied as a distinct or separate tenancy or holding or under any licence.’

2.5Section 2 is supplemented by sections 8 and 8A which deal with the treatment of machinery and plant respectively.  These two sections will be discussed in detail later on.  It is sufficient for the purpose of giving a general view to adopt the summary of these two sections by Lord   Millett   NPJ in Hong Kong Electric Co Ltd   v Commissioner of Rating and Valuation (No. 2) (2011) 14 HKCFAR 579 :

‘ 136. Section 8 provides that, for the purpose of ascertaining the rateable value of the tenement, (a) machinery used as an ‘adjunct’ to the tenement is to be regarded as part of the tenement, but (b) no account is to be taken of the value of any machinery in or on the tenement required for the purpose of manufacturing operations or trade processes. Section 8A provides that plant, together with land, buildings or structures occupied by means of any plant, is deemed for rating purposes to be a separate tenement. Cables, ducts, pipelines, oil tanks, and settings and support for plant or machinery fall within the definition of “plant”. While plant and fixed machinery both form part of the tenement, therefore, the value of such machinery used for manufacturing operations or trade processes is to be disregarded in ascertaining the rateable value of the tenement.’

2.6See also Gordon N Cruden : Land Compensation and Valuation Law in Hong Kong 3^rd Edn, Chapter 17, p. 399.

III.  The case of Yiu Lian and the chattel rule

3.1The case of Commissioner of Rating and Valuation v Yiu Lian Machinery Repairing Works Ltd (‘Yiu Lian’)[1985] 2 HKC 517 (CA) is relevant to this appeal.

3.2The Commissioner sought to impose rates upon certain dry docks floating in the Hong Kong harbour.  He maintained that as they were chained to blocks on the sea-bed, in respect of which there were sea-bed leases, the value of the dry docks was to be included on the same principle that the value of chattels on land was included as part of the value of the land.  The President of the Lands Tribunal held that under Hong Kong law, which he considered to be the same as under English law, chattels were to be valued for rating purposes as part of the land itself, but that none of the dry docks was sufficiently connected with a piece of land to be taken into account in estimating its rateable value.  It was also held that the floating dock was not eligible for a 100% discount as being a piece of machinery under section 8(b) of the Ordinance.

3.3The principle that chattels are to be valued as part of the land for rating purpose is known as the chattel rule.  This can be found in the speech of Earl of Halsbury in Kirby v. Hunslet Union Assessment Committee [1906] AC 43 at 47,

‘ ..… It is enough, to my mind, to say that for a period of certainly more than half a century, erroneously according to the learned counsel who last addressed us, but undoubtedly in fact, judges of the greatest eminence have recognized the fact that although a particular set of machinery may, by reason of the peculiarity of the manufacture, or what not, be not affixed to the freehold so as to become part of the land, or hereditament, yet, if the thing is being so occupied, if the premises are being so employed, and the machinery in those premises is being so used as that it makes the factory appropriate to the particular industry carried on therein, the machinery itself is not to be disregarded in assessing the value of that thing occupied as it is, and used as it is, with the accommodation and furniture which is necessary for it to carry on the manufacture that is there being conducted.’

3.4This Court in Yiu Lian at page 523, however, disagreed with the Tribunal that the chattel rule is applicable to Hong Kong.  The unit for assessment under the English law is ‘hereditament’. This Court held that under English law, the question is one of valuation rather than of construction.  The issue in most of the English authorities is what is the value of the realty in the sense of what, apart from the natural configuration of the land, may be taken into account when assessing its rateable value.  These authorities did not suggest that ‘lands’ means anything other than realty or that which has become part of it.  This Court held :

‘ The authorities indicate that in that jurisdiction regard may be had to the use to which the land is put as well as to those things which may have been put in or on it. This is the way in which chattels enjoyed with the land have become important. The ratio is that their presence enhances the value of the land.’

3.5However, looking at the history of the Hong Kong ordinance, this Court held at page 524 that :

‘ ….Had the ‘lands houses and premises’ of the original ordinance been allowed, as in England to remain unchanged to the present day there would have been considerable force in the contention that the legislature had at all times intended that the English principle should be applied here.  However within less than twenty years radical changes were made.  As we have seen, in 1863 the concept of the ‘tenement’ was introduced, and the extensive definition given to that word, rather than continuing the English practice of founding liability on the land, takes the opposite course and places it initially on the house or other building specified, the land being taken into account only if annexed thereto.  Land ostensibly became the basis for liability as from 1975, but the subsequent replacement of the words with which it was then qualified, ie ‘with or without buildings’, by the words ‘or any buildings or part thereof’, leads us to think that the legislature had intended no change, other than to include land itself as a separate rateable item.  It is pertinent to note that the 1954 amendment was said to be in clarification of the then existing definition (Memorandum to the Rating (Amendment) Bill 1954).  The addition of the word ‘structure’ in 1973 is another indication that the legislature was treating whatever was put on the land as an item rateable in its own right.’

IV. Sections 8 and 8A

4.Section 8 and section 8A which are relevant for this appeal are as follows :

Section 8 :

‘ For the purpose of ascertaining the rateable value of a tenement under sections 7 and 7A―

(a) subject to paragraph (b), all machinery (including lifts) used as adjuncts to the tenement shall be regarded as part of the tenement, but the reasonable expenses incurred in working such machinery shall be allowed for in arriving at the rateable value of the tenement;

(b) no account shall be taken of the value of any machinery in or on the tenement for the purpose of manufacturing operations or trade processes.’

Section 8A :

‘ (1) Where any land (including land covered with water) or any building or structure is occupied by a person by means of any plant, such land, building or structure shall, to the extent that the land, building or structure is so occupied, be deemed for rating purposes to be a separate tenement, whether or not such land, building or structure is otherwise a tenement and that person shall be deemed for rating purposes to be the occupier of such tenement and liable for payment of rates assessed thereon.

(2) For the purpose of ascertaining the rateable value of such tenement, the plant by means of which the person is occupying the tenement shall be regarded as part of the tenement.

(3) In this section “plant” (工業裝置) includes cables, ducts, pipelines, railway lines, tramway lines, oil tanks, settings and supports for plant or machinery.’

V.  Legislative history of sections 8 and 8A

1)  The Commissioner’s paper

5.1The legislative background to section 8 and section 8A is discussed in Property Rates in Hong Kong Assessment, Collection and Administration (2013, 2^nd Edition) pp. 20-22 by Mrs Mimi Brown, the then Commissioner of Rating and Valuation :

‘  In Hong Kong rating law, it was not until 1863 that the issue of whether the value of machinery should be included in an assessment was first addressed and it was decided that the rateable value of a tenement should not include the value of any machinery contained therein.  This was incorporated into the definition of ‘rateable value’ in the 1888 Ordinance.  

Then in 1899 an amending ordinance was enacted to provide that lifts and machinery used as adjuncts to any tenement were rateable but the expenses of working such lifts and machinery, if paid by the landlord, should be allowed for in the assessment.  This amendment arose from a decision in a rating appeal against the assessment of a new building containing lifts, where it was ruled that lifts were ‘machinery’ for the purposes of the Rating Ordinance and therefore, under the provisions then in force, not rateable.  The present section 8 of the Rating Ordinance, regarding ‘tenements containing machinery’, was introduced in 1973.

The assumptions with regard to the valuation of plant and machinery were also challenged as a result of the decision in Commissioner of Rating and Valuation v Yiu Lian Machinery Repairing Works Ltd. & Others [1986] HKLR 93,where the Court of Appeal held that having regard to the history of the rating legislation in Hong Kong, the English rule that chattels enjoyed with the land should be valued together with the land, could not be applied in Hong Kong.  This decision had broader implications than for the floating docks which were the subject of the appeal, as it also cast doubt on the rateability of plant, such as cables and ducts, transmission lines, etc .. which had previously been treated as chattels enjoyed with the land.  The alternative of regarding them as structures was becoming more questionable as technology advanced, particularly in telecommunications, and a new section 8A was added into the Rating Ordinance in 1991 to deem certain plant items rateable in their own right.

The new section 8A provided that where any land, building or structure was occupied by any person by means of any plant, such land, building or structure shall be deemed for rating purposes to be a separate tenement, whether or not such land, building or structure is otherwise a tenement.  ‘Plant’, as specified under section 8A, included cables, ducts, pipelines, railway lines, tramway lines, oil tanks, settings and supports for plant or machinery.

At the same time as section 8A was added, related amendments were made to section 10, specifically to give the Commissioner discretion, where tenements are used in connection with one another, to value the tenements together as a single tenement.  This amendment particularly addressed concerns relating to the cumulo assessment of telecommunication and electricity undertakings which included substantial cable systems.

The position in the UK is much clearer, where the meaning of ‘plant’ was first clearly set out in the decision of Yarmouth v France CA [1887] 19 QBD.  The rateability of plant and machinery was subsequently specifically provided in the statutes, previously in the Plant and Machinery (Rating) Order and then in the Valuation for Rating (Plant and Machinery) Regulations.  These Regulations specify, in considerable detail, the classes of plant and machinery which are statutorily deemed to be part of the ‘hereditament’, the unit of assessment in UK, and thus rateable.  The Regulations help remove any ambiguity or uncertainty as to the rateability of plant and machinery.  In Hong Kong, in the absence of such detailed regulations, the more general statutory provisions have to be relied upon.’

5.2It is of note that this Court’s decision in Yiu Lian was given on 29 November 1984 and section 8A came into existence nearly seven years later in 1991.

2)  Explanatory memorandum

5.3The explanatory memorandum to the introduction of section 8A by the Rating (Amendment) (No. 2) Bill 1991 (‘Bill’) stated that :

‘ This bill amends the Rating Ordinanceby―

a) adding a new section 8A deeming any land, building or structure occupied by means of any plant to be a separate tenement notwithstanding that such land, building or structure is not otherwise a tenement as defined in the Ordinance and deeming the person in occupation by means of such plant to be the occupier of the tenement; providing that the plant shall be regarded as part of the tenement for the purpose of ascertaining the rateable value of the tenement and defining ‘plant’.’

3)  The Hansard

5.4In the Hansard of the Hong Kong Legislative Council 27 February 1991 Proceedings, the Financial Secretary when moving for the second reading of the Bill stated that :

‘ This Bill seeks to ensure that the Commissioner of Rating and Valuation can continue with two existing practices :

1) to include in rating assessments the value of plant such as cables and ducts, railway and tram lines and oil tanks; and

2) to value a system such as the generation and distribution network of a utility company as a single rateable unit.

Following a recent appeal by a utility company against its rating assessment, doubts were raised concerning the Commissioner’s existing valuation practice with regard to the rateability of plant such as cables and ducts.  Accordingly, a new section 8A is proposed to remove these doubts.  Section 8A(1) and (2) seek to provide that when any land, building or structure is occupied by plant such as cables, ducts, pipelines or railway lines, both the land, building or structure and the plant shall be valued together for rating purpose.

The second proposal concerns the current valuation practice relating to the generation and distribution network of utility companies.  At present, the Commissioner values these networks, which comprise many separate components, as single rateable units.  The legal authority for doing so is not absolutely clear.’

5.5The Hansard was produced by the Commissioner without objection from CLP.

4)  Legislative Council Brief

5.6Mr Yu SC and Ms Cheng SC for the Commissioner also produced the Legislative Council Brief to this bill.  The relevant parts read :

‘ BACKGROUND AND ARGUMENT

2. In the United Kingdom where any land is occupied for profitable purposes by plant such as electricity or telecommunication cables and ducts, both the plant and the land are rateable.  Until recently it was thought that this principle also applied in Hong Kong.  Thus the value of plant such as the cables and ducts of the telecommunication companies and the transmission lines and pipework of the electricity and gas companies has for long been reflected in the rating assessments of these undertakings.  However, in a 1984 decision, the Court of Appeal held that the principle of valuing chattels (plant) with the land did not apply in Hong Kong.  Another difficulty is that whereas in England, occupation per se gives rise to liability for rates, in Hong Kong, for there to be rateable occupation, the land, building or structure must be held or occupied as a distinct or separate tenancy or holding or under any licence.

3s. In 1988 the Hong Kong Telephone Company appealed against its assessment of rateable value, which included the value of its cables and ducts.  After taking legal advice as to the strength of Government’s case in the light of the 1984 Court of Appeal ruling, a decision was taken to settle the appeal by agreement.  A negotiated settlement was achieved in March 1990.

4. In order to strengthen the legal basis upon which rateable values had been assessed prior to the Telephone Company appeal, it is now proposed to amend the Rating Ordinance.  The amendment would provide that where land is occupied by means of plant (defined to include items such as cables and ducts), both the plant and the land shall be rateable.

5. During discussion of the Telephone Company appeal, a second potential problem was identified.  Systems such as the generation and distribution networks of the power companies or the telephone network comprise many rateable units.  On valuation grounds it is desirable to value the whole system together as a single rateable unit.  At present the legal authority for doing this is not clear and, therefore, amendments are also proposed to the Rating Ordinance to clarify powers of the Commissioner of Rating and Valuation (CR&V) to value such systems as one.

THE BILL

6. Annexed for Members’ consideration is the Rating (Amendment) (No. 2) Bill 1991.  The purpose of the Bill is to put beyond doubt the legal validity of existing valuation practice with regard to the rating of plant enjoyed with the land.  A new section 8A provides that where any land, building or structure is occupied by a person by means of any plant, (as defined), such land, building or structure shall be deemed for rating purposes to be a separate tenement and the person in occupation of the tenement by means of such plant shall be deemed for rating purposes to be the occupier of the tenement and shall be liable for the payment of rates assessed thereon.  In this context the term “plant” is defined to include items such as cables, ducts, railway lines, tramway lines, oil tanks, and settings and supports for plant and machinery.  This provision, if enacted, will prevent franchised utilities and other companies challenging their rating assessments on the ground that the plant in question is a separate entity from the land it occupies.

7. A secondary objective of the Bill is to enable CR&V to value the distribution network of a utilities company as an integral part of that company’s total operating system.   This is desirable in terms of valuation practice and to give effect to this requirement it is proposed to amend section 10 of the Rating Ordinance to grant discretionary powers to CR&V to value two or more tenements together as a single tenement where such tenements are used in connection with each other and affect the value of each other.ʼ

5.7Again, this document was produced without objection from CLP who had earlier asked the Commissioner to provide the case of the utility company appeal referred to by the Financial Secretary in the second reading of the Bill.

5.8As stated by Lord Millett NPJ in Director of Lands  v.Yin Shuen Enterprises Ltd & Another (2003) 6 HKCFAR 1 at 15 that, in respect of Explanatory Memorandum and the explanation given by ministers when introducing the Bill :

‘ 22. Such evidence is admissible for a limited purpose only, to enable the Court to understand the factual context in which the statute was enacted and the mischief at which it was aimed.  This is not the same as treating the statements of the executive about the meaning and effect of the statutory language as reflecting the will of the legislature.  Within the permissible limits, however, the admissible evidence is not confined to the Explanatory Memorandum of Objects and Reasons, but must logically extend to explanations given by Ministers when introducing the Bill.ʼ

5.9The Legislative Council Brief is not within the category of such admissible evidence, but, as said earlier, CLP did not object to its production.

VI. The Tribunal’s decision

6.1The issue before the Tribunal on this topic is succinctly summarised in its judgment :

‘ 229. Thus:

(1) Under s 8(b), any machinery on the tenement used for the purpose of manufacturing operations or trade processes by the HT [i.e. hypothetical tenant] would not be taken into account for the purpose of rating valuation.

(2) Under s 8A, land or building occupied by means of cables, ducts, pipelines and support for plant or machinery (as plants as defined) is to be rateable as part of the tenement.

230. CLP submits that (a) the boilers and supporting steelwork at CPPS “B” and BPPS; (b) the cooling water circuits at CPPS “B” and BPPS; and (c) ancillary pipe work and electrical cables within the power stations are all not rateable, as they are either structurally part of or functionally ancillary to the HT’s machinery (such as generators, transformers, pumps and other auxiliary equipment). They are therefore part and parcel of the process machinery and thus not rateable under s 8(b).

231. CRV on the other hand contends that s 8A(3) provides clearly and expressly that “plant” which occupies the land or building is rateable, and “plant” includes “cables, ducts, pipelines … and supports for plant or machinery”.  The above items therefore fall clearly within this definition and therefore rateable. 

232. Mr Holgate [former counsel for CLP] however submits that s 8A(3) must be read down to exclude anything which have been excluded by s  8(b), since as a matter of legislative history, s 8A was enacted some time after s  8, and it makes no logical sense to exclude the principal machinery from rates assessment, but then to include what could be properly regarded as part and parcel of that machinery for the said assessment.

233. With respect, I am unable to accept Mr Holgate’s submissions:

(1) First, as matter of construction, I believe s 8  and s  8A are dealing with different things, and should not be read in the way as submitted by Mr  Holgate.  S 8 deals with the position as to whether the value of the machinery in question should be taken into account for rating assessment.  S 8A however deals with the situation that the land or building occupied by plant (as defined) should be treated as part of the tenement for rating purposes.  The subject matter intended to be covered by the two provisions is different.  There is no logical (or illogical) “link” between these two to justify the reading as submitted by Mr Holgate.

(2) In any event, the wording of s 8A is clear (as submitted Mr Yu) as to what should be included for rating, and it is not provided to be subject to s   8(b).  This is particularly so as s 8A was enacted subsequent to s  8, and therefore if the legislature had intended it to be read subject to s 8(b), it would have provided that to be so.  In the circumstances, as a matter of construction one must give way to the clear language of s 8A(iii).

234. In the premises, as the disputed items all fall within the definition of “plant”, I accept that the land or building so occupied by (a) the boilers and supporting steelwork at CPPS “B” and BPPS; (b) the cooling water circuits at CPPS “B” and BPPS; and (c) ancillary pipework and electrical cables within the power stations should form part of the Tenement for rating assessment.’

6.2It should be pointed out that the Tribunal was wrong in paragraphs 230 and 234 to include ‘boilers’ as a disputed item.  The disputed item does not include the boilers, only the supporting steelwork for the boilers.  It was accepted that boilers are process machinery within section 8(b).

VII. CLP’s arguments

1) The two sections

7.1Mr David Elvin QC and Mr John Litton for CLP submitted that in basic terms, there are two broad stages to the rating valuation process, namely,

(1) Identification of the relevant tenement(s) for valuation purposes, including deemed tenements under section 8A; and

(2) Valuation of that tenement, applying the rules as to valuation.

7.2Section 8A is an element in the first part of the process, whereas section 8(b) is concerned with the second part.

7.3The effect of section 8A(1), (2) and (3) is to enable land, buildings and structures which are occupied by means of plant (which would not otherwise fall within the definition of a tenement so as to be rateable) to be deemed and rated as separate tenements; thereby imposing a liability on the occupier to pay the rates for the deemed separate tenements; treating the plant by which a person occupies the land, building or structure to be part of a deemed tenement; and defining the type of plant to which the deeming applies.

7.4Mr Elvin submitted that sections 8 and 8A have different purposes :

(1) Section 8 is concerned with the exercise under sections 7 and 7A of ascertaining the rating valuation by clarifying or modifying what it is in the tenement which falls to be valued by including all adjunct machinery but subjects this to the exclusion in (b) which specifically directs that no account is to be taken of the value of ‘any machinery’ used for the purpose of manufacturing operations or trade processes; and

(2) The purpose of section 8A is to extend the scope of liability for rates by bringing into assessment land which otherwise would not fall within the section 2 definition of ‘tenement’ because that person does not hold or occupy that land, building or structure ‘as a distinct or separate tenancy or holding or under any licence’.  Although it refers in section 8A(2) to ‘for the purpose of ascertaining the rateable value’, the purpose of section 8A is not to determine rating valuation but to enlarge the definition of the tenement, the rating valuation of which is then determined under sections 7 and 7A.

7.5Mr Elvin also sought assistance from another deeming section, namely, section 9 of the Ordinance which provides that advertising stations are deemed for rating purposes to be a separate tenement where the right to use land for the purpose of exhibiting advertisements is let, reserved or otherwise granted to a person other than the occupier of the land, or, where the land is not occupied for any other purpose, to any person other than the owner of the land, that right shall, subject to subsection (2), be deemed for rating purposes to be a separate tenement in the occupation of the person for the time being entitled to the right, for the purpose of sections 7 and 7A.

2) Machinery

7.6Mr Elvin submitted CLP had adduced evidence that the three disputed items are machinery within the exemption of section 8(b) but because of the Tribunal’s view on section 8A, it did not go on and address this point.  He asked for this issue to be remitted to the Tribunal.

VIII. The Commissioner’s arguments

1) The two sections

8.1Mr Yu maintained the same stand as the Tribunal in this appeal.  He submitted that it is plain from the legislative material (i.e. the Financial Secretary’s speech when moving the second reading of the Bill) that the object of the section was to make clear that plant such as cables, ducts, pipelines and supports for plant or machinery are rateable.  In the light of the words of the section construed by reference to its object and purpose, it is reasonably plain that ‘plant’ which falls within section 8A is intended to be rateable.  He submitted that CLP’s contention that such value should be disregarded by virtue of section 8(b) cannot be accepted because such contention is contrary to the plain wording of the two sections.  The plant referred to in section 8A(3) – cables, ducts, pipelines, railway lines, tramway lines, oil tanks, settings and supports for plant or machinery – is not ‘machinery’ and renders section 8A redundant.

8.2He argued that both of these results are particularly unlikely to have been the legislative intention, given that section 8A was enacted subsequent to section 8, so it is unlikely that it was intended to be overridden by section 8.  Whilst section 8(a) is expressed to be subject to section 8(b), section 8A is not so expressed.

2) Machinery

8.3Mr Yu further submitted that in any event, even if there is overlap between sections  8 and 8A, in that some structures can be both plant under section 8A and manufacturing or trade process machinery under section 8(b), the disputed items in the present case are not such machinery.

8.4The evidence from CLP’s experts at best say that the steel supports for the boiler were installed together with the boiler as an integrated whole, but they do not go so far as to say that the supports are actually machinery themselves.  That they support an item of machinery, and that they are closely connected to that item of machinery, does not turn them into machinery.  Similarly for the pipework and cooling water circuits, and the miscellaneous cables.  They might connect machinery, but are not part of the machinery themselves.

8.5Furthermore, as a matter of law, the fact of integration is irrelevant.  For rating purposes, the rateability of the boiler should be considered separately from the rateability of its supporting structure.  Likewise for the other disputed items.

8.6Further, apart from the argument based on integration with non-rateable assets, CLP did not put forward any evidence that the disputed item (being steelwork supports, cooling water circuits, pipework and cabling) are ‘machinery’ used in ‘manufacturing operations or trade processes’.  The defining characteristic of manufacturing operations and trade processes is activity bringing about a transition from one static condition to another: see Jane A Berry (Valuation Officer) v. Iceland Foods Limited [2015] RA 201 at paragraph 65.  CLP produced no evidence to suggest that any of the disputed items carried out such activity.

IX. My view

1) Construction of sections 8 and 8A

(1) The contextual approach

9.1Li CJ in HKSAR v. Cheung Kwun Yin (2009) 12 HKCFAR 568 at paragraphs 11 to 14 identified the modern approach to statutory interpretation : a purposive interpretation was adopted.  The statutory language was construed, having regard to its context and purpose.  Words were to be given their ordinary and natural meaning unless their context or purpose pointed to a different meaning.  Context was to be considered in the first instance, not only when ambiguity was thought to arise. Context was to be taken in its widest sense and included other statutory provisions and the general law.  The purpose of a statutory provision might be evident from the provision itself, the recommendation of a report such as that by the Law Reform Commission, the Explanatory Memorandum to the relevant bill or a statement by the responsible official of the Government in relation to that bill in the Legislative Council.

9.2More recently Ma CJ observed in Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351 at 361 :

‘ 15. …..The surer guide to interpretation is context. …. in the area of statutory and constitutional interpretation, it is context that is key; context is the starting point (together with purpose) rather than looking at what may be the natural and ordinary meaning of words.’

(2) The flaw of the Commissioner’s view

9.3I disagree with the Commissioner on the interpretation of section 8A.

9.4In my view, the key to resolve the dispute between the parties is to determine whether section 8A is indeed a deeming provision as submitted by CLP.  If it is, then, in my view, section 8A has to be discarded in its application in the present case because the disputed items which are said to be rateable are already part of CLP’s tenements and as such it is not necessary to rely on a deeming provision to bring them into the fold of tenements for rating purposes. 

9.5Looking simply at the wording of section  8A itself, it points towards the interpretation that it is indeed a deeming provision by the phrase ‘where any land or any building or structure is occupied by a person by means of any plant, such land, building or structure shall … be deemed for rating purposes to be a separate tenement’.  To emphasise this point, this section further provides that the land is to be deemed to be a separate tenement ‘whether or not such land, building or structure is otherwise a tenement.’  Mr Yu submitted the word ‘otherwise’ is quite different from ‘not otherwise’.  As will be discussed later, I disagree with this view. 

9.6Further looking at the words of the section, the inclusion of railway lines and tram lines which occupy the land as plant points towards a more restricted ambit of section 8A and supports the argument that it only covers the situation of land occupied by cables, ducts, railway lines and tramlines etc. without the presence of an existing tenement. 

9.7However, looking solely at the ordinary and natural meaning of the words of a statute is no longer the proper approach to statutory interpretation.  One also has to consider the context in which section 8A was enacted.  In this regard, the legislative history becomes relevant.

9.8The theme of Mr Yu’s submission is that the mischief section 8A seeks to remove is the doubt expressed as a result of Yiu Lian on the rateability of plants such as cables and ducts.  He argued that while section 8A seeks to correct the mischief that arose as a result of Yiu Lian, its ambit goes beyond that.  This is because of the words ‘whether or not such land, building or structure is otherwise a tenement’.  Hence even if, as in the present case, there is already a tenement which housed the machinery, nonetheless under section 8A it is deemed to be a tenement and rateable.  Further section 8A is more than merely a deeming provision.  Section 8A(2) also provides for the valuation of such tenement and section 8A(3) provides for a definition of plant.

9.9I do not regard the presence of sections 8A(2) and 8A(3) as detracting from the basic purpose of section 8A(1) as a deeming provision.  The flaw in Mr Yu’s argument is to elevate the position of a land occupied by cables and ducts into a rateable tenement irrespective of whether a rateable tenement is already in existence as in the present case.  I do not consider section 8A has such a wide ambit.  The approach advocated by the Commissioner is not apparent from the legislative material.  The context of section 8A is clearly to avoid the non-rateability of cables and ducts etc. which occupied the land as a result of this Court not adopting the English chattel rule in Hong Kong.  Clearly if the legislation is intended by section 8A to cover an already rateable tenement, it could have said so expressly.

9.10Mr Yu also referred to one of the disputed items, namely, ‘support for the boiler’ and submitted that it came within the words of section 8A(3), namely, ‘setting and supports for … machinery’.  Again this is a very restricted view by simply construing the section solely by reference to the meaning of the words used, an approach now disapproved by the Court of Final Appeal.

9.11The Commissioner’s interpretation will create a conflict between sections 8 and 8A in that, in respect of the same tenement, one under section 8 and the other deemed under section 8A, the former is non rateable if the condition on manufacturing operations or trade process is fulfilled, but the latter is rateable even if the condition is fulfilled.  In other words, assuming the disputed items are used as adjunct to the tenement and for the purposes of manufacturing operations or trade processes, the rate payer can seek exemption under section 8(b).  But, since the definition of ‘plant’ includes ‘machinery’, by virtue of the Commissioner’s approach, what has been exempted will be brought back as rateable items under section 8A.

9.12In Yarmouth v. France (1887) 19 QBD 647 a workman was injured by a horse and sought compensation under the Employers’ Liability Act.  The issue was whether the horse was ‘plant’ within the meaning of the Act.  Lindley LJ held, page 658 :

‘ There is no definition of plant in the Act : but, in its ordinary sense, it includes whatever apparatus is used by a business man for carrying on his business, ―not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment in his business: see Blake v. Shaw. [Johns. 732]’ (emphasis added)

9.13Under this definition, machinery comes within the meaning of plant because it is an ‘apparatus used for carrying on the business’.  This being the case, the Commissioner’s argument, apart from being an extremely strenuous interpretation of section 8A, creates an extremely unsatisfactory situation. This will render section 8 devoid of any true meaning and impose such an absurd result that the Court should strive to avoid giving section 8A such a meaning.  In my view, the proper interpretation of section 8A is that it does not cover the situation like the present one where there is already a rateable tenement.

9.14Mr Yu relied upon the so-called ‘piecemeal’ principle in rating law.  He referred to the case of Shell-Mex and B. P. Ltd. v. Holyoak [1959] 1 WLR 188 (‘Shell-Mex’)where the House of Lords at page 199 came to the view that for the purpose of the English rating legislation it is permissible to split up for rating purposes installations which are for practical purposes indivisible.   

9.15In Shell-Mexa company constructed an underground petrol container beneath the pumps of a petrol station.  The container consisted of a concrete base with brick walls, having a concrete rendering.  On the base rested concrete cradles on which was placed a large metal cylinder containing large volume of petrol.  The space round the outside of the cylinder was packed with dry sand and the whole was covered with slabs of reinforced concrete except for a manhole through which the cylinder was filled.

9.16Section 24(1) of the Rating and Valuation Act 1925 (‘Act’) provided that :

‘ For the purpose of the making or revision of valuation lists… the following provisions shall have effect with respect to the valuation of any hereditament ... (a) All such plant or machinery in or on the hereditament as belongs to any of the classes specified in Schedule III to this Act shall be deemed to be a part of the hereditament: (b) Subject as aforesaid, no account shall be taken of the value of any plant or machinery in or on the hereditaments.’

9.17Under and by virtue of an order made under later subsections of the same section (The Plant and Machinery (Valuation for Rating) Order, 1927) the classes of machinery and plant deemed to be part of the hereditament under the said Schedule III to the Act included class 4 described as :

‘ The following parts of a plant or a combination of plant and machinery whenever and only to such extent as any part is, or is in the nature of, a building or structure.’

9.18The issue is whether the metal cylinder falls to be rated as part of the hereditament.  It is rateable if this question can be answered in the affirmative only if (1) it is a ‘tank’ within the meaning of the Order and (2) it is a building or structure or in the nature of building or structure.

9.19The House of Lords held by a majority of three to two that the metal cylinder was not rateable but the concrete housing was rateable.  Lord Reid who gave one of the majority speeches, held at 199 that :

‘ I agree that in fact, from a practical point of view, it would not be sensible or realistic to split the two things up.  But, as I have said, it appears to me to be the purpose of this legislation to split up for rating purposes installations which are for practical purposes indivisible.  I must therefore leave out of consideration the functional connection between the chambers and the cylinders.

Then it appears to me to be clear that the tank is the cylinder and nothing else.  There may well be cases where a tank consists of a structure with a metal lining, in such a case probably the lining would not be capable of use as a tank without the support of the structure.  But these cylinders are not mere linings: they would properly have been described as tanks before they were enclosed in the chambers, and enclosure did not alter their character.  Taking the ordinary meaning of the word ‘tank’ I think that these cylinders were tanks originally and are still tanks.  They have not acquired additional walls: the sand cannot be part of the tank wall, and I do not think that it would be in accordance with ordinary usage to say that the walls of the chambers became part of the tanks by reason of the tanks being enclosed in the chambers.  In my opinion this appeal should be allowed.ʼ  (emphasis added)

9.20Lord Denning in Manchester Marine Ltd. v.  Duckworth (Valuation Officer) [1973] 1 WLR 1431adopted Lord Reid’s approach. The case is concerned with section 21 of the General Rate Act 1967 :

‘(1) For the purpose of the valuation of any hereditament under section 19 of this Act otherwise than on the profits basis―(a) subject to any order under subsection (5) of this section, all such plant or machinery in or on the hereditament as belongs to any of the classes set out in the statement for the time being having effect under subsection (4) of this section shall be deemed to be a part of the hereditament; (b) except as provided in the foregoing paragraph, no account shall be taken of the value of any plant or machinery in or on the hereditament.’

9.21The question is what part or parts of the dry docks come within ‘plant or machinery’ in section 21(1)(b) so as to be excluded from rates.  Lord Denning referred to Shell-Mex and observed at 1435 that :

‘ The important point to notice is that in that case on rating law the House of Lords did in fact split up the subject matter into pieces. They dealt with it piecemeal.’

9.22Ryde on Rating and the Council Tax stated that :

‘ [757] In determining whether an item is ‘plant’, it is not permissible for rating purposes to have regard to its function as part of a larger whole. In this respect rating law applies a different test from that applied to the term ‘plant’ in other branches of the law such as income tax and capital allowances.’

9.23I do not agree that Lord Reid had propounded a principle which is applicable to all rating cases so that one should look at, as in this case, the three disputed items in a piecemeal manner and decide if they come within the ambit of section 8A.  The part of Lord Reid’s judgment which I have underlined, emphasized that he was considering the specific legislation in question which allowed different items to be separately rated.  Likewise in Manchester Marine Ltd. However, our section 8A is differently worded and one just cannot distill from Lord Reid’s judgment a universal principle applicable to all rating law and import it wholesale to our own legislation. 

(3) Other issues

9.24There are other issues canvassed by the parties on the interpretation of section 8A.   I have considered these arguments but I do not need to address them since I have focused on the germane points upon which the appeal turns.

2) Machinery

9.25Mr Yu submitted that CLP had not adduced evidence that the three disputed items are machinery and come within the exemption of section 8(b), namely, manufacturing operations or trade process.

9.26He referred to The New Oxford Dictionary of English on the meaning of machine, namely, an apparatus using or applying mechanical power and having several parts, each with a definite function and together performing a particular task.

9.27In Auckland City Corporation v. Auckland Gas Co. Ltd. [1919] NZLR 561, Sim J at 586 stated the term of ‘machinery’.

‘ ….it means primarily a number of machines taken collectively, and a machine in its popular sense is a piece of mechanism which, by means of its interrelated parts, serves to utilize or apply power, but does not include anything that is merely a reservoir or conduit, although connected with something which is without doubt a machine.  Are, then, the company’s gasometers and mains machines or machinery in the popular sense?  The operations of the company consist in manufacturing gas and delivering it to the consumers, and machinery is used in connection with both these operations.  The main function of the gasometers is to hold the gas after it has been manufactured, but they appear to perform also, to a slight extent, the function of a machine in connection with the distribution of the gas.  This is the description of that function contained in the statement of facts agreed upon by the parties : “The gas is pumped into the gasometer under pressure, and the weight of the gasometer itself maintains a small pressure upon the gas in it.  This pressure is sufficient to force the gas through the outlet mains to consumers in the immediate vicinity of the gasometer.”

In this way, therefore, the gasometer performs the function of a pump in connection with the distribution of the gas, and for that reason it may be regarded as a machine.  The mains and pipes, however, do not perform any such function in connection with the distribution.  They are used in conveying the gas in the first place from the point of manufacture to the gasometers, and from the gasometers to the consumers.  They are thus conduits and reservoirs, but nothing more….’ (emphasis added)

9.28An example of how the exemption of section 8(b) operates can be found in The Cross-Harbour Tunnel Co Ltd v Comr of Rating and Valuation [1978] HKLTLR 144, [1977-1979] 1 HKC 81.  The parties agreed that 80 percent of the tunnel ventilation system was machinery and not part of a trade process and that water ducts formed part of the rateable tunnel structure.

9.29The Tribunal held at 159 it did not consider the provision of ventilation, be it by machinery or ducting, in such circumstances as a provision for the purpose of a trade process.  It was of the view that the whole ventilation system was an adjunct to the tenement and must, in accordance with section 8(a), be regarded as part of the tenement and there should not be any allowance for the system as working expenses.

9.30As to the Commissioner’s submission that CLP had not adduced evidence below on machinery, my view is that it had.  CLP’s experts Mr Jupp and Mr Taylor gave evidence and its counsel argued before the Tribunal that the disputed items were structurally part of or functionally ancillary to the process machinery (boilers,  generators, transformers,  pumps etc.) and, therefore, were not rateable under section 8(b) :

(1) the CPPS station B boilers and the supporting steelwork were designed, fabricated and installed as an integrated unit to fit together;

(2) the ancillary pipework and cooling water circuits in all CLP’s power stations connect main and auxiliary equipment such as pumps, fans and motors which are all non-rateable; and

(3) miscellaneous cables connecting main and auxiliary equipment.

9.31The reference to the above can be found in the following documents :

(1) Item 1 – Jupp 2^nd Report, paragraph 23, Summary of Evidence, paragraphs 7 and 16 and Speaking Note, paragraphs 6, 15, 36-38, 40-41 and 47; and Day 11/30-35, 65 and 68 transcript.  Also CLP’s Closing submissions, paragraphs 4.32-4.36.

(2) Item 2 – Jupp 1^st Report, paragraphs 54 and 64; Taylor at Day 8/20 transcript.

(3) Item 3 – Taylor at Day 8/14-15 transcript.

9.32The Commissioner’s expert Mr  Allen also confirmed the views of CLP’s experts on item 2 (Mr Allen at Day 26/51 transcript). 

9.33As to Mr Yu’s argument that the evidence of CLP in respect of the steel support for the boiler, the pipework and cooling water circuits and the miscellaneous cables do not suggest that they are part of the machinery themselves or machinery used in manufacturing operations or trade processes and that integration is not enough, my view is that they may or may not point towards such a conclusion but in view of the Tribunal’s acceptance of the Commissioner’s case on ‘plant’, it did not go on to address the issue of machine and its exemption.  

9.34Mr Elvin argued that it is not now open to the Commissioner to argue that these items are not machinery within section 8(b) by way of the respondent’s notice, having relied only on its submissions as to the construction of section 8A, without advancing evidence or making submissions to the Tribunal that the disputed items were not, as a matter of fact, part of and ancillary to the process machinery.  He relied on Flywin Co Ltd v Strong & Associates Ltd (2002) 5 HKCFAR 356 per Bokhary PJ at paragraphs 37 and 38 who held that where a party has omitted to take a point at the trial and then seeks to raise that point on appeal, he will be barred from doing so unless there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side if the point had been taken at the trial.    

9.35In my view, the issue here is not whether the Commissioner is barred from taking this point because he had chosen not to adduce evidence below as suggested but rather whether the evidence below is capable of supporting the CLP’s case on section 8(b). To that, the Tribunal has made no findings.  In my view, the only way to resolve this issue is to remit the matter back to the Tribunal for it to consider whether the evidence before it supported CLP’s case on section 8(b).  But since the composition of the Tribunal has changed since its decision, the appropriate approach is for the parties to apply to the President of the Tribunal for direction on how such evidence is to be dealt with at the retrial.

X. Conclusion

10.Accordingly the appeal is allowed.  The decision of the Tribunal is set aside and the rateability of the three disputed items is to be remitted back to the Tribunal for consideration.

XI. Costs

11.There will be an order nisi that CLP is entitled to the costs of the appeal and also of the costs below on the issue concerning the disputed items with certificate for two counsel.

Hon Kwan JA:

12.I agree with the judgment of Cheung JA. 

Hon Barma JA :

13.I agree with the judgment of Cheung JA. 

Mr David Elvin QC and Mr John Litton, instructed by Holman Fenwick Willan, for the appellant

Mr Benjamin Yu SC and Ms Yvonne Cheng SC, instructed by Department of Justice, for the respondent