Lai Hay on v. Commissioner of Rating and Valuation and Another

Read the full judgment text of CACV 130/2007 on BabelCite. This Court of Appeal judgment was delivered on 31 March 2010.

1. Lot 790A was granted to Lai Shing Chu by a Block Crown Lease (government lease) dated 27 March 1905 for a term of 75 years from 1 July 1898 with an option to renew for a term of 24 years less 3 days without payment of any premium.

Cited by 1 case · Cites 10 cases

Case No.CACV 130/2007[2010] 3 HKLRD 286
Court
Court of Appeal
Date31 Mar 2010
Judge
Case Document
100%Judiciary

CACV 130/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 130 OF 2007

(ON APPEAL FROM LDGA NOS. 78 AND 79 OF 2006)

______________

BETWEEN

  Lai Hay On (賴禧安) Appellant
  and  
  Commissioner of Rating and Valuation 1st Respondent
  Director of Lands 2nd Respondent

______________

Before: Hon Tang VP, Cheung JA and Yuen JA in Court

Date of Hearing: 5 March 2010

Date of Judgment: 31 March 2010

_______________

JUDGMENT

_______________

Hon Tang VP:

Introduction

1.Lot 790A was granted to Lai Shing Chu by a Block Crown Lease (government lease) dated 27 March 1905 for a term of 75 years from 1 July 1898 with an option to renew for a term of 24 years less 3 days without payment of any premium.

2.Between 26 June 1953 and 27 September 1989, Lot 790A together with other lots were owned by the appellant’s father, Mr Lai Tin Sung, and Mr Lai Ching Mui as tenants in common in equal shares. On 27 September 1989, they entered into a Deed of Partition as a result of which Lot 790A, together with other lots, were allocated to the appellant’s father.

3.Lot 790A, together with other lots, were assigned by way of gift to the appellant by his father by an assignment dated 5 November 1992.

4.The appellant was the only son of his father, who passed away on 16 October 1994.

5.By operation of section 4 of The New Territories (Renewable Government Leases) Ordinance, Cap. 152, the lease of Lot 790A was renewed on 30 June 1973 by the deemed exercise of the option to renew for a term of 24 years less 3 days to 27 June 1997.

6.Para. 2 of Annex III to the Joint Declaration which was made on 19 December 1984 and ratified on 27 May 1985 provides:

“2.  All leases of land granted by the British Hong Kong Government not containing a right of renewal that expire before 30 June 1997, except short term tenancies and leases for special purposes, may be extended if the lessee so wishes for a period expiring not later than 30 June 2047 without payment of an additional premium. An annual rent shall be charged from the date of extension equivalent to 3 per cent of the rateable value of the property at that date, adjusted in step with any changes in the rateable value thereafter. In the case of old schedule lots, village lots, small houses and similar rural holdings, where the property was on 30 June 1984 held by, or, in the case of small houses granted after that date, the property is granted to, a person descended through the male line from a person who was in 1898 a resident of an established village in Hong Kong, the rent shall remain unchanged so long as the property is held by that person or by one of his lawful successors in the male line. …”

7.In order to give effect to para. 2 of Annex III, the New Territories Leases (Extension) Ordinance, Cap. 150 (“the Extension Ordinance”) was enacted on 21 January 1988. The Preamble reads:

“Whereas the Joint Declaration of the Government of the United Kingdom and the Government of the People's Republic of China on the Question of Hong Kong signed in Beijing on 19 December 1984 provides that certain leases of land expiring before 30 June 1997 may be extended until not later than 30 June 2047.”

8.Section 6 of the Extension Ordinance provides for the extension of non-renewable leases in the New Territories to 30 June 2047. Lot 790A was held under a non-renewable lease within the meaning of the Joint Declaration and the Extension Ordinance, and as such was entitled to be and was extended until 30 June 2047. It is common ground that the appellant’s father was a person descended through the male line from a person who was in 1898 a resident of an established village in Hong Kong. The critical issue in this appeal is whether the appellant held Lot 790A as his father’s “lawful successor” as a result of the inter vivos gift.

9.Section 8 of the Extension Ordinance provides that during the period of extension, the annual rent would be an amount equal to 3% of the rateable value of the land leased (“the annual rent”). Section 9 exempted from the liability to pay the annual rent as follows.

“(2)  (a)  Subject to paragraphs (b), (c) and (d), this section applies to a lease of an old schedule lot … which—

(i)  on 30 June 1984 was held by an indigenous villager, …

(b)  This section shall not apply, or shall cease to apply, to a lease if at any time the whole of the land that is the subject of the lease is conveyed to a person who is not a lawful successor, in the male line, to the indigenous villager holding the lease on 30 June 1984 …; and shall continue to be inapplicable whether or not that land is thereafter conveyed to a person who is such a successor.

(c)  This section shall not apply, or shall cease to apply, to an interest in a lease at any time after that interest is conveyed to a person who is not a lawful successor, in the male line, to the indigenous villager holding the lease or interest on 30 June 1984 ...; and shall continue to be inapplicable whether or not that interest is thereafter conveyed to a person who is such a successor.”

10.Under section 9(3), “lawful successor” includes “a lawful successor according to Chinese customary law in operation in the New Territories”.

11.The Basic Law was promulgated on 4 April 1990 and took effect on 1 July 1997. Section 2 in Chapter V deals with land leases. Articles 121 and 122 are relevant and they are identical to para. 2 of Annex III to the Joint Declaration in all material respects. They provide:

“Article 121

As regards all leases of land granted or renewed where the original leases contain no right of renewal, during the period from 27 May 1985 to 30 June 1997, which extend beyond 30 June 1997 and expire not later than 30 June 2047, the lessee is not required to pay an additional premium as from 1 July 1997, but an annual rent equivalent to 3 per cent of the rateable value of the property at that date, adjusted in step with any changes in the rateable value thereafter, shall be charged.

Article 122

In the case of old schedule lots, village lots, small houses and similar rural holdings, where the property was on 30 June 1984 held by, or , in the case of small houses granted after that date, where the property is granted to, a lessee descended through the male line from a person who was in 1898 a resident of an established village in Hong Kong, the previous rent shall remain unchanged so long as the property is held by that lessee or by one of his lawful successors in the male line.”

12.The Government Rent (Assessment and Collection) Ordinance, Cap. 515 (“GRACO”) was enacted on 30 May 1997. By section 6(3)(a) of GRACO, subject to any exemption, the annual rent became payable from 28 June 1997 in respect of a lease extended by section 6 of the Extension Ordinance. Sections 8 and 9 of the Extension Ordinance were repealed and replaced by the provisions of GRACO, in particular, section 4. Section 4 of GRACO, where relevant, provides:

“(1)  Subject to other provisions of this section, an exemption from liability to pay Government rent applies to an interest held under-

(a)  an applicable lease of a rural holding that an indigenous villager held on 30 June 1984;

and-

(i)  which the indigenous villager continues to hold; or

(ii)  which-

(A)  has not since its ceasing to be held by the indigenous villager been conveyed to any person who is not a lawful successor in the male line of the indigenous villager; and

(B)  continues to be held by a person who is a lawful successor in the male line of the indigenous villager.”

13.Under section 2 GRACO, unless the context otherwise requires:

“‘lawful successor’ means a person, male or female, who on the death of an indigenous villager is or becomes entitled to an interest in the estate of the deceased by lawful succession and which person is a descendant through the male line of the deceased”

and

“‘lawful succession’ means succession whether testate or intestate or in accordance with Chinese customary law operating in the New Territories and includes a succession on a succession”

The Lands Tribunal

14.By letter dated 24 August 1999, the appellant was informed by the Lands Department, inter alia, that exemption from the annual rent in respect of Lot 790A pursuant to section 4 of GRACO was refused. That is because the appellant was not “a lawful successor” within the meaning of section 4(a)(ii)(B) of GRACO. Under section 26(1) of GRACO the appellant was entitled to appeal against such refusal within 28 days of the notice of decision. However, the appeal to the Lands Tribunal was not made until 7 September 2006. The Lands Tribunals dismissed the appeal on two bases. First that the appeal was out of time and no application for extension of time had been made. Secondly, the appellant was not a lawful successor within the meaning of GRACO.

15.The Lands Tribunal rejected the appellant’s submission that GRACO was inconsistent with Arts. 40 or 122 of the Basic Law. The appellant argued then, and again before us, that GRACO is inconsistent with Art. 40 because exemption from government rent other than the nominal rent payable under the government lease was a traditional right under Art. 40. Art. 40 provides:

“Article 40

The lawful traditional rights and interests of the indigenous inhabitants of the ‘New Territories’ shall be protected by the Hong Kong Special Administrative Region.”

The Appeal

16.This matter first came before this court (differently constituted) on 22 May 2008. The appellant appeared in person, as he has done throughout the proceedings. The respondents were throughout represented by Mr Johnny Mok, SC. The appellant complained that he had only received the respondents’ skeleton submissions and authorities (all in English and the bulk of it was concerned with the constitutionality of section 4, GRACO) on 19 May 2008 and that he needed two weeks to digest them. The Court granted an adjournment. We were told that the Heung Yee Kuk New Territories (“HYK”) was aware of the proceedings and the appellant had been in communication with HYK. The Court extended an invitation to HYK through the appellant to appear on the hearing of the appeal.

17.On 28 November 2008, Mr 李國英, JP (“Mr Lee”), an executive member of HYK, appeared on behalf of HYK. We were told that HYK had had their first meeting on 18 November 2008 to discuss the proceedings and Mr Lee was authorised to make oral submissions on HYK’s behalf. The court decided to appoint an amicus curiae. For that reason the hearing had to be adjourned. The court also invited HYK to make its representation in writing.

18.Mr Godfrey Lam, SC, was appointed amicus curiae. His helpful and comprehensive submission was provided on 2 July 2009.

19.The next hearing took place on 10 July 2009. Unfortunately, the respondent’s reply to the amicus curiae’ submission was only ready on 8 July 2009 and the Chinese translation was not yet available. So the matter had to be adjourned. On this occasion, no one appeared on behalf of HYK. We were told because Mr Lee was out of Hong Kong and HYK was unable to find a replacement. However, a written submission dated 6 May 2009 was provided to the Court.

20.The appeal was eventually heard on 5 March 2010. Mr Mok, SC, again appeared for the respondents. The appellant appeared in person. Mr Lam, SC, appeared as amicus curiae. Mr Andrew Wong, an executive member of the HYK, appeared on behalf of HYK and made oral submissions on behalf of HYK.

GRACO

21.The learned judge held that Lot 790A was not exempted from payment of the annual rent because the appellant acquired his interest by way of an inter vivos transfer and not by succession upon the death of his father, who was the indigenous villager. The learned judge relied on a long line of decisions of the Lands Tribunal.

22.Mr Lam relies on陳根蘭 v The Director of Lands, LDGA 3/2001 (unreported, 25 September 2001), a decision of Judge Lam (as he then was). The judgment was in Chinese but an English translation has been provided. I will refer to the translation. In that case, a lot of land in the New Territories was conveyed by an inter vivos transfer to the appellant by his father who was an indigenous villager and owner of the lot on 30 June 1984. The appellant claimed that the lot should be exempted from the annual rent, and appealed to the Lands Tribunal from a decision of the Director of Lands who had decided that he was not entitled to exemption because:

“… (he) did not acquire (the lot) by means of succession in the male line”.

23.The appellant’s father was still alive when the appeal was heard. The father also had two other sons.

24.Judge Lam said:

“13.  … And as at the date of the transfer of the Lot, the Appellant could not be described as a lawful successor of his father.  This Tribunal in fact made the same conclusion on the same issue in a previous case: see the judgment dated 11 September 1998 in Tsang Wo-pong v Director of Lands, LDGA 4 of 1998.

14.  As the Appellant cannot be regarded as ‘a lawful successor in the male line’ whether at present or at the time of transfer of the Lot, the interest on the Lot cannot, in my view, be described as one which ‘continues to be held by a person who is a lawful successor in the male line of the indigenous villager’; in other words, the interest fails to meet the requirement of section 4(1)(ii)(B).  Furthermore, at the time of the transfer, the Lot was not assigned to a lawful successor in the male line of the relevant indigenous villager, and therefore the interest on the Lot also fails to meet the requirement of section 4(1)(ii)(A).”

25.It is also clear that a person becomes a lawful successor by lawful succession and lawful succession is clearly defined. Section 4(1)(ii)(A) of GRACO requires that the land:

“(A)  has not since its ceasing to be held by the indigenous villager been conveyed to any person who is not a lawful successor in the male line of the indigenous villager.”

26.Those passages support the decision in the present case.

27.However, earlier in his judgment, Judge Lam also said:

“10.  In fact, there is no provision in the Ordinance which expressly provides that the right to an exemption only applies to an indigenous inhabitant who has acquired the relevant interest by means of succession.  Although the Ordinance defines ‘lawful successor’ as ‘a person […] who on the death of an indigenous villager is or becomes entitled to an interest in the estate of the deceased by lawful succession’, this definition is only pertinent to the identity of a lawful successor and does not require that the interest on the relevant lot to be transferred to the lawful successor by means of lawful succession.  Neither do section 4(1)(ii)(A) and (B) expressly provide that the successor must acquire the interest that he holds by means of lawful succession.

11.  Nevertheless, I still have to consider whether the Applicant’s case satisfies the requirements of paragraphs (A) and (B).  In other words, I have to consider whether the Appellant can properly be described as ‘a lawful successor in the male line of the indigenous villager’.

12.  In this respect, the Appellant faces a temporal difficulty.  At present, the Appellant cannot be described as ‘a lawful successor in the male line’ because, on his own submission, his father is still alive, which means that his father is still entitled to alter his right to succeed to his father’s estate.  This is to say, his father may make a will at any point of time, granting the right to succeed to his estate to any person who may or may not be the Appellant.  A definite answer to this question will not emerge until after his father passes away.”

28.Mr Lam relies on these earlier passages. He also relies on the wording of clause 4(1)(ii) of the Government Rent (Assessment and Collection) Bill (“the Bill”), which read as follows:

“(ii)  which a lawful successor in the male line of the indigenous villager has inherited by lawful succession and continues to hold.” [Emphasis added]

as support that the legislature has specifically rejected the notion that the holder of the relevant interest must have inherited it by lawful succession.

29.He relies in particular on Judge Lam’s description of the appellant difficulty as “temporal”(時空上的困難). He submitted that that supports the view that if and when the father dies, and the son was allowed to succeed to part of his father’s estate, the son would have become a successor. I disagree. The son could not overcome the effect of section 4(1)(ii)(A) which Judge Lam mentioned in para. 14 of his judgment.

30.I believe the ratio of Judge Lam’s decision is to be found in paras. 13 and 14 of his judgment quoted above. His earlier observations provide little support for Mr Lam’s submission. Once it is accepted, as Judge Lam has held, that the inter vivos transfer to the son was not a transfer to a successor, exemption from the annual rent was lost forever. Thus, even if, which I doubt, the son could and did become a successor of his father on the death of the father within the meaning of GRACO, the break in continuity is fatal to exemption.

31.I accept that the language of GRACO could have been clearer and that the definition of lawful successor does not say in terms that the lawful successor must be the lawful successor of an interest in the land in respect of which exemption under section 4 was claimed. However I cannot accept Mr Lam’s submission that:

“… if the 1984 indigenous villager has died leaving the land to one son, and that son subsequently assigns the land to another patrilineal descendant of the deceased who has been bequeathed something, however trivial, from the estate (who is therefore a ‘lawful successor’ as defined in section 2 of GRACO), the land will in the hands of that assignee be entitled to exemption”.

32.I turn to the wording of clause 4(1)(ii) the Bill. The relevant provisions read:

“4(1) An exemption from liability to pay Government rent applies to an interest in land held under ‑

(a)  an applicable lease of a rural holding that an indigenous villager held on 30 June 1984;

……

and ‑

(i) which the indigenous villager continues to hold; or

(ii) which a lawful successor in the male line of the indigenous villager has inherited by lawful succession and continues to hold.”

33.I do not find the expression “has inherited” in section 4(1)(ii) of the Bill helpful. Having regard to the identical definition of lawful successor in both the Bill and GRACO, one might think it tautologic to say that the lawful successor has inherited by lawful succession. Furthermore, when the provisions in the Bill are compared with the relevant provisions in GRACO, one sees that the provisions in the Bill contained a possible loophole, namely, exemption might be enjoyed by an indigenous village who had sold his land after 30 June 1984, then re-acquired it, and left it to his son by succession. The provisions in GRACO have closed that loophole. That may explain the change in language.

Succession

34.I have set out the definition of “lawful successor” and “lawful succession” in section 2 of GRACO in para. 13 above. I think it is not controversial that a person cannot be a lawful successor except by lawful succession. Lawful succession is defined as succession, whether testate or intestate or in accordance with Chinese customary law. Mr Mok rightly reminded us that we are only concerned with Chinese customary law operating in the New Territories, as is expressly provided by both section 9(3) of the Extension Ordinance and section 2 of GRACO.

35.As early as 1920, it was decided that while the Chinese law and custom governing the distribution of assets on death is part of the law of Hong Kong, the general law providing the machinery of administration applies to Chinese estates. Thus, the court upheld the right of a concubine who had been granted letters of administration to administer the estate. Ho Cheng Shi v. Ho Sau Lam [1920] 15 HKLR 35.

36.I agree with Mr Lam’s submission that:

“(1)  As at both 1984 and 1990 (and up to 24 June 1994), by virtue of section 11(2) of the Intestates' Estates Ordinance (Cap.73), succession in relation to New Territories land … was, upon intestacy, governed by Chinese customary law, i.e. Qing law and custom in force in this part of China in 1843 as varied by local custom: Ho Tsz Tsun v. Ho Au Shi (1915) 10 HKLR 69; In re Wong Choi-ho, deceased [1969] HKLR 391. This means, broadly, that all sons and their male descendants would divide the whole of the estate equally between themselves, grandsons getting a father's share: Report on Chinese Law and Custom in Hong Kong (Strickland Report) (1953), §42(1); Jamieson, Chinese Family and Commercial Law (1970 reissue), at pp.25-26.”

37.So far as land in the New Territories is concerned, succession could be (i) testate, (ii) intestate, or (iii) in accordance with Chinese law and custom operating in the New Territories. I will deal first with intestate succession. A submission we have to consider in due course is whether a mode of distribution during the lifetime of a pater familias (Fenjia)(分家) is a mode of succession in accordance with Chinese customary law operating in the New Territories.

Intestate succession

38.Intestate succession was, until the enactment of the Intestates’ Estates Ordinance, Cap. 73 (“IEO”) which came into force on 7 October 1971, governed by Chinese customary law. For deaths after 7 October 1971, devolution would be governed by the IEO, an important change is that daughters would share equally with sons. However, section 11 of the IEO provided that land in the New Territories:

“11.  (2)  … shall continue to devolve upon intestacy in like manner as it would have devolved if this Ordinance had not been passed”.

39.Section 11 of IEO was repealed on 24 June 1994 by the New Territories Land (Exemption) Ordinance, Cap. 452 (“the Exemption Ordinance”). Thereafter, on intestacy, New Territories land would devolve in accordance with IEO such that e.g. daughters will share with sons.

Testate Succession

40.The right of a Chinese person, domiciled in Hong Kong, to dispose of his assets by will was challenged in re Tse Lai-chiu, deceased [1969] HKLR 159. There, the will was made on 5 November 1958 and the testator died on 27 July 1960. At that time, personalty of a Chinese person domiciled in Hong Kong, devolved according to Chinese customary law. See Ho Tsz Tsun v. Ho Au Shi [1915] 10 HKLR 69.

41.In Tse Lai-chiu Hogan CJ said at 192:

“Undoubtedly, the approach of the Hong Kong cases dealing with intestacy has the merits of simplicity and greater certainty, whatever criticism might be addressed to its logical basis. It has now been far too long an established and generally recognized principle, when an intestacy occurs, to permit any alteration other than by legislation.

There are, however, no similar decisions and no such accepted tradition and practice withholding or restricting the power and right of Chinese to make wills under English law. On the contrary, anyone discharging the functions of a probate judge in Hong Kong can be only too well aware that testamentary capacity in accordance with English law has been assumed and acted upon by many Chinese members of the community for a long time past, just as individual rather than family ownership has been widely accepted amongst all sections of the community. …”

42.Mr Lam submitted and I agree that by 1984 and 1990, it was also generally accepted that a Chinese person could validly dispose of his property by a will made in accordance with the common law: In Tse Lai-chiu, although there had been some doubt whether such testamentary power extended to land in the New Territories (ibid., p.193 p.200).

43.Whatever doubt there might have been in 1969 when Tse Lai-chiu was decided regarding testamentary power over land in the New Territories such power has been taken for granted for a long time. In Lau Wong Fat v AG [1997] 7 HKPLR 307, where the court dealt with a challenge to the Exemption Ordinance regarding the abolition of the Chinese customary rule of succession according to the male line on an intestacy, Godfrey JA (as he then was) said (with the agreement of Litton VP and Ching JA (as they then were)) the Exemption Ordinance:

“… does not prevent an indigenous inhabitant of the New Territories from making a will in favour of his male descendants to the exclusion of his female descendants, and so preserving the custom himself.”

Succession according to Chinese customary law

44.Section 17 of the New Territories Ordinance, Cap. 97 (“NTO”) provides:

“In the event of the death of any person in whose name any land is registered otherwise than as a manager, if no grant of probate or administration of the estate of the deceased is made by the High Court within 3 months after such death, the Land Officer, on ascertaining the name of the person who is entitled to such land in succession to the deceased person (hereinafter called the successor), and on being satisfied that any estate duty which may be due has been paid, shall register the name of the successor, and upon such registration being effected the said land shall vest in the successor for all the estate and interest of the deceased person therein, or for such estate and interest as shall be entered on the register by the Land Officer against the entry of the name of the successor. ... The registered successor shall be liable for the debts of the deceased in the same manner and to the same extent as if a grant of probate or administration had been made to him ...”

45.Section 13 of the NTO provided that in any proceedings in relation to land in the New Territories, the court shall have power to recognize and enforce any Chinese custom or customary right affecting such land. In Tang Kai-chung v. Tang Chik-shang [1970] HKLR 276 at 295, it was held that the court is mandated, and not just permitted, to apply Chinese custom and customary right.

46.Mr Lam submitted and I agree:

“Section 17 dea1t with the mechanism of vesting the property in the successor and the registration of such transmission. It did not purport to make any provision as to who the successor should be. That would depend on the stipulations of the will if there was one, or on Chinese customary law in the case of intestacy.”

47.In my opinion, section 17 of NTO provided the only means by which a succession according to Chinese customary law could be effected. And a section 17 succession could only take place on the death of the relevant ancestor. Section 13 of NTO must be read subject to section 17.

48.Thus, land in the New Territories could only devolve by way of succession by will, on intestacy by letters of administration, or under section 17 of NTO.

49.Wu Koon Tai and Anor v Wu Yau Loi [1997] AC 179 supports this view. The facts are complicated and do not matter. It is sufficient to note that at page 187 Lord Browne-Wilkinson, giving the judgment of the Privy Council said:

“Section 17 is directed to dealing with the problem of succession on death.  It recognizes that under Chinese law, which is to continue to regulate rights of succession, it is improbable that the full procedure of taking a grant of probate or letters of administration will be followed.  It provides for the registration of the successor to the land and the vesting of the land in the registered successor.

In their Lordships’ view, the devolution of title to land in the New Territories, whether by inter vivos transaction or on death, is regulated by the registration system and the general law of Hong Kong. …”

50.Earlier on the same page, Lord Browne-Wilkinson said:

“… It is plain that, after the Peking Convention, the whole system of land tenure in the New Territories was fundamentally altered. Leases from the Crown were substituted for old titles under the pre-existing law. A system for deducing title to such leases was imposed, dependent upon the registration of deeds. To allow the old customary land law to cut across and to trump the new system would be to defeat its whole purpose.”

51.Section 17 of NTO has been repealed by the Exemption Ordinance in 1994. After the repeal of section 17 of NTO, only two mode of successions are left.

Fenjia(分家)

52.Mr Andrew Wong addressed us on whether an inter vivos gift could be regarded as succession according to Chinese law and custom. Mr Wong explained that inter vivos gifts were often employed to avoid disputes after the death of the donor. Also that sometimes for convenience sake an inter vivos gift would take the form of a sale. It appears from Mr Wong’s submission that he supported the view that Fenjia was a mode of succession recognised by Chinese law and custom in operation in the New Territories. However, it seems that both Mr Wong and Mr Lam accepted that Fenjia might not apply to the applicant because he was an only son.

53.Mr Lam has referred us to Yau Kwai and Ors v. Yau Kar Siu and Ors, (unreported, HCA 7129/1997 and HCMP 1363/2003, 23 July 2004). There, the expert evidence described Fenjia as a process of dividing the estate among the sons during the parents’ lifetime or after the death of the father, possibly under the supervision of the widow or family elders at para. 30

54.Mr Lam further submitted:

“On the other hand it has been said that in such cases some ceremonies for fen-jia and formal documents could be expected: David Wakefield, Fenjia: Household Division and Inheritance in Qing and Republican China, pp.58-62, though the custom there described related to other parts of China. The Appellant has not given evidence of any such formal steps.”

55.In Chapter II of Chinese Family and Commercial Law (1970 reissue), by Jamieson which covered “Law of Succession and Inheritance”, Jamieson dealt with sections 78, 87 and 88 of the Qing Code. In the Commentary at page 17 Jamieson said:

“The above is all that the Code contains, by way of direct legislation at least, on this subject, and as the reader will perceive much is left to be supplied from other sources. Section 78 treats exclusively of the succession to the family, while the other two Sections discuss the division of the patrimony among direct descendants.”

56.Section 87 of the Qing Code provided as follows:

"Section 87

Division of Family

Lü

During the lifetime of grandparents or parents, the sons or grandsons are not allowed to set up separate establishments and register them as such, nor to divide the family property, under a penalty of one hundred blows, but the parents or grandparents must be the complainants. Also during the legal period of mourning for father or mother no division may take place, under a penalty of eighty blows; but in this case the nearest senior relations must be the complainants; and if the division has taken place in accordance with the last will of the father or mother, no action will lie.

Li

1.- The full penalty of the above law is incurred if the sons separate and divide the property, though they do not register themselves. .If, however, the parents permit the division, there is no objection to its being done."

57.The commentaries of Jamieson (at pp. 24-27), quoted by Mr Lam read:

“Next as to the mode in which the family property is divided. This consists not only of all ancestral inherited property and the accumulations made by the head of the family, but also of all property acquired by the sons. Prior to division, the family is an undivided whole, holding all things in common. The father is nominal owner, but each of the sons has an expectant interest in his share, of which he cannot be deprived. The earnings of every member are brought into a common fund, and no one has a right to compel a partition or to withdraw from the society until it is dissolved by mutual consent or by the natural demise of the head. The division of the property is therefore an important event. It corresponds to the Emancipatio of the Roman law. The sons become sui juris, and thereupon a new set of rights comes into existence. Prior to division a deceased son's estate reverts to the common fund, after division it devolves on his sons or adopted successor according to the general law. No distinction is made between land and any other kind of property. To come within the scope of this general rule, however, it must be understood that the sons have, as a matter of fact, held together up to the time of a division. A partial dissolution often occurs when one son leaves the family for an official position or for purposes of trade in a different part of the country. He is held to be ‘separately established,’ and his earnings would not fall into the common fund for distribution. Whether he would share or not would depend upon the arrangement at the time of his separation.”

58.I have to say that the materials provided have left me in considerable doubt whether “Fenjia” 分家 was indeed a mode of succession according to Chinese law or custom. But even if it were, it does not appear to apply where a father had only one son. In any event, for the reasons I have given above I do not accept there was room for Chinese customary succession otherwise than under section 17 of NTO.

59.It is also important to note that it was fundamental to the concept of Fenjia that the property to be divided was family property, such that:

“… Prior to division, the family is an undivided whole, holding all things in common. …”

60.In Kan Fat-Tat V Kan Yin Tat [1987] HKLR 516, I ventured to suggest that the concept of family property was not part of the law of the New Territories in 1898, and it was inconsistent with the concept of individual ownership and the right of testamentary disposition. At 529. I excluded from consideration, land held by tsos or tongs which as Re Lau Wai Chau (2000) 3 HKCFAR 98 shows must take the form of an endowment in perpetuity of property for the purpose of ancestral worship. And that

“25.  … Such endowments are to be made either by steps taken by someone in his lifetime to carry out his own wishes or by steps taken by heirs in their lifetime to carry out the wishes of a deceased ancestor. …”  per Bokhary PJ at 105.

61.In my view the inter vivos gift to the applicant took effect as a gift and not by way of lawful succession, and the applicant did not thereby become his father’s successor in respect of Lot 790A. In any event, once the requirement of continuity is accepted, it is clear that Lot 790A had not continuously been held by the indigenous owner or his lawful successor. Thus, even if, contrary to my view, the applicant could become and did in due course become his father’s successor, that is irrelevant.

62.I should also mention that Mr Lam has suggested that if there is any inconsistency between the relevant provisions in the Extension Ordinance and GRACO, the earlier should take precedence. But I can see no relevant difference between section 9 of the Extension Ordinance and section 4 of GRACO. Nor is the definition of successor in the two ordinances materially different.

63.I turn now to consider the principal submissions of the appellant, the HYK, and Mr Lam, namely, whether section 4 of GRACO is inconsistent with Articles 40 or 122. I deal first with Article 122.

Article 122

64.In Secretary for Justice v. Chan Wah (2000) 3 HKCF AR 459, Li CJ said the GRACO:

“… implements art.122 of the Basic Law which has its origin in Annex III to the Joint Declaration”  at 465D

65.When dealing with different provisions in GRACO, Sir Anthony Mason NPJ said in Commissioner of Rating & Valuation v. Agrila (2001) 4 HKCFAR 83 at 112G that GRACO and the regulations made under it:

“… were intended to and do give effect to the relevant provisions of the Basic Law which is itself to be interpreted in the light of the Joint Declaration”.

66.Mr Godfrey Lam submitted that as a matter of principle section 4 of GRACO ought to be interpreted in the light of Article 122 which in turn is to be interpreted in the light of paragraph 2 of Annex III to the Joint Declaration. However, it is also submitted that exemption from the annual rent is part of the “lawful traditional rights and interests of the indigenous inhabitants” provided by Article 40 such that “lawful successor” in Article 122 should be construed so as to include a person who has “succeeded” to the relevant land by an inter vivos gift.

67.It is not disputed that the term “lawful successor” in the male line in the Joint Declaration and the Basic Law includes a successor to the land concerned of the 1984 indigenous villager on his death. As noted, the question is whether it also includes a person who obtains the land in question by way of an inter vivos gift, especially if the inter vivos gift is the result of Fenjia (分家).

68.As stated by the CFA in Director of Immigration v. Chong Fung Yuen (2001) 4 HKCFAR 211 at 223H-224G, the correct approach to the interpretation of the Basic Law is to construe the language used in the text of the particular article of the Basic Law in the light of its context and purpose having regard to internal aids to interpretation such as other provisions in the Basic Law as well as extrinsic materials including the state of domestic legislation at the time of the adoption of the Basic Law (4 April 1990) and the time of the Joint Declaration (19 December 1984).

69.Both the Joint Declaration and Art. 122 provided for exemption from the annual rent “so long as” the property is held by an indigenous lessee on 30 June 1984 or by one of his lawful successors in the male line. Counsel submitted and I agree that the phrase “so long as” in Art. 122 is important because it implies continuity of holding by that person or his lawful successor. Both section 9(2) of the Extension Ordinance and section 4(1)(a) of GRACO give effect to the requirement of continuity. I note also that a condition for exemption is that the land “was on 30 June 1984” held by an indigenous inhabitant. The exemption was only extended to land in the New Territories held by an indigenous person “on 30 June 1984” and continued to be held by his lawful successor(s) in the male line thereafter. The exemption does not come with the status of being an indigenous inhabitant.

70.We are concerned with land in the New Territories to which Part II of NTO applies (I have referred to such land as land in the New Territories), in particular, land held under the government lease. The state of domestic legislation as at both 1984 and 1990 include section 8 NTO which declares that:

“All land in the New Territories is hereby declared to be and to have been from 23 July 1900, the property of theGovernment, and all persons in occupation of any such land shall be deemed to be trespassers as against theGovernment, unless such occupation is authorized by grant from the Government …”

71.The effect of section 8 NTO is that whatever title or interest a person might have had prior to 23 July 1900, indeed whether he had any interest at all prior to 23 July 1900, is irrelevant.

72.Mr Lam reminded us that Lord Diplock in Winfat Enterprises (HK) Co Ltd v Attorney-General of Hong Kong [1985] 1 AC 733 at 744H said that prior to the lease of the New Territories to Great Britain in 1898, land in that region was generally held on common tenure and that it was a “perpetual interest, heritable and assignable and subject to no restriction upon building on the land”. But it is important to note that Winfat Enterprises decided (as summarised in the headnotes) that the government lease:

“… substituted such leasehold tenure for that enjoyed by the inhabitants prior to 1898.”

73.It is also important to remember that but for the Joint Declaration and the Basic Law, no extension of such leases beyond 30 June 1997 could have been granted. In other words, for all intents and purposes the Joint Declaration and the Basic Law (Art. 121) enabled the government (during the period from 27 May 1985 to 30 June 1997) to extend such leases beyond 30 June 1997 and to 30 June 2047, at the annual rent. Such extension was made possible by the Joint Declaration and Art. 121.

74.I believe “lawful successors” in Article 122 refers to a person who has become such by lawful succession. Article 122 does not permit or require lawful succession to have a more extensive meaning than as recognised by the law in Hong Kong. That is consistent with Article 8 which provides that:

“The laws previously in force in Hong Kong, that is, the common law, rules of equity, ordinances, subordinate legislation and customary law shall be maintained, except for any that contravene this Law, and subject to any amendment by the legislature of the Hong Kong Special Administrative Region.”

75.At all relevant times, 19 December 1984 (Joint Declaration), 4 April 1990 (“the adoption of the Basic Law), as explained above there were only three ways by which succession could take place. By 1 July 1997, only two were left, section 17 NTO having been repealed by the Exemption Ordinance on 24 June 1994.

76.It follows that in my opinion, section 4 of GRACO is not inconsistent with Article 122.

77.I turn to consider Article 40.

Article 40 – Traditional Rights and interests

78.Rent was payable under the government lease. It is not suggested that the rent was nominal when fixed. But as Mr Lam has pointed out, notwithstanding that the government lease contained a provision for a review of the rent after the first 10 years of the term, and that the rent for the new term of 24 years less 3 days was to be at a new rent to be fixed, the rent had never been revised. In time the rent has become nominal. Thus, no doubt for historical reasons, land in the New Territories have been treated more favourably.

79.The rationale was explained when the New Territories (Extension) Bill was moved in 1969:

“Early in 1967 the matter was considered by the Executive Council and it was decided, with the approval of the Secretary of State, that although the Crown had the right to revise the Crown rent for these lots in 1973, which would in practice mean the right to increase the rent greatly, it should not exercise this right. Account was taken of the fact that the great majority of the lots affected had been in private ownership when the New Territories were first leased and that these lots are still largely in the same ownership, that is, mainly ownership by succession. Moreover, on a previous occasion,' when the terms of the Block Crown leases permitted a review of the Crown rent, the Government, in response to representations by New Territories elders, did not take advantage of the opportunity to do so.” (LegCo proceedings, 9 April 1969, p.232)

80.In contrast, when Crown leases in other parts of Hong Kong were deemed renewed under section 3 of the Government Leases Ordinance (Cap.40) enacted on 14 December 1973, a new Government rent was imposed which was fixed at 3% of the rateable value of the lot as at 1 July 1973 or the date of expiry of the lease whichever was the later.

81.Also, in “Unequal Treaty 1898-1997”, Peter Wesley-Smith, Revised Edition, refers to:

“… a proclamation issued on 11 July 1906 promising not to raise rents during the term of the lease”.  p. 136.

82.In Secretary for Justice v. Chan Wah (2000) 3 HKCF AR 459, Li CJ stated that there was no dispute that the lawful traditional rights and interests within Article 40 "include various property rights and interests such as exemption from Government rent and rates in respect of certain properties held by indigenous villagers" (447E-F). In addition, he said (at 4771-J):

"The lawful traditional rights and interests of indigenous inhabitants that are within art.40 are protected by the Basic Law. In addition, there is specific protection in domestic legislation in relation to some of them. For example, the Government Rent (Assessment and Collection) Ordinance and the Rating Ordinance (Cap.116) s.36 relating to exemption from Government rent and rates respectively. (The former is also subject to the protection in art. 122 of the Basic Law.)"

Both the applicant and the HYK placed heavy reliance on this dictum.

83.The right to exemption from the annual rent is governed by Article 122 which is the specific provision dealing with exemption to pay the annual rent in respect of a lease renewed by virtue of Article 121. For the reasons I have given above I believe “lawful successors” in Article 122 refer to a succession on the death of the relevant ancestor and do not include an inter vivos transfer. There is nothing in Article 40 which requires a different interpretation. For the above reasons, I would dismiss the appeal.

Section 4(5) GRACO

84.Mr Lam has also dealt with section 4(5), GRACO in his written submissions. The only reason given by the Director of Lands for not granting exemption from government rent to Lot 790A is that the appellant acquired Lot 790A after 30 June 1984 and did not do so through succession in the male line. Hence, Mr Mok submitted that the only relevant provision is section 4(a)(ii) of GRACO. The respondents did not and do not now rely on section 4(5) of GRACO and made no submissions on that subsection. That being the case I express no view on section 4(5).

Appeal out of time

85.As noted above, the appellant’s appeal was dismissed also on the ground that it was long out of time.

86.Because of the importance of the point raised by the appellant, and HYK’s keen interest in the outcome, we have heard submissions on the constitutionality of section 4 GRACO. Although I have come to the conclusion that the appellant is not entitled to exemption I would nevertheless give leave to appeal out of time.

Appeal Dismissal

87.But, for the above reasons, I would dismiss the appeal.

Additional Evidence

88.Mr Mok has applied for leave to adduce additional evidence.

89.That is opposed by the appellant. The new evidence relate mostly to governments discussions with HYK over the years relating to the exemption of the annual rent. Mr Lam queried their admissibility. I also doubt their admissibility. In any event, I have not found it necessary to rely on such evidence. So I would refuse leave.

Costs

90.Mr Mok has asked for costs. The appellant merely made the point that he might wish to appeal to the Court of Final Appeal. Mr Lam submitted that in any event the appellant should not be required to pay all the costs. I agree. In the circumstances of this case, I would order that the appellant pays to the respondent 25% of the costs of the appeal. Such costs to be taxed if not agreed.

Hon Cheung JA:

91.I agree with the reasons of the judgment of Tang VP.

92.I had initially considered whether the relevant provisions of the Basic Law may embrace ‘succession’ by transmission of a father’s interest during his lifetime to the son as well. However, on reflection, this interpretation would strain the meaning of the word ‘succession’ which clearly connotes passing of interest on death. It would also cause this Court to ignore the weight of the relevant Hong Kong legislations that were in existence at the time of the drafting and promulgation of the Basic Law. These legislations are relevant extrinsic materials that may be used in the interpretation of the Basic Law. They showed, especially the one covering the New Territories, only succession on death were addressed and not during a father’s lifetime.

93.Even if transmission of a father’s interest during his lifetime has always been a commonly adopted practice in the New Territories, Heung Yee Kuk has not adduced any evidence that such a practice was considered by the drafters of the Basic Law to be a mode of succession as well.

Hon Yuen JA:

94.I agree with the judgment of the Vice-President.

(Robert Tang) (Peter Cheung) (Maria Yuen)
Vice-President Justice of Appeal Justice of Appeal

The Appellant, in person, present.

Mr Johnny Mok, SC, instructed by Department of Justice, for the 1st and 2nd Respondents.

Mr Godfrey Lam, SC, as amicus curiae.

Mr Wong Wang Fat Andrew, of Heung Yee Kuk New Territories.

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