Fine Tower Associates Ltd v. Town Planning Board

HCAL 5/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO.5 OF 2004

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BETWEEN

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Before : Hon Hartmann J in Court

Dates of Hearing : 16, 17, 18 February 2005

Date of Handing Down Judgment : 25 April 2005

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J U D G M E N T

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Introduction

1.The applicant is the registered owner of two pieces of land situated on the Quarry Bay waterfront.  In September 2003, the applicant appeared before the respondent, the Town Planning Board, for the purpose of objecting, pursuant to s.6(6) of the Town Planning Ordinance, Cap.131, to planning limitations proposed to be imposed on the applicant’s land in terms of a draft outline zoning plan for Quarry Bay; that is, the Draft Quarry Bay Outline Zoning Plan No.S/H21/18 (‘the draft OZP’).

2.The Town Planning Board rejected the applicant’s objection.  Its decision was communicated to the applicant in a letter dated 17 October 2003.  It is this decision which the applicant has sought by way of judicial review to have quashed or declared to be wrong in law, asking that the matter be determined afresh by the Board in accordance with this court’s directions.

3.The applicant has invoked this court’s jurisdiction on the basis of two asserted public wrongs; the first is one of procedural unfairness and goes to a denial of the right to make representations, the second is one of a materially wrong application of law, more particularly as to the circumstances in which a de facto deprivation of property may occur, bringing with it an entitlement to compensation.

Background

4.The applicant’s two pieces of land, which are adjacent to each other, are leasehold properties.  They are subject to restrictive covenants which include the following :

(i)	the land may only be used for industrial and/or godown purposes, this to include the bulk storage and distribution of petroleum products;
(ii)	one of the pieces of land may only initially be developed as an oil depot, and
(iii)	any structures built on the land may not exceed a maximum height of 85.19mPD.

5.The restrictive covenants state that any failure to abide by these (and other) restrictions will entitle the Government, as landlord, to enter upon and take back the land without obligation to pay compensation.  The Government, as landlord, constrained by private not public law, may of course agree to a variation of the special conditions but it is not obliged to do so.  Any variation must be the result of commercial negotiations.  If such negotiations are successful — and that must always be uncertain — I understand that they will invariably involve the payment by the applicant of a premium.

6.When the applicant acquired the two pieces of land they were zoned for ‘industrial’ and ‘government, institution or community’ use in terms of the draft Quarry Bay Outline Zoning Plan No.S/H21/6.

7.Since the assignment of the land to it, the applicant has sought ways to profitably develop the land.  More particularly—

(i)	In 1999, plans were submitted for the construction of an oil depot but these were unable to comply with required standards of safety.
(ii)	In 2000, proposals were made to the Town Planning Board to amend the approved outline zoning plan to enable the applicant to develop an ‘Old Hong Kong’ scheme on the waterfront.  A year later, a revised proposal along the same lines was submitted which was eventually rejected by the Board.  However, Mr Chan Pun Chung, Secretary of the Board, said in his affirmation of 30 March 2004 that the Board “agreed in principle to the proponent’s proposed broad development concept of restructuring the area for leisure and tourism-related development”.
(iii)	In September 2001, the approval of the Building Authority was obtained for the industrial development of the two pieces of land, a maximum building height of 85.19mPD (something like 26 storeys) being permitted.  While this accorded with the maximum height restrictions in the special conditions, such development of course would require modification of the special conditions governing one of the pieces of land which restricted initial development on that piece of land to that of an oil depot.
(iv)	In October 2001, the Government approved a temporary waiver of the restriction of use of the land, permitting the land to be used for a period of one year as a public car park, the waiver fee being $800,000.  That temporary waiver has been extended for limited periods of time, each time upon payment of a further waiver fee.  It appears that the land continues to be used as a public car park.

8.In April 2003, the draft OZP was exhibited for public inspection in terms of s.5 of the Town Planning Ordinance.

9.In terms of the draft OZP, the zoning of the applicant’s two pieces of land was changed so that 44% of their total area was to be designated as ‘open space’ while the balance of 56% was to be designated as ‘other unspecified use’, more specifically, as the explanatory statement to the draft OZP explained, for the purposes of ‘cultural and/or commercial, leisure and tourism related uses’.  In this regard, the explanatory statement said the following :

“It reflects the planning intention of encouraging the development of these areas for cultural, leisure and tourism uses taking advantages of its waterfront setting.

In view of the waterfront location and the need to preserve public views to and from the harbour, development within these zones is restricted a maximum building height of not exceeding 35mPD and 25mPD for the ‘OU(1)’ and ‘OU(2)’ sites respectively.  Innovative design should be employed to minimise the possible wall effect created by the building mass along the waterfront.  The design should also integrate with the proposed waterfront promenade.  Setting back at street level and creation of piazza is encouraged to provide a more interesting and spacious pedestrian environment.”

10.The applicant objected to these proposals which inter alia restricted both the area and height of permitted development as well as the nature of that development.  The applicant submitted its objection (and suggestions for amendment) in terms of s.6(1) and (2) of the Ordinance which read :

“	(1)	Any person affected by the draft plan so exhibited may within the said period of 2 months send to the Board a written statement of his objections to anything appearing in the draft plan.
	(2)	Such written statement shall set out—
		(a)	the nature of and reasons for the objection;
		(b)	if the objection would be removed by an alteration of the draft plan, any alternation proposed.

11.The Board was not inclined, upon its preliminary consideration of the applicant’s objection, to amend the draft OZP.  Accordingly, the provisions of s.6(6) of the Ordinance came into play, that sub-section reading :

“the Board shall consider the written statement of objection at a meeting of which the objector is given reasonable notice, and the objector or his authorized representative may attend such meeting and if he desires shall be heard.”  [my emphasis]

12.An affected person such as the applicant therefore has the following rights in terms of s.6(6); first, the right to be given reasonable notice of a meeting called to consider his objection; second, to appear and/or be represented and, third, if he so desires, the right to be heard at such meeting; that is, to make representations and to have those representations considered before a decision is made by the Board.

13.When an objection has been considered at a meeting that accords with the requirements of s.6(6), in terms of s.6(9) the Board—

“… may reject the objection in whole or in part or may make amendments to the draft plan to meet such objection.”

14.In terms of s.8 of the Ordinance, after consideration of all objections, the Board is then obliged to submit the draft plan to the Chief Executive in Council for approval together with—

“	(a)	a schedule of the objections (if any) made under section 6 and not withdrawn;
	(b)	a schedule of the amendments (if any) made by the Board with a view to meeting such objections.”

15.S.9(1) of the Ordinance sets out the powers of the Chief Executive in Council which are as follows :

“	Upon submission of a draft plan the Chief Executive in Council may—
	(a)	approve it;
	(b)	refuse to approve it;
	(c)	refer it to the Board for further consideration and amendment.”

16.While the Chief Executive in Council is provided with a schedule of all objections made under s.6 which have not been withdrawn, no provision is made for an objector to be able to make further representations.  As Mr Dykes SC, leading counsel for the applicant, expressed it, the hearing conducted in terms of s.6(6) of the Ordinance is therefore for an objector the single, crucial opportunity to be able to orally advocate the grounds of his objection.

17.The Board met on 5 September 2003 to consider objections to the draft OZP, including those of the applicant.

18.Prior to the meeting, the applicant’s solicitors had informed the Secretary to the Board that counsel would be making detailed submissions as to law and that in the circumstances the Board may wish to have its own counsel present.  A copy of counsel’s skeleton argument was submitted to the Secretary.

19.The Board took legal advice on the issue from the Department of Justice.  The gist of that advice was enunciated at the hearing when the Vice Chairman of the Board said that—

“… the Board was not a court of law and the objection hearing procedure was not adversarial in nature.  If there were any points of law raised during the hearing which needed to be clarified or addressed, the Board would seek legal advice afterwards.”

20.I confess to being puzzled why counsel for the applicant should have agreed to this procedure.  After all, it allowed the Board to obtain ad hoc legal advice during the course of its deliberations in respect of legal arguments which were critical to the applicant’s case and act on that advice, whether it was right or wrong, without at any time letting the applicant know the substance of that advice.

21.One of the applicant’s principal objections was that the limitations imposed by the draft OZP in respect of the permitted uses of the two pieces of land were directly at odds with the uses permitted by the covenants (i.e. the special conditions of exchange) governing the applicant’s ownership of the land.  The conditions of the draft OZP, if approved, would prohibit the applicant from using its two pieces of land in accordance with the covenants while the conditions of the land grants prohibited it from using the land in accordance with the draft OZP.  Accordingly, so it was argued, the limitations as to use imposed by the draft OZP, allied with other limitations (such as the more rigorous height limitation) prevented the applicant from developing its two pieces of land and amounted to a de facto deprivation of the applicant’s rights in that land.

22.The purpose of the applicant’s objection was therefore to have the Town Planning Board amend the draft OZP to do away with the impasse, enabling the applicant to develop its land, or to use its powers under s.4(2) of the Town Planning Ordinance to recommend to the Chief Executive in Council that the land be resumed and compensation paid.  S.4(2) is to the following effect; namely, that the Board—

“… may recommend to the Chief Executive in Council the resumption of any land that interferes with the lay-out of an area shown on a draft or approved plan or on a master lay-out plan … and resumption to avoid such interference shall be deemed to be resumption for a public purpose …”

When land is resumed, compensation is payable.  However, it is to be noted that, in terms of s.4(3) of the Ordinance, except in the case of a formal resumption, no compensation is payable by reason of the fact that land may otherwise be affected by any town planning scheme.

23.At the conclusion of the meeting, when the Board sat to deliberate, the minutes record agreement being reached that legal advice in respect of the applicant’s objections would be required and that a decision would be deferred until receipt of that advice.

24.The Board duly obtained advice.  It did so, however, by referring the matter to both the Department of Justice and the Lands Department, the latter department providing opinions that related to fact, policy and mixed fact and law.  Without in any way referring the advice it had received to the applicant, the Board then proceeded to come to its decision rejecting the applicant’s objection.

25.In its letter dated 17 October 2003, the Board informed the applicant that it did not consider that the applicant’s development rights had been adversely affected as asserted.  Nor would it recommend any amendment to the draft OZP.

26.It is in respect, first, of the procedures adopted by the Board to obtain and act on the advice and, second, its decision based on that advice, that the applicant seeks judicial review.  As I have understood the submissions of Mr Dykes, this application has been founded on two assertions, the first, as I have said earlier, going to procedural fairness, the second to an error of substantive law.  They may be described as follows :

(i)	that the decision of the Board was vitiated by procedural impropriety in that the Board received evidence of material relevance to its decision without disclosing it to the applicant and giving the applicant an opportunity to make representations in respect of it;
(ii)	that the Board was wrong in law to hold that the limitations imposed by the draft OZP did not amount to, or were not capable of amounting to, a deprivation of the applicant’s rights in its land that demanded either an amendment to the draft OZP or a recommendation that the land be resumed and compensation paid.

Obtaining advice

27.As the process by which the Board obtained advice after the hearing of 5 September 2003 together with the substance of that advice is at the heart of these proceedings, fuller detail must be given of what occurred.

28.By 26 September 2003, final advice had been received from the Department of Justice and the Board had met to consider that advice.  To assist the Board in its deliberations, a paper was prepared.

29.The Department of Justice was of the view that the draft OZP did not have the effect, in terms of art.105 of the Basic Law, of depriving the objector of his rights in the land and accordingly no compensation was payable.  Art.105, in so far as it is relevant, provides that :

“The Hong Kong Special Administrative Region shall, in accordance with law, protect the right of individuals and legal persons to the acquisition, use, disposal and inheritance of property and their right to compensation for lawful deprivation of their property.

Such compensation shall correspond to the real value of the property concerned at the time and shall be freely convertible and paid without undue delay.

…”

Art.105 is buttressed by art.6 which reads :

“The Hong Kong Special Administrative Region shall protect the right of private ownership of property in accordance with law.”

30.The advice from the Department of Justice, however, was subject to the favourable resolution of a number of matters which, in my opinion, were arguably in the majority of instances dependent on issues of fact or of fact and law.  The paper prepared for the Board expressed the matters requiring favourable resolution in the following terms :

“	(a)	whether the Objector’s existing use of his land as a carpark will be affected if the Government continues to issue to it the requisite waivers and whether the Government has the intention to discontinue the issuance of the waivers;
	(b)	whether the Objector’s right to alienate his land remains;
	(c)	whether the Objector may develop his land for the new permitted uses upon entering into deeds of modifications with the Government for amending the authorized land use under the relevant Government leases and paying the required premium.  In other words, the draft OZP affects but does not take away its development right over land; and
	(d)	whether and how far the OZP interferes with the right of the Objector and reduces the saleable value of the Objector’s land, or whether the land will become incapable of reasonably beneficial use.”

31.When I say that these matters were arguably in the majority of instances either matters of fact or of fact and law, one example — that of paragraph (d) — will illustrate my point.  That paragraph looks to the degree to which, if at all, the draft OZP would reduce the ‘saleable value’ of the applicant’s land or render the land ‘incapable of reasonably beneficial use’.  Both those issues, it seems to me, depend very much on factual factors.  ‘Saleable value’, for example, will no doubt, or so it may be argued, depend materially on the perceptions of the private market and the dynamics working within that market.  It is not simply an issue of law nor an issue, for example, capable of determination by the entirely neutral use of a mathematical formula.  Despite this, the Board did not seek to hear further from the applicant.  Instead the Board sought answers direct from the Lands Department, a branch of the Administration which earlier had had no comments to make and had not been heard at the meeting held on 5 September 2003.  In respect of the Lands Department’s advice, the paper prepared for the Board records the following :

“Lands Department’s comments on the above issues are summarised as follows:
(a)	the existing carpark on the Objector’s land is acceptable.  There is no objection to continuing the current carpark use subject to the renewal or re-issue of temporary waivers;
(b)	as there is no effective restriction on alienation in the governing lease conditions, the Objector has the right to freely dispose of his land;
(c)	upon application to redevelop the land in accordance with the ‘OU’ and ‘O’ zonings, a lease modification would be processed subject to payment of premium; and
(d)	it is difficult to say whether the draft OZP adversely affects the development rights and value of the objection sites.  However, a commercial/leisure/tourism-related scheme is likely to be a more attractive proposition than an industrial use as currently permitted under the leases.”

32.The paper prepared for the Board, makes it clear that, the answers having been obtained from the Lands Department, those answers were then referred back to the Department of Justice.  The Department of Justice, it appears, working on the answers received and seemingly on those answers alone, was of the view that the draft OZP, unamended, would not bring about a deprivation of the applicant’s property in terms of art.105 of the Basic Law.  In this regard, the paper states :

“In view of the Lands Department’s advice, DoJ has confirmed subsequently that the draft OZP does not have the effect of depriving property for the purpose of Article 105 of the Basic Law.  The argument that the draft OZP is tantamount to compulsory acquisition of land without compensation is untenable.”

33.The minutes of the Board’s meeting of 26 September 2003, make it plain that the Department of Justice’s advice, itself founded on the views of the Lands Department — those views never at any stage referred to the applicant for comment — was material, indeed decisive, in determining the decision of the Board to reject the applicant’s objection.

34.As I have said earlier, the applicant was advised of the Board’s decision by letter dated 17 October 2003.  In part, that letter reads :

“	After giving full consideration to your submission and to your written statement of objection, the Town Planning Board (TPB) decided not to propose any amendment to the above Plan to meet your objection and the reasons are : -
	(a)	the comprehensive rezoning of the Hoi Yu Street waterfront provides a statutory planning framework to facilitate you to develop your landholding for leisure and tourism uses, which are more appropriate uses along the waterfront.  Your development right would not be adversely affected …”

The issue of procedural fairness

35.The principles of procedural fairness are not, to use the words of Lord Bridge in Lloyd v. McMahon [1987] AC 625 at 702, “engraved on tablets of stone”; they are not immutable, rigid or universal.  They must be considered always in context.  To continue in the language of Lord Bridge :

“… what the requirements of fairness demand when any body, domestic, administrative or judicial, has to make a decision which will affect the rights of individuals depends on the character of the decision-making body, the kind of decision it has to make and the statutory or other framework in which it operates.”

36.The Town Planning Board operates within the statutory framework of the Town Planning Ordinance, its purpose being—

“… promote the health, safety, convenience and general welfare of the community by making provision for the systematic preparation and approval of plans for the lay-out of areas of Hong Kong as well as for the types of building suitable for erection therein and for the preparation and approval of plans for areas within which permission is required for development.”

It may be said that it is the specific function of the Board to undertake the systematic preparation of draft plans so that they may be considered for the purposes of approval by the Chief Executive in Council.

37.It speaks for itself that draft plans prepared by the Board have the potential for profound change.  The Ordinance therefore makes provision for affected persons to object to such plans after they have been prepared and have been exhibited for public inspection.  S.6 of the Ordinance deals with the procedure for the making and consideration of any objection.  An objector has the right to lodge with the Board a written statement containing his objection and, if appropriate, how such objection may be removed by an alteration of the draft plan.  Upon receipt of such objection, the Board may consider it appropriate to amend its draft plan.  However, it if does not consider it appropriate to make any amendment then, as stated in paragraph 11 of this judgment, a meeting must be held pursuant to s.6(6).  At that meeting an objector has the right to make both oral and written representations.  As the sub-section says, if an objector desires, “he … shall be heard.”

38.But while an objector has the statutory right to be heard, the Board does not, in terms of s.6(6), function as some sort of judicial or quasi judicial body subject to laws of evidence or rules of procedure.  Its function is very different.  In R v. Town Planning Board, ex parte the Real Estate Developers Association of Hong Kong [1996] 2 HKLR 267, at 292, Leonard J said that, in determining an objection to a draft plan under s.6 of the Ordinance, the Board was not making a final determination of an objector’s rights, it was instead—

“… conducting an administrative consultative process, provided by statute, designed to enable it to take into account all shades of opinion before forming a view as to the final form of its recommendations to be made to the Governor-in-Council.”

39.In Kwan Kong Company Ltd v. Town Planning Board [1996] 2 HKLR 363, at 373, Litton VP (as he then was) adopted the reasoning of Leonard J, saying that there were no contesting parties as such.  In the same case, Liu JA spoke of the Board conducting a consultative process.

40.It follows therefore that the Board, as an administrative body carrying out a consultative process, may very much determine its own procedures; that is, the process by which it is able to come to a determination in terms of s.6(9) of the Ordinance.  But in this regard it does not have unlimited licence.  It must of course operate in accordance with the limitations imposed by the Town Planning Ordinance but also in accordance with the rules of procedural fairness.

41.As I have already emphasised, a principal limitation placed on the Board’s freedom to create its own unfettered procedures is the statutory obligation to ensure that an objector is able to exercise his right to make representations, which must mean representations in respect of all relevant matters not merely some, and to have those representations considered before the Board comes to a decision.  But the right to make representations is worth little if material factors which may weigh against an objector are not disclosed to the objector so that he may speak to them.

42.This is now a well settled principle, indeed one of the six principles of procedure fairness enunciated by Lord Mustill in R v. Secretary of State for the Home Department, ex parte Doody [1994] 1 AC 531, at 560.

43.More than ten years before that judgment, in considering the acts of an administrative tribunal conducting what may be described as a consultation process, Lord Diplock, in his speech in Bushell v. Secretary of State for the Environment [1981] AL 75, at 96, said :

“Fairness, as it seems to me, also requires that the objectors should be given sufficient information about the reasons relied on by the department as justifying the draft scheme to enable them to challenge the accuracy of any facts and the validity of any arguments upon which the departmental reasons are based.”

44.In light of these principles, I have had little difficulty in coming to the conclusion that, in the particular circumstances of the present case, the Board did not act fairly towards the applicant in adopting and following the procedures it did.  In coming to this conclusion, while it is essentially intuitive and formed by an objective examination of the Board’s acts as a whole, I have taken the following factors into account :

(i)	the applicant had a statutory right to be heard and therefore a right to be informed at least, in the context of this case, of the evidence of opinion, asserted policy, fact or mixed fact and law upon which the Board intended to rely (and did reply) so that it could make representations in respect of that evidence;
(ii)	although the decision of the Board was not a final decision, that final decision resting with the Chief Executive in Council, it was nevertheless the final opportunity given to the applicant to orally advocate its position, making the right to be heard in terms of s.6(6) a right of real importance;
(iii)	while it may have been permissible for the Board, as an administrative body undertaking a consultation exercise, to take advice on uncontentious matters of fact or of law, the advice received in the present instance, especially from the Lands Department, was not of that kind.  In my view, read as a whole, the advice was qualified legal advice.  Why else were the opinions of the Lands Department sought before final advice could be obtained?  As such, the advice gave rise to factual issues which fell to be determined and in respect of which it seems certain the applicant would have wished to make its own submissions.  As Mr Dykes, for the applicant, expressed it, the advice was in many ways an invitation to further dialogue in the consultation process.  I believe that must be right.

45.One of the submissions made on behalf of the Board was that the applicant could hardly be heard to complain that the procedure was unfair when it was a procedure to which it had specifically agreed.  In this regard, in paragraph 21 of his affirmation of 30 March 2004, Mr Chan Pun Chung, Secretary of the Board, said :

“The Board also agreed that if there were any legal points raised by the objector which needed clarification or further advice, the Board could seek legal advice afterwards.  The Applicant’s representatives agreed to the arrangement and did not request for sight of the legal advice nor request the Board not to make any decision until the Applicant has been given the opportunity to comment on the legal advice.”

46.But, as I have said, it was not the obtaining of legal advice per se which constituted the unfair procedure, it was the manner in which it was collected and the basis in the final analysis upon which that advice was founded.  There is nothing on the transcript of what was said at the hearing to suggest that applicant’s counsel agreed to anything more than the Board obtaining a neutral statement of the appropriate law which it would then apply to the facts as it found them in order to reach its own determination.  I have difficulty in believing that the applicant’s counsel would have agreed to the procedure that was, in fact, adopted after the hearing; namely—

(a)	the Board obtaining its advice from the Department of Justice which earlier, in respect of the prospect of being asked to make submission before the Board had indicated some difficulties with the issue of conflict of interest;
(b)	the Board then proceeding to obtain opinions of policy, fact and of mixed fact and law from Lands Department, that advice essentially concerning factual issues, and then
(c)	referring the opinions of the Lands Department back to the Department of Justice so that it could render its final advice based solely on those opinions.

47.As Mr Dykes put it, it is difficult to imagine how the applicant’s counsel could have agreed to a procedure that he did not know about.  In any event, on Mr Dykes also put it, counsel had not waived the right to see material which the applicant was manifestly entitled to see, for example, the comments and opinions of the Lands Department which hitherto, as an interested party, had not sought to be heard.

48.My conclusion that the Board’s procedure was unfair, I think, finds its echo in the words of Lord Russell in Fairmount Investments Ltd v. Secretary of State for the Environment [1976] 1 WLR 1255, at 1265 :

“All cases in which principles of natural justice are invoked must depend on the particular circumstances of the case.  I am unable, my Lords, in the instant case, to generalise.  I can only say that in my opinion, in the circumstances I have outlined.  Fairmount has not had – in a phrase whose deprivation neither I nor your Lordships could trace – a fair crack of the whip.”

49.Provisionally therefore it seems to me — the procedural unfairness being material and one which may well have influenced the Board’s decision — that the decision must be quashed and the matter referred back to the Board for a new determination in accordance with law.  But it would, of course, be a sterile exercise to direct the matter to be heard again if, in law, it was not at least arguable that the limitations imposed by the draft OZP could amount to a de facto deprivation of property.  This therefore raises the second ground of challenge; namely, whether the limitations imposed by the draft OZP are capable of amounting to a deprivation of the applicant’s rights in its land.

Deprivation of property

50.The right to compensation for lawful deprivation of property is enshrined in both the Basic Law and domestic statutes.  In the Basic Law, the right finds expression in art.6 and art.105, both cited in paragraph 29 of this judgment, while in the Town Planning Ordinance itself, the right is to be found in s.4(2), cited in paragraph 22.

51.As a statement of relevant principle, I do not believe it is possible to improve on the words of Lord Hoffmann in the Privy Council judgment of Grape Bay Limited v. Attorney General of Bermuda [2000] 1 WLR 574, at 583 :

“It is well settled that restrictions on the use of property imposed in the public interest by general regulatory laws do not constitute a deprivation of that property for which compensation should be paid.  The best example is planning control (Westminster Bank Ltd. v. Beverley Borough Council [1971] A.C. 508) or, in American terminology, zoning laws (Village of Euclid v. Ambler Realty Co. (1926) 272 U.S. 365).  The give and take of civil society frequently requires that the exercise of private rights should be restricted in the general public interest.  The principles which underlie the right of the individual not to be deprived of his property without compensation are, first, that some public interest is necessary to justify the taking of private property for the benefit of the state and, secondly, that when the public interest does so require, the loss should not fall upon the individual whose property has been taken but should be borne by the public as a whole.  But these principles do not require the payment of compensation to anyone whose private rights are restricted by legislation of general application which is enacted for the public benefit.  This is so even if, as will inevitably be the case, the legislation in general terms affects some people more than others.  For example, rent control legislation restricts only the rights of those who happen to be landlords but nevertheless falls within the general principle that compensation will not be payable.  Likewise in Penn Central Transportation Co. v. New York City (1978) 438 U.S. 104, the New York City’s landmarks Preservation Law restricted only the rights of those people whose buildings happened to have been designated historic landmarks.  Nevertheless the Supreme Court of the United States held that it was a general law passed in the public interest which did not violate the Fifth Amendment prohibition on taking private property without compensation.

Whether a law or exercise of an administrative power does amount to a deprivation of property depends of course on the substance of the matter rather than upon the form in which the law is drafted.”

Lord Hoffmann went on to cite examples of cases in which common law courts had looked to the substance of the matter :

“In the leading Canadian case, Manitoba Fisheries Ltd. v. The Queen [1979] 1 S.C.R. 101, the Canadian Freshwater Fish Marketing Act, R.S.C. 1970, c.F-13, conferred upon a statutory corporation the monopoly of exporting fish from Manitoba.  The applicants had previously been exporting fish and the effect of the Act was to destroy their business.  The Supreme Court of Canada held that they had been deprived of their property, namely, the goodwill of the business, even though that goodwill had not been directly transferred to the corporation.  The substantial effect was to enable the corporation to acquire their previous customers.  Société United Docks v. Government of Mauritius [1985] A.C. 585, in which the plaintiffs’ alleged that their businesses had been destroyed by a monopoly of handling sugar for export conferred upon a statutory corporation, was treated as being in principle a similar case, but the plaintiffs failed on the facts because they were unable to show a causal connection between the establishment of the monopoly and the loss of their businesses.”

52.Whether there has been a deprivation of property is therefore, to use the words of Lord Hoffmann, a matter of substance not a matter of formality.  The principle was expressed as follows by the European Commission of Human Rights in its judgment in Baner v. Sweden (App. No.11763/1985, 60 DR 128) at 139-140, a principle cited with approval by the Court of Appeal in Kowloon Poultry Loan Merchants Association v. Director of Agriculture Fisheries and Conservation [2002] 4 HKC 277 at 282 :

“As regards the question whether the applicant has been deprived of property, the Commission recalls that, according to the established case-law, deprivation of property within the meaning of Article 1 of Protocol No.1 is not limited to cases where property is formally expropriated, i.e. where there is a transfer of the title to the property.  ‘Deprivation’ may also exist where the measure complained of affects the substance of the property to such a degree that there has been a de facto expropriation or where the measure complained of ‘can be assimilated to a deprivation of possessions’ (cf. Eur. Court H.R., Sporrong and Lönnroth judgment of 23 September 1982, Series A no.52 p.24 para.63)”

53.But, as Lord Hoffmann said, not all restrictions on the use of property imposed in the public interest by general regulatory laws constitute a deprivation of that property, giving rise to compensation.  To use his words : “the give and take of civil society frequently requires that the exercise of private rights should be restricted in the general public interest.  Whether the restrictions in each case do or do not amount to a deprivation of property is a matter of degree or, as Lord Hoffmann put it, a matter of looking to the substance of what has occurred.

54.If measures restricting the use and enjoyment of property go too far that will be recognised under long-enshrined common law principles as constituting a taking; that is, a deprivation, in respect of which compensation must be paid.  In Pennsylvania Coal Co. v. Mahon (1922) US 393, Mr Justice Holmes expressed it thus in general constitutional terms (para.413) :

“Government hardly could go on if, to some extent, values incident to property could not be diminished without paying for every such change in the general law.  As long recognized, some values are enjoyed under an implied limitation, and must yield to the police power.  But obviously the implied limitation must have its limits or the contract and due process clauses are gone.  One fact for consideration in determining such limits is the extent of the diminution.  When it reaches a certain magnitude, in most if not in all cases there must be an exercise of eminent domain and compensation to sustain the act.  So the question depends upon the particular facts.”

55.As Mr Justice Holmes said, the question depends on the particular facts.  In town planning matters of the kind which are the subject of this judgment, it is for the Board to answer the question.  That is one of the functions imposed upon it by the Ordinance.

56.In general terms, are restrictions imposed by a draft OZP capable in law of constituting a de facto deprivation of property?  Yes, of course : the Ordinance itself recognises that fact in giving the Board its powers of recommendation pursuant to s.4(2).

57.In the present case, however, having regard to its particular facts, may viable submissions be made to the Board that the restrictions in the draft OZP have constituted a de facto deprivation?  As I have indicated, it is not for this court at this time to determine the particular facts.  But can I say that no viable argument could be mounted by the applicant?  I do not see how I could come to such a conclusion.  Having regard to the procedural unfairness which I am satisfied vitiated the Board’s exercise of consultation under s.6(6) of the Ordinance, if I am satisfied that a viable argument could be mounted then, in my opinion, the applicant is entitled to mount it.

58.On behalf of the respondent, it was submitted that the terms of the restrictive covenants governing the permitted use of applicant’s land, while they were at odds with the draft OZP, did not constitute the impasse that the applicant advocated.  There were ways to resolve the problem.  An application could be made to the Lands Department to modify the lease conditions.  There were, it was said, established procedures for such applications.  Indeed, there was evidence of a general nature — not specific to the applicant’s land — that it is the prevailing Government policy to modify old lease conditions to allow for redevelopment in accordance with town planning requirements.  The point was made that the applicant had not even attempted to have the lease conditions modified.  It had therefore neglected or refused to proceed with ‘well-trodden, well-established ways of resolving the situation’.

59.But what must be remembered is that the applicant has no right in law to demand a change in the restrictive covenants nor has the Government any obligation to act reasonably in considering any request for change.  In this regard, the definitive statement as to the position has been given by Lord Millett NPJ in Director of Lands v. Yin Shuen Enterprises Ltd and Another [2003] 2 HKC 490, at 500 :

“Two further considerations are relevant at this point.  First, the user covenants in the Crown leases are absolute.  They are not qualified by any requirement that the Crown’s consent is not to be unreasonably withheld; and the statute law of Hong Kong does not subject user covenants in leases to any such requirement.  Secondly, in deciding whether to grant or withhold its consent to a modification of the terms of a lease, the Government does not exercise a public law function but acts in its private capacity as landlord : see Hang Wah Chong Investment Co Ltd v A-G [1981] HKLR 336 (PC).  It thus has an absolute right if it chooses to demand a premium, however large, for granting a modification of the terms of the lease, or to withhold its consent altogether, however unreasonably : see Tredegar (Viscount) v Harwood [1929] AC 72.”

60.As Mr Dykes pointed out, Government is not therefore obliged to act reasonably in respect of an application for modification of the user covenants which presently apply to the applicant’s land.  A reasonable application — if the applicant chose to make it — could be unreasonably refused or the terms of any consent could be so onerous as to be unacceptable.

61.If in this case it was necessary for the applicant to take all necessary steps to seek and obtain modification of the user covenants before it could claim deprivation, it may mean therefore that the applicant would be forced to accept otherwise unacceptable terms of modification.  Art.105 of the Basic Law, said Mr Dykes, should not be read in this way.  Rights under art.105 should not be made subject to the whim of Government acting as landlord.

62.In any event, said Mr Dykes, art.105 of the Basic Law protects vested rights in property, rights enjoyed at the time, and the applicant is entitled to abide by those existing rights, including such restrictive rights as those relating to use.  Speculative development potential is not an existing right.  It is no more than an expectation; it is not something to which the applicant is entitled as of right.

63.In summary, as I understood the submission of Mr Dykes, it was to the broad effect that in considering whether the draft OZP has brought about a de facto deprivation of property, the Board had to look to the applicant’s existing rights in the land not to any speculative means by which the applicant may be able to seek and through a method of private negotiation perhaps obtain modification of those rights.

64.In my judgment, the submissions advanced by Mr Dykes indicate at least a viable argument.  That being the case, I believe there is merit in remitting the matter to the Board so that the Board can determine the issue after hearing full argument.

Conclusion

65.For the reasons given, I am satisfied that the decision of the Board must be quashed and the matter remitted to the Board for a new hearing.

66.The issues in this matter have turned very much on their own particular facts and in the circumstances I do not believe it would be just or convenient to make a declaration.  In light of the remedies I have granted, I do not see that a declaration would assist the applicant in any particular way or advance the interests of good administration.

67.In respect of costs, I am satisfied that the applicant is entitled to its costs and there will be an order accordingly.

Mr Philip Dykes, SC leading Mr K.M. Chong, instructed by Messrs Chui & Lau, for Applicant

Mr Ambrose Ho, SC leading Mr Paul H.M. Leung, instructed by Department of Justice, for Respondent