Deluxe Ascent Ltd v. Director of Lands

CACV 195/2021

[2023] HKCA 305

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 195 OF 2021

(ON APPEAL FROM HCAL NO 2442 OF 2018)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.This appeal is brought by the Director of Lands (“Director”) against the judgment of Chow J (as Chow JA then was) on 31 March 2021 (“Judgment”)[1]. By the Judgment, the application for judicial review by Deluxe Ascent Limited (“applicant”) was allowed. An order of certiorari was granted to remove into the High Court and to quash the decision of the Director by letter dated 3 August 2018 (“Director’s Decision”). The judge remitted to the Director for fresh consideration in accordance with the Judgment the question of the amount of ex gratia compensation to be offered to the applicant for the resumption of a portion of section A of Lot No 1941 in Demarcation District No 95 resumed by the Government pursuant to Gazette Notice No 4571 (“Resumed Land” and “GN 4571”).

Background

2.The relevant background matters, which are taken from the Judgment, may first be related as follows.

3.Section A of Lot No 1941 (“Lot 1941A”) in Demarcation District No 95 was building land of approximately 59,525 m² in size[2]. It is located on the northern side of Castle Peak Road – Chau Tau section, in Kwu Tung, New Territories. Part of the land is zoned Government, Institution or Community under the Kwu Tung North Outline Zoning Plan No S/KTN/2.

4.The applicant was the registered owner of 50% of Lot 1941A. The remaining 50% was held by the executors of the estate of Fok Ying Tung Henry, deceased. In addition to Lot 1941A, the applicant and the Fok estate co-owned, as tenants-in-common with 72% and 28% interests respectively, Section B of Lot 391 in Demarcation District No 95 (“Lot 391B”).

5.Pursuant to GN 4571 dated 5 August 2016, the Resumed Land of approximately 12,858.8 m² in size and Lot 391B were resumed for a public purpose, namely, for a “purpose-built complex of residential care homes for the elderly in Area 29 of Kwu Tung North New Development Area”, under the Lands Resumption Ordinance, Cap 124 (“LRO”), and reverted to the Government at midnight on 12 November 2016.

6.On 9 December 2016, the Lands Department wrote to the applicant and the Fok estate requiring them to submit their claim for compensation in respect of the Resumed Land. On 21 March 2017, M Y Wan and Associates Limited submitted a claim on behalf of the applicant in the total sum of $930,497,000, made up of $778,107,000 as land value plus $152,390,000 by way of ex gratia compensation, as compensation for the resumption of both Lot 391B and the Resumed Land.

7.By a letter dated 3 August 2018, the Director made a without prejudice offer to the applicant and the Fok estate in respect of the Resumed Land in the sum of $225,229,764, made up of: (1) open market value of the Resumed Land as at the date of reversion assessed under the LRO at $164,274,000; and (2) ex gratia compensation pursuant to the Government’s policy (“the Policy”) on ex gratia compensation for private building land resumed in the New Territories pursuant to the LRO at $60,955,764 (at the applicable zonal rate for building land of $2,202 per ft², being 120% of the basic rate of $1,835 per ft²). The applicant disputes both components of the offer[3]. The Director’s Decision, which is the subject of the application for judicial review, is in respect of the ex gratia compensation.

8.The present dispute between the applicant and the Director boils down to this:

(1) The Director takes the view that because the Resumed Land was subject to a site coverage restriction of 20%, the compensation rate of $2,202 per ft² should be applied only to 20% of the area of the Resumed Land. Hence, the ex gratia offer of $60,955,764 was arrived at by this formula: 138,411 ft² (equivalent to 12,858.8 m²)[4] x 20% x $2,202 per ft². On the Director’s case, 50% of the ex gratia compensation would give the applicant $30,477,882.

(2) The applicant contends that it should be offered ex gratia compensation of 50% of 138,411 ft² x $2,202 per ft². In other words, the rate of $2,202 per ft² should be applied to the whole area of the Resumed Land. On the applicant’s case, it should receive an offer for ex gratia compensation of $152,390,511.

9.The original land grant for Lot 1941 cannot now be found, although there is evidence it was first granted in 1922 or 1923. The only documents available to the public relating to the land grant in respect of Lot 1941A are: (1) the “A” rent roll, which mentioned that Lot 1941A was first demised as “3^rd class padi”; and (2) a modification letter dated 27 September 1965, which permitted the erection of a building(s) on Lot 1941A subject to a height restriction of two storeys (25 ft). Neither document mentioned any site coverage restriction applicable to Lot 1941A. The judge concluded on the materials before him there is no evidence that Lot 1941A was subject to any site coverage restriction, whether of 20% or otherwise[5].

The application for judicial review and the Judgment

10.Four grounds for judicial review are raised in the applicant’s amended Form 86 dated 1 November 2019:

(1) misinterpretation of the Policy or departure from the Policy (“Ground 1”);

(2) failure to give effect to a legitimate expectation (“Ground 2”);

(3) taking into account irrelevant considerations, namely, whether the land being resumed was subject to a site coverage restriction, and/or mistake of fact, namely, that the Resumed Land was subject to a 20% site coverage restriction (“Ground 3”); and

(4) alternatively, on the premise that the internal instructions of the Lands Department No L.I. E-9 “Assessment of Ex-gratia Compensation for Building land taken in New Territories when only a portion of the lot is affected” dated 23 December 1991 (“1991 Instructions”) reflected the proper construction of the Policy – non-adherence with the Director’s understanding of the Policy (assuming that his understanding of the Policy is correct), and/or the 1991 Instructions (assuming that they correctly reflected the proper construction of the Policy) (“Ground 4”).

11.The judge held that Grounds 1, 3 and 4 are well-founded.

12.In view of his conclusion there is no evidence that Lot 1941A was subject to any site coverage restriction, the question of whether, for building land subject to site coverage restriction, the applicable zonal building rate should be applied only to the covered percentage of the land for ex gratia compensation under the Policy does not strictly arise. Nevertheless, for the sake of completeness, the judge determined the question assuming that, contrary to his conclusion, Lot 1941A was subject to a 20% site coverage restriction[6].

13.The judge considered it clear, upon an ordinary reading of the Policy, that the standard zonal rate of $2,202 per ft² should be applied to the whole area of the Resumed Land for the purpose of calculating the ex gratia compensation that should be offered in this instance[7]. He did not think the 1991 Instructions can be said to reflect the proper construction of the Policy, quite apart from the principle that the Director should not be entitled to rely on the 1991 Instructions which were a set of internal instructions of the Lands Department and amount in substance to a secret or hidden policy[8]. He concluded that in making the Director’s Decision, the Director has either misconstrued, or departed from, the Policy[9].

14.If, contrary to his view, the 1991 Instructions properly reflected the true construction of the Policy such that where building land resumed by the Government is subject to a site coverage restriction, ex gratia compensation should be assessed based on building land rate for the permitted site coverage (at $2,202 per ft²) and on agricultural land rate for the rest of the area taken (at $1,112.4 per ft²), the Director has nonetheless departed from the Policy in that he did not offer ex gratia compensation for the remaining 80% of the Resumed Land at the applicable zonal rate for agricultural land[10].

15.The above conclusions made it unnecessary to consider Ground 2[11].

This appeal

16.The notice of appeal of the Director seeks to challenge the judge’s holdings on Grounds 1, 3 and 4.

17.At the hearing of the appeal, Mr Ambrose Ho, SC for the Director[12] only pursued the challenges against the holdings on Grounds 1 and 4. He did not pursue the contention that the judge was wrong to hold that the Director took into account irrelevant considerations and/or there was mistake of fact that the Resumed Land was subject to a 20% site coverage restriction. In light of the factual conclusion in respect of Ground 3 which is unchallenged, the question of construction of the Policy does not strictly arise, as in the case before the judge. As it is acknowledged by the Director that the appeal concerning the Policy has ramifications for other cases, and it raises an important point of construction of the Policy which is of general application[13], we think it appropriate to determine the issues raised in this appeal.

18.At the heart of this appeal is the construction of the Policy. The question is whether it is the Policy that ex gratia compensation at the applicable zonal rate of $2,202 per ft² should apply to the whole area of building land or just the buildable portion of the building land. That the Policy is in existence is undisputed. There is also no dispute that in construing the Policy, one ought to have regard to the history, context and purpose of the Policy. Although there is support for the Director’s construction of the Policy in the internal documents of the Lands Department, he is not entitled to rely on unpublished or hidden policy. The legal principles are clearly stated by Lord Dyson JSC in R (Lumba) v Secretary of State of the Home Department [2012] 1 AC 245 at §26:

“… a decision-maker must follow his published policy (and not some different unpublished policy) unless there are good reasons for not doing so. The principle that policy must be consistently applied is not in doubt: see Wade & Forsyth, Administrative Law, 10^th ed (2009), p 316. As it is put in De Smith’s Judicial Review, 6^th ed (2007), para 12-039: ‘there is an independent duty of consistent application of policies, which is based on the principle of equal implementation of laws, non-discrimination and the lack of arbitrariness.’ The decision of the Court of Appeal in R (Nadarajah) v Secretary of State for the Home Department [2004] INLR 139 is a good illustration of the principle. At para 68, Lord Phillips MR, giving the judgment of the court, said that the Secretary of State could not rely on an aspect of his unpublished policy to render lawful that which was at odds with his published policy.”

19.To resolve the question of construction with regard to the history, context and purpose of the Policy, it is necessary to refer to a number of documents, as the judge had done. Before doing so, the principles for the proper construction of an administrative policy should be noted.

The principles of construction

20.The relevant principles are well settled[14]. As succinctly put by the judge in §24 of the Judgment:

(1) the true meaning and effect of the administrative policy is a matter of law for the court to determine;

(2) the court’s task is to ascertain the intention as expressed in the language of the policy objectively; and

(3) when interpreting the policy, the court should adopt a purposive approach, having regard to the document’s context and purpose.

21.These words of Lord Steyn in In re McFarland at §24 are pertinent:

“… in respect of the many kinds of ‘soft laws’ with which we are now familiar, one must bear in mind that citizens are led to believe that the carefully drafted and considered statements truly represent government policy which will be observed in decision-making unless there is good reason to depart from it. It is an integral part of the working of a mature process of public administration. Such policy statements are an important source of individual rights and corresponding duties. In a fair and effective public law system such policy statements must be interpreted objectively in accordance with the language employed by the minister. The citizen is entitled to rely on the language of the statement, seen as always in its proper context. The very reason for making the statement is to give guidance to the public. The decision-maker, here a minister, may depart from the policy but until he has done so, the citizen is entitled to ask in a court of law whether he fairly comes within the language of the publicly announced policy. That question, like all questions of interpretation, is one of law. And on such a question of law it necessarily follows that the court does not defer to the minister: the court is bound to decide such a question for itself, paying, of course, close attention to the reasons advanced for the competing interpretations. This is not to say that policy statements must be construed like primary or subordinate legislation. It seems sensible that a broader and wholly untechnical approach should prevail. But what is involved is still an interpretative process conducted by a court which must necessarily be approached objectively and without speculation about what a particular minister may have had in mind.”

Relevant documents in the public domain

(1)  The Pamphlet

22.A convenient starting point is the pamphlet published by the Lands Department entitled “How to Receive Compensation for Private Land Resumed in the New Territories by the Government (Revised Version) – May 2006” (“the Pamphlet”). The relevant parts of the Pamphlet read as follows:

“1 Purpose

This pamphlet briefly explains the procedures involved in compensation payment for private land resumed in the New Territories so as to assist landowners to get compensation as soon as possible.

2 Land Acquisition

Government may acquire private land by resumption for public purposes such as a road scheme, a flood protection, a drainage improvement project, a new market, an open space, a fire station, a public housing development or any item in the Public Works Programme. Resumption proceedings may be instituted mainly under the provisions of:-

(a) the Lands Resumption Ordinance, Chapter 124;

…

4 Offer of Compensation

After the affixing of the Government Notice on the land, a standard offer letter for compensation will be sent to you as the registered owner of the land or person who has an interest in the land. The letter offers you a sum of money by way of compensation for the land to be resumed. …

5 Statutory and ex-gratia compensation

When land is resumed or otherwise adversely affected by the actions of Government, the Ordinance under which the legal interest is extinguished or affected provides for the payment of compensation. The compensatable interest is limited by the provisions of the Ordinances, some of which are listed in paragraph 2 hereof. Statutory compensation is assessed on an open market value basis. However, it is the general Government practice to make compensation offers based upon ex-gratia rates in full and final settlement of all claims arising out of the provisions of the Ordinance. In this connection, agricultural land resumed in the New Territories will usually be offered compensation according to the ex-gratia compensation rates shown on the Zonal Plan for Calculation of Compensation Rates which may be inspected at all the DLOs [District Lands Offices] and owners of building land will usually be offered statutory compensation based on professional valuation plus ex-gratia compensation at the standard zonal rate. The rate applicable to a resumption is that prevailing as at the date of reversion. The basic rate is revised half-yearly on 1^st April and 1^st October.

6 If you do not accept the Government’s offer

If you do not accept the amount of compensation offered, you may make a claim for compensation in writing to the DLO or CES/RD [Chief Estate Surveyor/Railway Development] stating the amount of your claim with evidence to support your claim. This means that you will have to follow the requirements laid down in the relevant Ordinance for making a claim. A claim for compensation usually includes the nature of your estate or interest in the land and the amount which you seek to recover. In the event that your claim is not agreed, it may be referred by you or by the Government to the Lands Tribunal for the amount of compensation to be determined. The figure awarded will then be binding on both you and the Government. In the event of a claim being referred to the Lands Tribunal, the offer of ex-gratia compensation will be immediately withdrawn and a re-assessment on a market value basis made. Once an award is made by the Lands Tribunal, irrespective of whether it is higher or lower than the original ex-gratia offer, it is the maximum compensation payable.” (Emphasis supplied.)

(2) The Letter B System

23.For the background to the Policy[15], it is necessary to mention in some detail the previous New Territories urban land exchange policy (“Letter B System”), as described in the Report of the Working Group on New Territories Urban Land Acquisitions dated 20 April 1978 (“1978 Report”)[16].

24.Leased land in the New Territories is mostly held through Block Crown Leases. The Government’s control over the use of land leased under a Block Crown Lease derives principally from a covenant that the lessee shall not convert any land expressed to be demised as agricultural or garden ground for building without the licence of the Government. Powers for the resumption of leased land are prescribed in the LRO. Compensation payable is expressed in the LRO as being based on the open market value of the land, subject to certain specific provisions, one of which is section 12(c) which excludes the award of compensation for value attributable to any expectancy or possibility which does not derive from the contractual rights of the lessee as set out in the lease or any statutory right set out in an ordinance. This restriction did not generally give rise to any problems in the resumption of urban building land, because the “compensation” value and the “market” value both took account of the right to build to the full extent permitted in the lease, but, in the case of New Territories agricultural land, the open market tends to take account of possible permissions to build and hopes of exchanges, which are excluded from consideration in a valuation for compensation purposes. From the early 1950s, strong opposition to resumption was encountered because the lessees objected to parting with their lands for compensation based on agricultural values.

25.The Letter B System[17] was devised to circumvent this opposition. The aim was to give owners of leased land affected by urban development in the New Territories the opportunity to participate in the development or to have a share in the development value of their land and in its appreciation. It provided for a voluntary ex gratia alternative to the statutory resumption procedures.

26.Under this system, the main elements of the offer made to lessees whose land had been subject to a resumption notice were the choice of either: (a) a stated amount of cash in full and final settlement of the surrender; or (b) an exchange of agricultural land in the New Territories, a foot for a foot being offered without premium; or (c) the right to a future grant of building land in one of the New Territories urban development areas on the following terms: (i) for every 5 ft² of agricultural land surrendered the lessee would be offered 2 ft² of new building land in any New Territories urban layout; (ii) for every ft² of building land surrendered, one ft² of new building land was offered; (iii) a premium was payable on the grant of the new building land representing the difference in value between the land surrendered and the land granted both assessed at the date of the surrender, credit representing the value of the land surrendered was expressly stated in the offer letter.

27.Letter B entitlements were transferrable and freely bought and sold. The Government decided in 1968 that all land exchange entitlements in all districts should become interchangeable.

28.In the Letters B issued before 1975, the cash offer and the surrender value to be credited against premium were both directly related to the Government’s assessment of the value of the surrendered land under the LRO and took no account of the expectations of an exchange under the Letter B System. It was decided in 1975 that the cash offer and the surrender value should be increased by adding $10 per ft² to bring them up to the “market value” of Letters B. In 1976, the cash offer was raised to $17 per ft², with the surrender value remaining at $10 per ft².

29.For the Letter B System to remain acceptable, it was essential that offers of new land should follow the surrender of the old within a reasonable period. With the increased tempo of urban development in the New Territories, an increasing amount of land was resumed over the years. The intensive development of the new towns simultaneously in support of the public housing programme produced commitments to provide building land much faster than the new land could be produced and a backlog of exchange commitment had built up. In 1977, the amount of land resumed was more than 10 million ft², creating an exchange commitment of about 4 million ft² of new building land, and annual commitments for at least 4 million ft² of new building land were expected in future years. There would continue to be insufficient land available to meet Letter A and B commitments within a reasonable period.

(3)  Recommendations in the 1978 Report

30.In October 1977, the Working Group on New Territories Urban Land Acquisitions was appointed under the chairmanship of Sir Y K Kan to examine the current methods including the rates of compensation and the land exchange scheme and to recommend any changes needed. The most important recommendation in the 1978 Report, which was adopted by the Government, was a modified new package offer to replace the Letters A and B offer for private agricultural land. There was a separate package for building land (the quantity of private building land affected by urban development and which must be acquired was relatively small), and other related or consequential matters. It should be noted that the system of land exchanges, which was well entrenched and continued to be preferred by New Territories landowners, was not terminated.

31.The Working Group defined the general administrative principles which should guide an adjustment to the land acquisition system and they were as follows: the system must be fair and acceptable to those whose land is being acquired; it must provide for a means of proceeding with a large scale resumption programme for urban development in the New Towns and Market Towns of the New Territories; it must be capable of reasonably easy administration and explanation; it must, as far as possible, be capable of rational explanation; it must provide for a system for continuous review of the compensation rate; more particularly, an acceptable system: (i) must retain an option for a future exchange of land, (ii) must provide for uniform rates of compensation or exchange entitlement for land acquired at any given time in any urban layout in the New Territories, (iii) must relate to different classes of land and not different classes of owners[18]. The Working Group considered that the general administrative principles “would produce a common rate for all and no room for the individual variation which is the essential function of arbitration”[19].

32.The formula for the recommended package of the Working Group was as follows:

(i)  For agricultural land

33.In respect of half the area of each private agricultural lot surrendered, the owner should be offered cash compensation at the rate of $27 per ft² or such rate as shall be derived from subsequent reviews. In respect of the remaining half, the owner should be offered a choice of either cash compensation at the rate of $27 per ft² (as amended by subsequent review) or a right to a future 5:2 exchange on the same terms as those offered in the Letter B System except that the credit value would be $13.50 per ft² or half of the value of the cash offer[20].

(ii)  For building land

34.The Working Group recognized that unlike agricultural land, building land is valuable for its sake irrespective of the prospects for its reuse in an urban development and that the value of building land with the buildings on it is dependent on location, the terms of the lease and the condition and use of the building. These elements are capable of valuation and are compensatable under the LRO. The Working Party further noted that under the present arrangements, unlike agricultural land there was no ex gratia element and considered whether any ex gratia element should be payable. It reasoned that “if an owner of building land decided to forego his right to a land exchange, he received no compensation in respect of the rights foregone” and concluded that “it would be equitable to compensate for the value of the exchange rights foregone in the same way as they are compensated in the case of agricultural land, but suitably adjusted to take into account the difference in exchange ratios”[21].

35.The proposed initial new rate of compensation for agricultural land was $27 per ft². Deducting the value of agricultural land within urban development areas ($5 per ft²), the ex gratia compensation was $22 per ft². As agricultural land was exchanged at the ratio of 5:2 and building land at the ratio of 1:1 for building land, the Working Group considered that for the purpose of ex gratia compensation, 1 ft² of building land could be equated to 2.5 ft² of agricultural land. The initial rate of ex gratia compensation for building land would be $55 per ft² ($22 x 5/2) and this would be payable in addition to the normal compensation arrived at by proper valuation process[22].

36.The Working Group considered it desirable that changes in the compensation rate should move with land values and recommended the adoption of an index which will maintain the existing ratio between average land values and the compensation rate, and the index will take account of the relative proportions of land in different zonings and price categories found in the layouts. It also proposed a review be carried out twice a year[23].

37.The Executive Council adopted the recommendations in the 1978 Report on 27 June 1978 and this was the introduction of the Policy. On 6 October 1978, the Secretary for the New Territories published a notice in the Gazette under GN 2564 (“GN 2564”) on “Revised Ex-gratia Compensation Rates for Resumed Land in NT” as follows:

“Notice is hereby given that compensation rates for agricultural land resumed/acquired in the New Town and Market Town development areas of the New Territories as from (October 1), 1978 will be at the rate of $39 per square foot in place of the $27 square foot prevailing.

The ex-gratia allowance offered to owners of resumed/acquired building land will be $79 per square foot in place of the $55 per square foot prevailing.

Until the next revision:

• Owners of agricultural land will be offered compensation at the rate of $39 per square foot for half the land they surrender.

• For the other half, owners will have the choice of either $39 per square foot or the right to a future land exchange at a ratio of 5:2 in whatever proportion they desire. The credit value of the exchange entitlement will be $19.50 per square foot.

• Owners of building land will be offered cash compensation based on professional valuation and in addition will be offered $79 per square foot or a 1:1 exchange entitlement.” (Emphasis supplied.)

38.As mentioned, initially the new compensation package substituted the Letter B System only in respect of half of the area of agricultural land resumed. On 8 February 1983, the Executive Council decided to cease the grant of Letters B and adopt enhanced compensation rates by 20% to reflect the loss of the option to take Letters B. Save for the change of compensation zones from 7 to 4 (mentioned below) and the cessation of the Letter B System since 9 March 1983, the framework of the Policy has remained unchanged up to the present days[24].

(4)   Zonal rates in the Legco Paper and GN 1841

39.As land in different parts of the New Territories varies greatly in value, it was not thought appropriate that a uniform rate be applied for monetary compensation. All land in the New Territories has been classified into compensation zones and these zones have been recorded onto zonal compensation plans periodically updated to take account of the change in intended use of land. Zonal plans are available for inspection in the New Territories District Lands Offices. At the material time, there are 4 compensation zones in the New Territories, each with a different compensation rate. There is a basic rate of ex gratia compensation for agricultural land and another for building land.

40.Details of the 4 compensation zones and the corresponding zonal rates are set out in LC Paper No CB(1) 1909/01-02(01) titled “Ex-gratia Zonal Compensation System for Land Resumption in the New Territories” prepared by the Planning and Lands Bureau dated May 2002 (“the Legco Paper”):

Zone	Definition	Compensation Rate
A	New Town Development Areas (namely areas within the New Town boundaries as shown on gazetted outline zoning plans for new towns), and those areas that are affected by essential projects with territory-side significance.	For agricultural land: 120% of basic rate. For building land: valuation + 120% of basic rate.
B	Areas which may be brought under urban development in the near future, either by extensions to the adjoining layout areas due to their proximity to such areas or by reason of their known potential for urban development.	For agricultural land: 75% of basic rate. For building land: valuation + 75% of basic rate.
C	Areas in which no urban development is planned and which are unlikely to be affected by later extension to layout areas, but where resumptions are required sometimes for purposes directly connected with urban layout development and sometimes for local improvement schemes.	For agricultural land: 50% of basic rate. For building land: valuation + 50% of basic rate.
D	Areas not included in other zones.	For agricultural land: 30% of basic rate. For building land: valuation + 30% of basic rate.

41.Lot 1941A (including the Resumed Land) was building land situated within Zone A. The applicable rates of ex gratia compensation for present purpose are set out in the bi-annual notice published by the Lands Department under GN 1841 dated 24 March 2016 (“GN 1841”), which reads as follows:

“REVISED EX-GRATIA COMPENSATION RATES FOR RESUMED LAND

Notice is hereby given that as from 1 April 2016 the following ex-gratia compensation rates may apply:-

(a) For agricultural land a basic rate of $927 per square foot.

(b) For building land a basic rate of $1,835 per square foot.

Owners of agricultural land in the New Town Development Areas (namely areas within the New Town boundaries as shown on gazetted outline zoning plans for new towns), and those areas that are affected by essential projects with territory-wide significance of the New Territories (Zone A) and the urban areas of Hong Kong and Kowloon may be offered ex-gratia compensation at $1,112.4 per square foot.

Owners of building land in the New Town Development Areas (namely areas within the New Town boundaries as shown on gazetted outline zoning plans for new towns), and those areas that are affected by essential projects with territory-wide significance of the New Territories (Zone A) may be offered compensation based on professional valuation plus ex-gratia compensation at $2,202 per square foot.

The following ex-gratia compensation rates for agricultural and building land resumed/acquired outside Zone A Areas in the New Territories may apply:-

Ex-gratia Compensation Rates (per square foot)

Zone	Agricultural Land	Building Land
B	75% of Basic Rate	Valuation + 75% of Basic Rate
C	50% of Basic Rate	Valuation + 50% of Basic Rate
D	30% of Basic Rate	Valuation + 30% of Basic Rate

These ex-gratia compensation rates are shown on the Zonal Plan for Calculation of Compensation Rates[25] and may be inspected at the District Lands Offices of North, Yuen Long, Tuen Mun, Sha Tin, Tsuen Wan and Kwai Tsing, Tai Po, Sai Kung and Islands.” (Emphasis supplied.)

(5)  Summary

42.In summary, the recommendations of the Working Group as adopted by the Government in 1978 laid the foundations of the Policy for ex gratia compensation for the resumption of private land in the New Territories. As summarized in the Judgment[26], for the resumption of building land in the New Territories, the compensation to be offered under the Policy consists of two elements: (1) the value of the land as assessed; and (2) ex gratia compensation based on a fixed percentage, depending on its zoning, of the basic rate, reviewed half-yearly. Hence, under the Policy, read with GN 1841, the ex gratia compensation to be offered for the Resumed Land should be calculated at the rate of $2,202 per ft² (120% of the basic rate of $1,835 per ft²). The question is whether this rate should be applied to the entire area of the Resumed Land on the proper construction of the Policy.

The Director’s contentions on construction of the Policy

43.Mr Ho first argued that the judge had wrongly presumed that the ex gratia compensation for building land would apply to both the building and non-building portions. This fallacy arose because the judge wrongly equated the Policy to the Pamphlet alone, and hence was looking at the Pamphlet in vain for any suggestion that the ex gratia payment would be applied only to a portion of the building land[27]. The judge did not go into various historical or background documents in detail (to which both parties had made extensive references before him)[28] and adopted a narrow approach in fixating on the Pamphlet instead of using those documents as the starting point. The Pamphlet, as expressly stated, “briefly explains the procedures involved in compensation payment” (§1) and provides that “owners of building land will usually be offered[29] statutory compensation based on professional valuation plus ex-gratia compensation at the standard zonal rate” (§5; emphasis supplied). These statements in the Pamphlet made clear that the Pamphlet merely provides a broad summary of the arrangement in general as a simplified aid and is by no means exhaustive. Where there are special circumstances in the building lots to be resumed, such as site coverage restriction, the Director would have to construe and apply the Policy to such special circumstances in a manner consistent with its context, purpose and objectives.

44.In construing the Policy with regard to its context, purpose and objectives, Mr Ho made the following submissions.

45.First, it should be noted that the 1978 Report, from which the Policy originated, was a response to the Letter A/B System and this primarily targeted agricultural land. This offered owners of agricultural land the opportunity to participate in urban development by future grant of building land in the exchange ratio of 5:2 or an ex gratia payment in recognition of a “hope value” which is excluded in statutory compensation. In contrast, there was no ex gratia element in cash compensation for building land prior to the 1978 Report. The recommendation of an ex gratia payment for building land in the 1978 Report was on the basis that owners of building land should also be compensated for the value of the exchange rights forgone. It is “fair and equitable” that the ex gratia payment is linked to the extent one can build on a building lot. So only that portion of a building lot that is not subject to a covenant against construction of buildings should attract the higher ratio of 1:1 (as opposed to 5:2) for land exchange. For the portion that is subject to site coverage restriction and cannot be built upon, there is no reason in principle why it should attract an exchange ratio or ex gratia payment higher than agricultural land, which equally cannot be built upon.

46.Second, the exchange ratio of 5:2 for agricultural land was based on the town planning consideration at the time that about 3 ft² out of every 5 would be required for roads, open spaces and Government or other institutional buildings and 2 ft² would be available for private buildings. It is not in dispute that such ratio was unrealistic and had resulted in the Government’s failure to keep abreast of its promise to grant land in exchange for land surrendered, creating a backlog of exchange commitment. It is therefore inconceivable that for building land, the Government would have agreed to an exchange ratio of 1:1 without regard to the area of the buildable portion, as this would further aggravate the backlog of exchange commitment. The ratio of 1:1 should only apply to the buildable portion, the non-buildable portion should be treated in a manner no more advantageous than agricultural land. As ex gratia payment seeks to replace the exchange of land, so for ex gratia compensation of building land, it could not be the intention of the Policy to offer ex gratia payment based on an exchange ratio without regard to the area of the buildable portion.

47.Third, the above construction of the Policy is borne out by the prevailing practice in the Letter A/B System. In support of this, Mr Ho referred to the internal documents of the Lands Department (Advisory Circular No 154 issued by the New Territories Administration dated 15 June 1977 (“AC 154”); and Advisory Circular No 283 issued by the New Territories Administration dated 11 February 1981(“AC 283”)), and two examples of land resumption prior to the introduction of the Policy where different exchange rates were applied to the same lot[30].

48.AC 154 was headed “Letter A/B – Exchange Rate for Building & Building & Garden Lots” and it stated as follows:

“The exchange rate for building land in connection with the issue of Letter A/B should be as follows:-

(a)  Old Schedule Building Lots	: 1 to 1
(b)  New Grant Lots (e.g. lots granted subject to GN 364[31] which restricts to a 2/3 site coverage)	: 1 to 1
(c)  Building and Garden Lots	: 1 to 1 for building portion : 5 to 2 for garden area*.

(*e.g. Where a building and garden lot of say 10,000 s.f. is restricted so that not more than 40% of the area of the lot shall be roofed-over, then only 4,000 s.f. of the lot shall be entitled to an exchange rate of 1 to 1. The remaining garden area of 6,000 s.f. will be entitled to an exchange rate of 5 to 2.)”

49.AC 154 was cancelled by AC 283 in February 1981. Under both AC 154 and AC 283, there was differentiation in the exchange rate for a building and garden lot in that the ratio of 1:1 was applied to the building portion and 5:2 to the garden portion. As explained in the note, the differential treatment was accounted for by the roofed over area of the building and garden lot. Mr Ho submitted that this is analogous to a site coverage restriction which limits the roofed-over area of a building lot.

50.The two examples of land resumption where different exchange rates were applied to the same lot were taken from the Lands Department’s file records. The first is Lot 127 (P) in Demarcation District No 176, which was a building and agricultural lot (old schedule lot) surrendered on 12 April 1976. The building portion of 390 ft² was exchanged at a ratio of 1:1 for 390 ft² of area of entitlement, but the agricultural portion of 871 ft² was exchanged at a ratio of 5:2 for only 348.40 ft² of area of entitlement. The other example is Lot 1599 RP (P) in Demarcation District No 11, which was a building and garden lot (New Grant lot subject to the conditions of GN 364 with restrictions of a 2/3 site coverage) surrendered on 22 November 1976. The building portion of 650 ft² (2/3 of the surrendered area of 975 ft²) was exchanged at a ratio of 1:1 but the garden portion of 325 ft² was exchanged at a ratio of 5:2 for 130 ft² of area of entitlement.

51.Mr Ho argued that irrespective of whether it is the garden portion or the non-buildable portion of a building lot, the Government lessee is not allowed to build on it and should not be entitled to ex gratia payment on a higher basis. The only difference is that the location of the garden portion is specifically delineated, whereas the non-buildable portion of a building lot is not. But given that the total amount of roofed-over area is the same, there is no intelligible basis for drawing a distinction between the two. The judge is wrong in rejecting the Director’s construction on the basis that a site coverage restriction is not specific to any part of the land in question[32].

52.As for New Grant lots subject to GN 364 with restrictions of a 2/3 site coverage, and for which the exchange ratio was 1:1 according to AC 154 and AC 283, this should be understood in the context of the former practice of the New Territories Administration, which had allowed 100% coverage of the area contained in the building licence and the open space requirement of GN 364 (i.e. open space belonging to the owner be provided at the rear of every new building of an area at least half the roofed-over area of the building) was regarded as fulfilled by any adjoining agricultural land in the same lot or an adjoining lot. Hence, the 1:1 exchange ratio was on the premise that 100% of the building lot might be built upon. On 26 January 1983, the Land Administration Meeting decided (“LAM Decision”) that the former practice should be abandoned and both the covered area and open space should be provided within the area of the building lot. All decisions of LAM are confidential in nature[33]. Mr Ho submitted that the judge failed to have regard to the former practice of the New Territories Administration (which had ceased as from January 1983) in noting that even under the Letter A/B System, the exchange ratio was still 1:1 for building land subject to a 2/3 site coverage restriction[34].

53.Fourth, whilst the 1991 Instructions are internal documents and the Director does not rely on them as part of the Policy, Mr Ho contended that they reflect the proper construction of the Policy in that they “point to the nuances in complex circumstances which further underpin the logic of the Director’s construction of the Policy” and “illustrate the vicissitude of scenarios in applying the Policy, and the absurdities it would result in doing so without regard to any site coverage restriction”.

54.The 1991 Instructions read as follows:

“Assessment of Ex-gratia Compensation for Building land taken in N.T. when only a portion of the lot is affected

1. Land taken - With Site Coverage Stipulation

(i) Where an existing building on site is unaffected by the resumption but because of the land taken is in breach of the lease; either

(a) Building rate calculated in relation to the coverage percentage of the land taken and agricultural rate for the remainder plus an annual waiver, at a fee to be assessed, to permit the existing building to remain until redevelopment takes place; or

(b) Agricultural rate for land taken plus a premium free modification to permit the retention of the existing building area both now and in a future redevelopment situation.

(ii) Where an existing building on site is unaffected by the resumption and is still within the coverage requirements after the land has been taken apply (b) first, the modification will be to permit the original maximum permitted area on redevelopment: if this method does not properly compensate the loss then apply (a) noting that a waiver may not always be required.

(iii) Where there is no building existing on the lot then it is suggested that compensation be assessed at the building rate for the covered percentage of the land taken plus agricultural rate for the remainder.”

55.Mr Ho reasoned in this manner.

56.Scenario (i) is concerned with resumption of a building lot where the allowed site coverage is already utilized in full. To the extent that part of the open space within the lot is resumed (i.e. not affecting the existing building), as the owner cannot build on it, there is no reason why he should receive ex gratia payment at building rate for the open space resumed. §1(i)(a) provides that building rate should be calculated in relation to the reduction in percentage of the roofed-over area due to the resumption of the open space, and agricultural rate is to be applied for the remainder. The alternative in §1(i)(b) is ex gratia payment at agricultural rate for the land resumed plus a premium free modification. Mr Ho submitted that both offers are “equitable and fair”, as §1(i)(a) proceeds on a pro rata resumption of the building and non-building portions of the building lot, and §1(i)(b) proceeds on the resumption of non-building portion only coupled with premium free modification to permit the retention of the existing building area both now and in a future redevelopment.

57.Scenario (iii) deals with the situation where no building is constructed on the building lot. The approach in §1(iii) is to use building rate for the covered percentage plus agricultural rate for the remainder. Mr Ho submitted this is “the fairest and most equitable way” as this is treated as proceeding on a pro rata resumption of the building and non-building portions of the building lot.

58.In summary, Mr Ho submitted that the Policy documents merely set out the general basis and have not addressed more complex issues that may arise, such as a building lot with site coverage restrictions. It is in the internal documents (AC 154, AC 283, 1991 Instructions) that the special circumstances are addressed, and in a manner consistent with the context, purpose and objectives of the Policy. The judge was wrong to hold that the Director’s Decision has misinterpreted or departed from the Policy.

Analysis on construction of the Policy

59.The difficulty with Mr Ho’s submissions is that the documents published in the public domain in respect of the Policy (the Pamphlet, the 1978 Report, GN 2564, the Legco Paper, GN 1841) do not contain any wording that supports the Director’s construction of the Policy, namely that ex gratia compensation at building rate should apply only to the permitted roofed-over area of a building lot.

60.To the contrary, the language in the published documents is sufficiently clear, bearing in mind that the court is not construing legislation but an administrative policy and that the documents should be read objectively in a practical down-to-earth manner adopting a common sense and wholly untechnical approach[35]. The Pamphlet and Gazette notices referred to ex gratia compensation payable at the published rate per square foot, without any qualification by reference to site coverage restrictions or constraints of any other kind. On an ordinary reading of these documents, it is clear that the relevant building rate should be applied to the whole area of the building land resumed by the Government. Mr Ho was driven to argue that these documents are general in nature and do not cover the kind of situation we are concerned with and that special circumstances are addressed in the internal documents of the Lands Department.

61.If the internal documents are not relied on by the Director as part of the Policy, as Mr Ho has asserted, it is difficult to see on what basis the court could have regard to them in construing the Policy. It would not be right to make use of the internal documents as an aid to construction, on the pretext that they reflect the proper construction of the Policy. First, it is contrary to the principle that a decision-maker must follow his published policy and not some different unpublished policy unless there are good reasons for not doing so. Second, it is an integral part of a mature process of public administration that policy statements, which are an important source of individual rights and corresponding duties, must be interpreted objectively without speculation about what the administration might have in mind so that published policies are applied consistently and with adherence to the principle of equal implementation, non-discrimination and lack of arbitrariness.

62.As pointed out in §32 of the Judgment, the Director has not suggested that the Policy was changed or amended by the 1991 Instructions. To the contrary, it is acknowledged that the framework of the Policy has remained the same up to the present day since it was revised in 1983 when the Executive Council decided to cease the grant of Letters B. The judge is correct in holding that the Director is not entitled to rely on internal documents which amount in substance to a secret or hidden policy.

63.It is not a fair criticism of the Judgment that the judge had wrongly equated the Policy to the Pamphlet or that he had fixated on the Pamphlet without regard to the historical or background documents. The judge was clearly aware that the Policy originated from the 1978 Report[36] and had referred to the published materials[37]. As explained in §26 of the Judgment, he had considered the historical or background documents and took the view that they are “relevant to ascertaining the purpose and context of the Policy”, but did not see anything in them that affects the plain meaning and effect of the Policy as he had found. So far as those documents are relevant, he considered that they tend to support the view that the relevant zonal compensation rate should be applied to the whole area of the building land resumed, regardless of whether the land is subject to site coverage restriction. He referred in particular to some of the main principles in the 1978 Report on which the Policy was based: that the new land acquisition system “must be capable of reasonably easy administration and explanation to those affected” (§3.1.3); “[a]ny offer of cash compensation or exchange rights must be the same for land acquired at a given time in any New Territories urban layout” (§3.1.7); “[t]he principles, which the Working Group considered must be adhered to, would produce a common rate for all and no room for the individual variation which is the essential function of arbitration” (§3.2).

64.As rightly submitted by Mr Benjamin Yu, SC for the applicant[38], the 1978 Report recommended an ex gratia compensation rate common to all building lands with no room for individual variation. The Working Group was plainly alive to the fact that “the value of building land together with the buildings on it is dependent on location, the terms of the lease and the condition and use of the building”[39]. And yet in recommending an initial rate of ex gratia compensation for building land (in addition to its compensatable value by valuation) that was 2.5 times of the rate for agricultural land, no distinction was drawn between building and non-building portions of the building land[40]. The ex gratia compensation is in addition to the statutory valuation, the latter would reflect the variable features of the building land in question.

65.The Working Group concluded that in the new system, building land should also receive ex gratia payment as “it would be equitable to compensate for the value of the exchange rights foregone in the same way as they are compensated in the case of agricultural land, but suitably adjusted to take into account the difference in exchange ratios”[41].

66.Mr Yu also drew attention to the Working Group recommendation of the adoption of an index (“Index L”) which will take account of the relative proportions of land in different zonings and price categories found in the layouts, with a review to be carried out at the same time as the “Chart W” values published by the New Territories Administration at six-monthly intervals[42]. The Chart W values are current market values of the different categories of land within the major urban development areas and are assessed on the basis of three broad categories of urban uses (i.e. commercial/residential and residential zone 1; residential zones 2, 3 and 4; and industrial) and appropriately weighted based on the then developed new towns of Sha Tin, Tsuen Wan and Tuen Mun. This is significant as Index L and Chart W would appear to have factored in New Territories-wide benchmarks as well as different users.

67.Still further, the 1978 Report recommended that the new system “must retain an option of a future exchange of land”[43], so owners of building land were given the option to have 1:1 exchange in lieu of ex gratia compensation until the option ceased to apply as from 1983. See also GN 2564, which provided that “Owners of building land will be offered cash compensation based on professional valuation and in addition will be offered $79 per square foot or a 1:1 exchange entitlement”.

68.There is nothing in the 1978 Report to suggest that the relevant zonal compensation rate would only apply to the buildable portion of the building land resumed. Mr Ho’s submissions on construction of the Policy are rejected. The tenor of his submissions is that notwithstanding there is nothing in the language of the published documents that supports the Director’s construction of the Policy, the court should find for this construction based on what is said to be “fair and equitable”. This cannot be right. When the court construes language which affects legal rights and duties, it is constrained to arrive at a single meaning to define those rights and duties. It is for the court to decide what that single meaning is. It is not a question whether the Director acted reasonably in attributing a given meaning to the administrative policy[44]. Further, as mentioned earlier, the Director must follow his own published policy and cannot rely on internal and confidential documents such as AC 154, AC 283, the LAM Decision and the 1991 Instructions to alter the meaning of the published policy on the basis that site coverage restriction is a complex or special issue. There is nothing to suggest that site coverage restriction in building land is novel or unusual, and the Working Group was plainly alive to the fact that the value of building land may depend on, inter alia, the terms of the lease and nevertheless recommended a uniform rate for building land.

69.The contention that the Director’s construction of the Policy is borne out by the prevailing practice in the Letter A/B System does not assist the Director. For the reasons mentioned earlier, the Director should not be permitted to rely on the internal and confidential documents. The judge also held that AC 154 and AC 283, which concerned a different regime being the exchange rate under the Letter A/B System, could not be relied on to construe the Policy[45]. In any event, it was stated in AC 154 and AC 283 that for New Grant Lots, the exchange rate for building land was 1:1 notwithstanding the site coverage restriction of 2/3, and this was not altered until the LAM Decision in 1983. So the practice prior to the introduction of the Policy was that New Grant Lots were exchanged without regard to site coverage.

70.As for the two examples of land resumption in 1976, one was a building and agricultural lot and the other was a building and garden lot. They are not the same as building land with a site coverage restriction, not to mention that the very small number of examples cannot be regarded as sufficient evidence to establish a prevailing practice. Mr Ho was driven to argue that the garden lot should be treated in the same way as the non-buildable portion of building land, notwithstanding that the garden lot is specifically delineated whereas the non-buildable portion is not.

71.The judge had also considered the 17 examples mentioned by the Director of resumption cases with site coverage restrictions in lease conditions[46]. In respect of 14 cases, the 1991 Instructions were applied and ex gratia compensation rate for building land was applied to the land permitted to be built upon under site coverage or built-over-area restriction stipulated in relevant lease conditions. In the remaining three cases, ex gratia compensation rate for building land was applied to the entirety of the land concerned without regard to the site coverage or built-over-area restriction stipulated in relevant lease conditions. As noted by the judge, the ex gratia compensation offered to the land owners in the 17 cases was not information within the public domain. In any event, the Director had not acted consistently in applying the 1991 Instructions in the 17 cases, “for reason unknown from the available file records”[47]. There is evidence from the estate surveyor retained by the applicant with over 40 years of professional experience that ex gratia compensation has always been offered by applying the relevant rate to the whole area of the land resumed and he has never come across a situation where ex gratia compensation was only in respect of a fraction of the land resumed depending on site coverage restrictions in the leases[48].

72.For the reasons mentioned by the judge and as further submitted by Mr Yu, the 1978 Report provides support that in construing the Policy with regard to its context, purpose and objectives, the relevant compensation rate should be applied to the whole area of the building land resumed, regardless of any site coverage restriction.

73.The Director’s challenge of the judge’s holding on Ground 1 fails.

The alternative case in Ground 4

74.Ground 4 relates to the applicant’s contention that the Director has in any event failed to act consistently with the 1991 Instructions or his interpretation of the Policy, assuming that the 1991 Instructions correctly reflected the proper construction of the Policy as contended by the Director. The applicant relies on Ground 4 on an alternative case basis arising solely out of the new evidence of the Director in the 3^rd Affirmation of Cheung[49], which contained an unequivocal statement in §61(2) as follows:

“According to the 1991 Instructions, as the Land was with site coverage stipulation, and there were only temporary structures but no building existing on the Land, the ex-gratia compensation should be assessed based on the building rate (which was $2,202 for Zone A, as set out in GN 1841 …) for the covered percentage (i.e. 20% of the Resumed Land and based on agricultural rate for the remainder (i.e. 80%) of the Resumed Land.”[50]

75.However, the Director did not offer ex gratia compensation to the applicant for the remainder (80%) of the Resumed Land at the applicable zonal agricultural rate ($1,112.40 per ft²). The offer in the Director’s Decision on ex gratia compensation comprised only 20% of the Resumed Land at the applicable zonal building rate ($2,202 per ft²). The judge held that no good justification has been given for such departure and the Director has failed to apply the Policy even assuming that the 1991 Instructions properly reflected its true construction[51].

76.Mr Ho submitted that the judge had not addressed the arguments he advanced for the Director, which are as follows.

77.In the reply affirmation of the Director (“4^th Affirmation of Cheung”)[52], the Director explained the rationale with two internal memos dated 25 November 2000 and 22 November 2003 (“2003 Memo”). According to these memos, where the non-building portion of a piece of building land does not specify the user as garden or for agricultural purposes, compensation will be offered based on the open market value (“OMV”) of the entire building land (including both building and non-building portions) together with ex-gratia payment at building rate for the building portion but no ex-gratia payment at agricultural rate for the non-building portion. The reasons for this are twofold: (i) ex-gratia payment at agricultural rate comprises the dual elements of value of agricultural land and ex-gratia rate, if an offer of ex-gratia payment at agricultural rate is made it would result in double payment as the market value of the non-building portion would feature twice, once in the OMV of the entire building land and again in the ex-gratia payment; (ii) in any event ex-gratia payment at agricultural rate is not applicable as the non-building portion of building land is not agricultural land.

78.In this instance, the compensation offered for the Resumed Land comprised professional valuation of the whole area of the Resumed Land plus ex-gratia payment at building rate for the 20% site coverage. As the value of the remaining 80% was already taken into account in the valuation of the whole area and the non-building portion was not specified for use as garden or agricultural purposes under the lease, no ex-gratia payment at agricultural rate was offered.

79.Mr Ho complained that the judge wrongly brushed aside the above explanation as being “convoluted” without any detailed or proper analysis. The judge is wrong to rely on §61(2) in the 3^rd Affirmation of Cheung without regard to the clarifications in the 4^th Affirmation. The memos in 2000 and 2003 seek to provide a “more detailed guidance” on how the Policy should be applied to more complex and special circumstances. Properly understood, the Director’s Decision did not depart from the 1991 Instructions or the Policy.

80.Mr Ho further submitted that the judge failed to take heed of the Director’s explanation in §6 of the 2003 Memo that in the case of resumption of mixed lots comprising building land and non-building land specified for use as garden or agricultural purposes under the lease, the Director would as a matter of practice undertake valuation of the OMV of the building portion only so that the problem of double counting or over payment would not arise.

81.The judge had referred to the 2003 Memo[53]. He did not consider that the Director is entitled to rely on any secret or hidden policy in the internal memo. For the reasons discussed in the earlier part of this judgment, it is wrong in principle to admit such evidence to qualify and amend the 1991 Instructions which is also an internal document. There is no mention of any amendment, qualification or fine-tuning of the Policy in any document in the public domain.

82.Besides, the rationale for making no ex gratia payment in respect of the non-building portion of the building land is difficult to reconcile with the recommendation in the 1978 Report. The Working Party recognized the existing arrangement of a foot for foot exchange for building land (§5.4), concluded that “it would be equitable to compensate for the value of the exchange rights foregone in the same way as they are compensated in the case of agricultural land, but suitably adjusted to take into account the difference in exchange ratios” (§5.5), and recommended that the ex gratia payment would be “payable in addition to the normal compensation arrived at by proper valuation process” (§5.6).

83.As for the concern of double counting, in respect of ex gratia payment for agricultural land at $27 per ft² as recommended in the 1978 Report, $5 per ft² was for the value of land and $22 per ft² was the ex gratia element. Even if ex-gratia payment at agricultural rate of $27 per ft² was offered in respect of the non-building portion of building land (as per the 1991 Instructions), any overlap for the value of land would only be to the extent of $5 per ft². There is no explanation why the ex gratia element of $22 per ft² was not offered, other than the assertion that agricultural rate should not apply to the non-building portion.

84.The judge is entitled not to accept the subsequent explanation in the 4^th Affirmation of Cheung when the clear statements in the 3^rd Affirmation of Cheung are to the contrary and the deponent did not give any explanation of his conflicting evidence and why he did not mention what he regarded as the correct approach at the start when he brought up the 1991 Instructions.

85.The Director’s challenge on the judge’s holding on Ground 4 also fails.

Conclusion and costs

86.The Director’s appeal is dismissed. There is no dispute that costs should follow the event with a certificate for two counsel for the applicant.

Mr Benjamin Yu SC and Ms Eva Sit SC, instructed by Mayer Brown, for the Applicant (Respondent)

Mr Ambrose Ho SC and Mr Jenkin Suen SC, instructed by the Department of Justice, for the Respondent (Appellant)