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HCAL274, 376-382, 390-394, 396,

900-904, 906, 907, and 909915/2000


IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST
NOS. 274 of 2000, 376 of 2000, 377 of 2000, 378 of 2000,
379 of 2000, 380 of 2000, 381 of 2000, 382 of 2000, 390 of 2000,
391 of 2000, 392 of 2000, 393 of 2000, 394 of 2000 & 396 of 2000
----------------------

BETWEEN
LEUNG MAN CHEUNG
LEUNG KAM CHEUNG and OTHERS

Applicants

and
SECRETARY FOR PLANNING AND LANDS
LAND DEVELOPMENT CORPORATION

Respondent
Intervener

-----------------------

AND
CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST
NOS. 900 of 2000, 901 of 2000, 902 of 2000, 903 of 2000,
904 of 2000, 906 of 2000, 907 of 2000, 909 of 2000, 910 of 2000,
911 of 2000, 912 of 2000, 913 of 2000, 914 of 2000 & 915 of 2000
----------------------

BETWEEN
LI TING CHUNG and OTHERS

Applicants

and
CHIEF EXECUTIVE IN COUNCIL
LAND DEVELOPMENT CORPORATION

Respondent
Intervener

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-----------------------

(Consolidated pursuant to the Order of the


Honourable Mr Justice Cheung dated 23 June 2000)
Before : Hon Cheung J in Court
Dates of Hearing : 29 - 31 August, 1, 4 and 5 September 2000
Date of Judgment : 14 September 2000
---------------------JUDGMENT
---------------------APPLICATIONS FOR JUDICIAL REVIEW
These are the applications for judicial review by the owners of
15 properties (the properties) in Kennedy Town against first, the decision
of the Secretary for Planning and Lands (the Secretary) dated 10 March
2000 recommending to the Chief Executive in Council for the resumption
of their properties under the Lands Resumption Ordinance (LR
Ordinance), and, second against the decision of the Chief Executive in
Council on 2 May 2000 resuming the properties. The Land Development
Corporation (the Corporation) intervened as an interested party.
THE PROPERTIES
The particulars of the ownership and properties are set out
below :
HCAL NO. APPLICANT

PROPERTY

(1)

274/2000,
902/2000

Leung Man Cheung &


Leung Kam Cheung

4 Kin Man Street (whole


building)

(2)

376/2000,
904/2000

Wholly Earn Investment


Limited

G/F, 10A Davis Street

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(3)

377/2000,
901/2000

Leung Pou Lan alias


Bolan Lu-Sheng

G/F, 105 Catchick Street

(4)

378/2000,
906/2000

Chiu Chut Fong

G/F & M/F, 107 Catchick


Street

(5)

379/2000,
909/2000

Lai An Chun

G/F, 1 Cadogan Street

(6)

380/2000,
903/2000

(7)

381/2000,
912/2000

Leong (or Leung)


G/F & Cockloft, 27
Man Po alias Leung Man Cadogan Street
Por
Toppy Year
G/F, 117 Catchick Street
Development Limited

(8)

382/2000,
913/2000

Toppy Year
Development Limited

G/F including cockloft


therein of 115 Catchick
Street

(9)

390/2000,
911/2000

Au Siu Ping, Au Yat On


David, Tang Mei Wan

G/F, 15 Cadogan Street &


G/F, 17 Cadogan Street

(10)

391/2000,
910/2000

Yiu Wai Sang

G/F, 2H Davis Street

(11)

392/2000,
900/2000

Li Ting Chung

G/F, 2A Davis Street

(12)

393/2000,
907/2000

Chan U Tong

G/F, 2C Davis Street

(13)

394/2000,
914/2000

Toppy Year
Development Ltd

G/F, 43 New Praya


Kennedy Town

(14)

396/2000,
915/2000

Toppy Year
Development Ltd

G/F, 42 New Praya


Kennedy Town

THE DEVELOPMENT PROPOSAL

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The properties are situated in an area which is designated as a


Comprehensive Development Area (CDA) on the draft Kennedy Town
and Mount Davis Outline Zoning Plan No.S/HI/8. Initially, the Housing
Society was to implement the redevelopment scheme of these properties.
However, it was unable to do so and the Corporation was appointed by the
Government in March 1997 to proceed with the redevelopment. In
April 1997, the Secretary designated the CDA as an area which the
Corporation may purchase or otherwise acquire or hold land under
section 5(2)(a)(i) of the Lands Development Corporation Ordinance (the
LDC Ordinance).
The Corporation implements urban renewal projects either by
way of a development scheme under section 13 of the LDC Ordinance or
by a development proposal under section 5(2)(b) of the LDC Ordinance.
In a development proposal, no rezoning is required and no approval by the
Town Planning Board (the Board) under section 14 of the LDC
Ordinance is required. In this case, the project was being carried out as a
development proposal since the project area had already been zoned a
CDA, the Boards approval of a Master Layout Plan (MLP) was
required. The MLP was approved. The development proposal is
undertaken by the Corporation with a partner.
The project covers an area of about 6,072 square metres and is
located by the seafront of Kennedy Town. The area comprises run-down
and dilapidated buildings (built in the 1950s) containing substandard
domestic accommodation including caged apartments and ground floor
shops. The project is known as the H12 Project. In three months from the
start of this project, the Corporation made its first offer to all owners on

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9 July 1997. By June 1998, the Corporation had successfully acquired by


agreement 247 out of 310 (or 80% of the premises affected by the project).
The rest was the subject of an application by the Corporation to the
Secretary for recommendation of resumption. The recommendation was
made on 15 March 2000. The Chief Executive in Council ordered
resumption on 2 May 2000.
STATUTORY FRAMEWORK
The operation of the statutory framework of the LDC
Ordinance, the Town Planning Ordinance and the LR Ordinance had been
considered by me in the recent decision of Kaisilk Development Ltd v.
Secretary for Planning Environment and Lands (HCAL148/1999). It is not
necessary for me to repeat them here. The only matter to note is that in
respect of a development proposal there is no requirement that an
application for recommendation to resume has to be made not later than
12 months after the approval by the Chief Executive in Council under
section 9 of the Town Planning Ordinance of a draft plan.
Recommendation for resumption
In respect of the development proposal, section 15(4) of the
LDC Ordinance provides that :
(4) The Secretary shall not make a recommendation in
pursuance of subsection (2)(b) (i.e. the Corporation has been
unable to acquire any land which it requires to implement a
development proposal authorized under section 5(2)(b) of this
Ordinance),
(a) unless the development proposal may lawfully be
implemented by virtue of the provisions of any draft
or approved plan for the purposes of the Town
Planning Ordinance (Cap.131) and, in the case where

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by virtue of such plan, permission under section 16 of


that Ordinance is required for that implementation,
the permission required has been obtained;
(b) unless the application for resumption is accompanied
by a statement
(i) setting out how the Corporation intends that the
proposal will be implemented, including whether
implementation will be by the Corporation alone
or the Corporation in association with another
person and in relation to land within the
boundaries of the proposal, what portion of the
land is owned or leased by the Corporation and
what arrangements have been made or are
contemplated by the Corporation for the
acquisition of any land not so owned or leased;
(ii) containing an assessment by the Corporation as
to the likely effect of the implementation of the
proposal, including, in relation to the residential
accommodation of persons who will be displaced
by the implementation of the proposal, an
assessment as to whether or not, insofar as
suitable accommodation for such persons does
not already exist, arrangements can be made for
the provision of such residential accommodation
in advance of any such displacement which will
result as the proposal is implemented; and
(c) unless he is satisfied that the Corporation has been
taken all reasonable steps to otherwise acquire the
land including negotiating for the purchase
thereof on terms that are fair and reasonable.
(emphasis added)
(5)
For the purpose of this section, in considering whether or
not the Corporation has negotiated for the purchase of the land
on terms that are fair and reasonable, the Secretary may consult
any person not being a public officer whom he considers may be
able to assist him in forming an opinion on which to base his
decision in respect of that negotiation.

THE ISSUES
In these applications, the Applicants have, first of all,
identified the issues that are common to all the applications and then dealt

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with issues that are unique to the individual Applicants. I will follow this
structure in my judgment.

CHALLENGE TO THE DECISION OF THE SECRETARY


The common issues
The Applicants complained that the decisions should be
quashed by reason of the following common issues :
(1)

The Corporations offers were too low.

(2)

The Corporation failed to disclose comparables of valuation.

(3)

The Corporation failed to really negotiate with the Applicants.

(4)

The Secretary had, in breach of section 15(5) of the LDC


Ordinance, consulted public officers in considering whether or
not the Corporation had negotiated for the purchase of land on
terms that are fair and reasonable.

(5)

The decisions are Wednesbury irrationally.

(6)

There are procedural impropriety involved in the


decision-making process in that the Secretary had failed to
give reasons for his decision.

(7)

The Lands Tribunal did not provide the Applicants with


adequate relief.

(8)

Is the High Court in judicial review an appropriate forum to


deal with valuation issues?

(9)

Courts discretion.

Issues unique to individual applications

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The following are issues unique to individual applications :


(1)

Redevelopment potential not taking into account (this relates


only to HCAL No.274 of 2000).

(2)

An area of land over which there are private rights of passage


in favour of an adjoining occupier can be taken into account
for the purpose of determining the area of the site (this relates
to HCAL No.274 of 2000 only).

(3)

The Corporation failed to give Home Purchase Allowance


(HPA) (this relates to HCAL No.274 of 2000 only).

(4)

Unauthorised structures ought to be taken into account for


valuation (this relates to HCAL Nos.376, 377, 378, 379, 380,
381 and 392 of 2000).

(5)

The area of the cockloft (this relates to HCAL No.377 of


2000).

(6)

Inadequate response to counteroffers (this relates to HCAL


Nos.379, 380, 381, 382, 390, 392, 394 and 396 of 2000).

(7)

The Corporation failed to conduct measurements on site (this


relates to HCAL Nos.377, 378, 380, 381 and 382 of 2000).

(8)

The Corporation failed to deal timeously with business loss


(this relates to HCAL No.390 of 2000).

(9)

The Corporation should value a cockloft as a mezzanine floor


(this relates to HCAL No.380 of 2000).

CHALLENGE TO THE DECISION OF THE CHIEF EXECUTIVE IN


COUNCIL
The grounds which are common to all the applications against
the decision of the Chief Executive in Council are as follows :

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(1)

The resumption orders were based on the recommendations of


the Secretary under section 15 of the LDC Ordinance and
would have no legs to stand on upon the recommendation
being quashed.

(2)

There were procedural impropriety in that the Chief Executive


in Council should have waited for the courts ruling on the
application against the Secretary before acting on the
recommendation, and that the Applicants had been deprived
of the opportunity to properly making representations to the
Chief Executive in Council.

(3)

The Lands Tribunal is not the proper forum.

(4)

Courts discretion.
The Applicants are also relying on the same issues unique to

individual applications.
THE FOCUS
Although I will follow the structure of the issues identified by
the Applicants, it is necessary to bear in mind that the challenge is against
the decision of the Secretary in making the recommendation to the Chief
Executive in Council and the latters decision to order resumption of the
properties. Hence, the focus must be on the decision and the
decision-making process of these two decision-makers.
Ambit of judicial review
In judicial review proceedings, the court is not concerned with
the merits of the decision : In re Amin [1983] 2 AC 818 per Lord Frazer at

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829A. Furthermore, the court is not concerned with mistake of fact unless
facts are objective in the nature of independently ascertainable and
measurable and the decision-makers concept of the facts is plainly or
unassailably wrong : Chan Sau Mui v. Director of Immigration [1992]
6 HKPLR 479 at page 486 per Cons Ag CJ.
Under section 15(4)(c), the Secretary shall not make a
recommendation unless he is satisfied that the Corporation has taken all
reasonable steps to acquire the land including negotiating for the purchase
on terms that are fair and reasonable. Clearly, by this provision, it is the
Secretary who has to be satisfied with the requirements. Where the words
are satisfied are used, they leave the decision, on these issues of fact, to
the decision-maker; there is no appeal to a court against such a decision,
but it may be subject to judicial review for error of law including absence
of any material on which the decision could reasonably be reached : Din v.
Wandsworth L.B.C [1983] AC 657, at page 664 per Lord Wilberforce.
Where the existence or non-existence of the fact is left to the judgment and
discretion of a public body, and that fact involves a wide spectrum ranging
from the obvious to the debatable or to the just conceivable, it is the duty
of the court to leave the decision of that fact to the public body to whom
Parliament has entrusted the decision-making power save in a case where
it is obvious that the public body, consciously or unconsciously, are acting
perversely : Reg v. Hillingdon L.B.C , ex parte Puhlhofer [1986] AC 484,
at page 518 per Lord Brightman.
Judicial review and land resumption
It is necessary at the very beginning to set out the ambit of
judicial review in resumption cases. The principles are recently considered

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by the Court of Appeal in Wong Tak Woon v. The Secretary for Planning,
Environment and Lands, CACV339, and approved by the Court of Final
Appeal in an application for leave to appeal against the decision of the
Court of Appeal (FAMV No.9 of 2000). Keith JA in the Court of Appeal
stated that :
it was not arguable that, in assessing the compensation for
land resumed pursuant to a recommendation to the Chief
Executive under the Land Development Corporation Ordinance
(Cap.15), account may be taken of the value of such property as
would be built on the land under any proposed development.

Ribeiro J (as he then was) stated that :


a judicial review of the offer of acquisition was precluded by
the Ordinance because it provides the intended machinery under
the Lands Resumption Ordinance for determining the value at
which land should be acquired when an offer of acquisition is
unacceptable to the land owner [and] this left no room for an
application for judicial review of an offer considered to be too
low.
it was entirely proper for the [Land Development
Corporation] to be guided by the amount of compensation
achievable under the prescribed [Lands Resumption Ordinance]
machinery when deciding what would be a fair and reasonable
offer since that was the fallback position if agreement could not
be reached.

It should be pointed out that when Keith JA referred to the


value of the property that would be built on the land under any proposed
development, he was not referring to the development value of the
property itself, but rather the value of redevelopment of the applicants
own property together with other properties resulting from the
implementation of the development scheme. Keith JA stated that he had
some reservations on the view expressed by Ribeiro J on whether a
challenge to the fairness and reasonableness of terms offered by the
Corporation as prima facie not the subject of judicial review because the

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statutory regime for the assessment of compensation under the Lands


Resumption Ordinance only becomes relevant once the Secretary is
satisfied that the terms of the offer were fair and reasonable. He,
however, stated that it was not necessary for him to say any more about the
matter in view of his opinion on the case.
Mr Leongs submission
Mr Leong SC, counsel for the Applicants, accepted that no
case can be made out in a judicial review of the Secretarys
unreasonableness and unfairness based only on different views taken by
valuers on pure figures that are within their professional expertise to take.
However, he relied on the comment of Keith JA and submitted that the
statutory framework contemplated a two-stage process, and the court is
entitled to adjudicate on whether the Corporation had behaved fairly and
reasonably relating to matters more fundamental than just figures. These
matters affect whether the Secretary is justified in declaring himself
satisfied about the fairness and reasonableness of the Corporations offer
for the purposes of section 15(5). These matters include whether the
Corporation had fairly and reasonably engaged land owners by its manners
of conducting negotiations with them, and whether the approaches of
valuation were wrong in principle. The Applicants seek to distinguish
Tsang Kam Lan v. Secretary for Planning, Environment and Lands and
Governor-in-Council, HCMP325/1997 and Wong Tak Woon on the basis
that the owners there were seeking a compensation based on the marriage
value of the properties, i.e. the value of the owners property together with
other properties in the redevelopment scheme. As such their claim was
bound to fail, hence these two cases are not authority to exclude from

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consideration matters of valuation in a judicial review if such matters


affect the principles of valuation.
Mr Leong submitted that the Lands Tribunal is the expert for
valuation of the affected properties but it has no jurisdiction to review
whether the valuations by the Corporation are fair and reasonable, or
whether the Secretary is legal, rational or procedurally proper in his
decision to make the recommendation. The Lands Tribunal cannot always
compensate the Applicants for loss suffered consequential upon an illegal,
irrational, procedurally improper decision of the Secretary. In this case,
property value had dropped since the offer was made by the Corporation.
Mr Leong submitted that only the court can bring about a fresh offer by the
Corporation based on a higher valuation at the time of the Corporations
offer by quashing the Secretarys decision to recommend resumption.
No further room for argument
Despite the reservation of Keith JA on this matter, what
Ribeiro J had stated was expressly approved by the Court of Final Appeal.
In my view, there really is no further room for argument on the issue of
valuation not being subject to judicial review. Many of the issues relied by
the Applicants fall within this ambit. On the so-called principles of
valuation, on analysis, some of them are really not principles as such. Of
the others, and on the manner of negotiation, the focus must be on whether
the Secretary had material on which his decision could reasonably be
reached.
The Applicants further argued that the compensation to be
decided by the Lands Tribunal would not provide them with adequate

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relief because any valuation of the properties by the Lands Tribunal would
be based on the date of resumption and not on 23 June 1997, the valuation
date on which the Corporation made its offer. The current market value of
the properties is less than that on 23 June 1997.
This is also one of the arguments advanced before the Court
of Appeal in Wong Tak Woon. Nonetheless, Ribeiro J (as he then was) was
of the view that matters relating to valuation are not amiable to judicial
review.
THE OFFER BEING MADE TOO LOW
This is clearly a matter that falls outside the ambit of judicial
review. The Applicants retained two firms of valuers, namely, F. C. Tam
Surveyors Limited and First Pacific Davis (Hong Kong) Limited in valuing
their properties. The Corporation instructed two firms of valuers, namely,
Vigers (Hong Kong) Limited and Larry H.C. Tam & Associates Limited to
value the properties. The higher of the two valuations received by the
Corporation was used as the basis of its offer to the Applicants. On the
authority of Wong Tak Woon, the court is clearly precluded from going into
matters purely on the differences in the valuation of the experts.
In discharging his duty, the Secretary instructed a firm of
independent consultant, namely, Messrs James Ng Surveyor Limited (the
Government Consultant), to prepare a valuation of the properties. The
Applicants relied on a table provided to members of the Central and
Western District Board in about March 2000, showing a comparison of the
offers made by the Corporation and a valuation of the properties by the
Government Consultant. The assessment of the Government Consultant is

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on the open market value of the properties. The Applicants contended that,
while each and every item of the Corporations offer is higher than the
valuation of the Government Consultant, the table is misleading in the
sense that the Corporations offers represented not only the market value of
the properties as at July 1997 but also an award of ex gratia payment on
top of the market value.
In my view, this is an argument which is difficult to accept.
The offer made by the Corporation was based on the open market value of
the properties plus an ex gratia payment. It must be the offer as a whole
which has to be judged in determining whether the offer is reasonable.
The Secretary had consulted an independent consultant whose valuation
showed that the offer made by the Corporation is higher than his own
valuation.

This is the basis on which he concluded that the term offered

was fair and reasonable. As Godfrey JA stated in Secretary for Justice v.


Prudential Hotel BVI Limited [1997] 3 HKC 244, it is not appropriate for
the judge to compare the evidence of the two experts and to express his
preference for one of the experts and disregarded the other. It is not the
function of the judge even to consider which of the two is to be preferred.
The function of a judge is simply to see whether there is evidence before
the decision-maker upon which he can legitimately and rationally draw the
conclusion. In the circumstances, there clearly is evidence on which the
Secretary can be legitimately and rationally satisfied that the statutory
requirement had been met.
Home purchase allowance
The offers made to No.2 and No.4 Kin Man Street

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Related to the issue of the offers being made too low is the
payment of an ex gratia payment called Home Purchase Allowance
(HPA). In the majority of the cases, the Corporation had made
two offers to the Applicants, the first is on the basis of a sale of their
properties with vacant possession and the second offer is on the basis of a
sale subject to tenancy. In respect of shop premises an additional 5%
incentive payment was included. In certain cases, additional offers were
also made. The argument relied by the Applicants is the huge disparity in
the offer made to one of the properties, namely No.4 Kin Man Street
(No.4) and its immediate neighbour, No.2 Kin Man Street (No.2).
No.4 is a four-storey building. The Corporation made an offer of
$4.726 million to the owners for the whole building. However, the
Corporation acquired the ground floor of No.2 for the sum of $4.3 million.
The breakdown of this sum of $4.3 million showed that $1,667,000 was
for the open market value, $2,693,000 was for an ex gratia allowance, and
$100,000 was for other costs.
The policy and its rationale
The policy of the Corporation is that if the occupation permit
of the premises shows that the premises is for domestic use, then it will
pay the HPA to the owner irrespective of the actual use of the premises. If
the premises is owner-occupier, the HPA is the full 100%. If the premises
is tenanted, then the owner will receive between 50-70% of the HPA. HPA
is not provided to the owner if the owner owns the whole building. In such
a case, the offer will be the higher of the redevelopment value or the
existing use value of the building plus an ex gratia allowance of 10%.
No.4 is a single ownership building, and as a result, the owners were not
offered any HPA.

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Although there is no written statement on this matter, it seems


that the rationale for excluding the payment of HPA to single ownership
building is because the owner can redevelop the whole of the building, and
therefore does not require HPA. The irony in this case is that the
redevelopment value of No.4 is lower than the existing use value. There is
no dispute that the area of the ground floor of both No.2 and No.4 is the
same size. While No.2 is owner-occupier, No.4 is tenanted. But apart
from this, if No.4 is not owned by a single owner, its owners will be
entitled to HPA although at a lower percentage. The question becomes
whether the difference in offers made in respect of these two adjoining
buildings are so anomalous that the decision of the Corporation can be
termed as an irrational decision. It follows from this whether the Secretary
can be satisfied that the Corporation had been negotiating for the purchase
on terms that are fair and reasonable.
Decision not unfair or unreasonable
Although, on the facts, No.4 may have received a much lower
offer because of the exclusion of HPA, I have come to the view, after some
initial hesitation, that the Applicants are precluded from contending
that the Corporation had negotiated on terms that are unfair and
unreasonable. First, the payment of HPA is based on a Government policy
which had been approved by the Legislative Council. The exclusion of
payment of HPA to single ownership buildings seems to be based on
rational grounds because of the redevelopment potential that is available to
the owner of the building. Until such a policy is changed, the Corporation
really has to abide by the policy. Second, as shown in cases such as
Chan Mok Yee and Cheung Fung Jan trading under the name of Ocean

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Paper Products Factory v. The Attorney General, HCA6881/1980, and


Chan Sik Cheung v. The Director of Lands [1995] 3 HKC 199, an ex gratia
payment is a voluntary payment of a gratuitous nature and is not
justiciable. This by itself is not determinative of the issue because more
importantly, as Henry LJ said in R. v. Independent Television
Commissioners ex parte Virgin Television Limited [1996] EMLR 318 at
page 336, fairness means the decision-makers duty to be even-handed, to
treat all applications alike in the sense that the same rules are applied to
them and that each applicant receives or would receive the same treatment
under those rules ... they must be treated alike, in that the same criteria
for judgment under the Rules must be applied to each, even though
the results would be different. (emphasis added). This is precisely what
happened in the present case, the ex gratia payment was applied in
accordance with the same set of policy that was applicable to owners
affected by the redevelopment although the result was different. Third, the
owners of No.4 had never accepted that the redevelopment value of their
property is lower than the existing use value. On the contrary, their own
valuer assessed the redevelopment value at $9 million. The owners of
No.4 had never indicated that they were prepared to accept the HPA on the
basis that the existing use value is higher than the redevelopment value.
Had they so indicated, and if the Corporation had nonetheless refused to
grant them the HPA, then there may be some ground for saying that the
Corporation had not negotiated on terms that are fair and reasonable. This
is not the situation here.
The Applicants relied on a Singapore case : Seah Hong Say
(trading as Seah Heng Construction Co.) v. Housing and Development
Board [1993] ISLR in which land owners issued a writ claiming ex gratia

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payment awarded in respect of a building compulsory acquired by the


government. The Court of Appeal of Singapore dismissed the application.
Lai Kew Chai J held that :
In our judgment there can, by definition, be no legal entitlement
to an ex gratia payment, though the potential recipient of such
payment might have a right to expect that the decision as to his
award should be properly made, and may enforce that right by
the process of judicial review, to ask, for example, that a decision
improperly arrived at be quashed by certiorari or that a proper
process be followed by mandamus.

Read in the context of the case, what the judge said clearly is not an
authority for saying that claim for ex gratia payment can be made in
judicial review proceedings. This case does not assist the Applicants.
FAILURE TO DISCLOSE COMPARABLES
The Applicants argument
The Applicants contended that the Corporation had acted
unfairly and unreasonably by failing to provide comparables on which the
Corporations surveyors had relied to value their properties. In the absence
of such comparables, they were unable to make worthwhile representations
to the Corporation during the negotiation. Mr Leong characterised this
complaint as one which relates to the manner in which the Corporation
carried out the negotiation. He submitted that the Secretary must not only
be concerned with the question of valuation, but also the manner in which
the negotiation was made in order to satisfy himself that the Corporation
has taken all reasonable steps to acquire the land including negotiating for
the purchase on terms that are fair and reasonable.

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The factual disputes


To deal with this issue, it is first of all a matter of fact that the
valuation reports from the Corporations valuers were disclosed to the
Applicants and their valuers upon request. Mr Keen of the Corporation
stated that the Corporation does not normally provide comparables to
property owners directly since the interpretation of comparables more
often than not requires experts knowledge on valuation principles which
the owners may not possess. It is and has always been the Corporations
practice to provide copies of its valuers reports to property owners and
their valuers upon request, and to disclose comparables to the Applicants
valuers. As disclosed in the evidence of Mr Keen, comparables were
discussed at various meetings with the owners experts on the following
properties, namely :
(1)

2A, 10 and 10A Davis Street.

(2)

107 Catchick Street

(3)

1, 15, 17 and 27 Cadogan Street


As to the allegation of the Corporation failing to disclose

comparables, all that the Applicants had identified was one instance in
which the owner of No.2H Davis Street (No.2H) requested comparables
on 9 November 1998. The Corporation refused to provide the comparables
to this representative. The owner of No.2H had in fact at that stage
instructed a surveyor on his behalf. Clearly, if the surveyor considered that
comparables were required, he could have asked for them. In my view, the
Applicants had failed to make out a case on the facts that the Corporation
had failed to disclose comparables to them.

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No obligation to discuss comparables


What is more important is whether the Applicants are entitled
to the comparables as of right. Under the LDC Ordinance, the Corporation
is required to conduct its business according to prudent commercial
principles : section 10(1). The task of the Corporation is to purchase the
properties of the owners in order to carry out the redevelopment scheme.
No lis between the parties
Mr Leong submitted that the role of the Corporation is unique
because once it is known that properties are to be resumed, then really the
owners cannot freely dispose of their properties except to the Corporation.
Even proceeding on the basis that the role of the Corporation is unique, the
fact remains that in negotiating for the purchase of the Applicants
properties, the Corporation is merely an intended purchaser of the
properties. Apart from a purchaser and buyer situation, there really is no
lis, or in modern language a suit, action, controversy or dispute between
them. This being the case, there is no question of the Applicants being
entitled to have comparables of valuation provided to them in order for
them to make representations. In Johnson & Co. (Builders), Ltd v.
Minister of Health [Aug 6, 1947] 2 All ER 395, the owners of land in a
compulsory purchase order applied to quash the order on a ground that the
Minister of Health, in considering objections to it, was bound to act in a
quasi judicial manner and that he had failed in that duty by not making
available to the objectors the contents of certain documents. It was held
that there was no obligation on the Minister to provide the material.
Lord Greene, MR stated that :
... Lis, of course, implies the conception of an issue joined
between two parties. The decision of a lis, in the ordinary use of

- 22 -

legal language, is the decision of that issue. The consideration of


the objections, in that sense, does not arise out of a lis at all.
What is described here as a lis the raising of the objections to
the order, the consideration of the matters so raised and the
representations of the local authority and the objectors is
merely a stage in the process of arriving at an administrative
decision.

Commercial dispute
In Mass Energy Ltd v. Birmingham City Council [1993]
Env. L.R.298, different parties submitted tenders for a contract to the local
authority. The local authority accepted one of the tenders. Another party
who had their tender rejected applied for judicial review against the
decision to accept the tender. It was held that it was open to the local
authority to choose one tenderer in preference to others. Glidewell LJ held
that, on its face, it is a commercial dispute between a successful and an
unsuccessful tenderer. The fact that the local authority is restricted by
statute on how to accept contracts does not make it a public law dispute.
Evans LJ stated that In commerce, life is not always fair. The authority
was entitled to act as a commercial animal at the stage when it was
considering the tenders they had received. I find it impossible to say more
than that the council were bound to act commercially. That unfortunately,
does not guarantee complete fairness and may be the plaintiffs did not
receive it, but that is not a ground, in my view, for complaining under the
Act.
Lord Ackner in Walford v. Miles [1992] 2 AC 128, at 138E
held that :
... However the concept of a duty to carry on negotiations in
good faith is inherently repugnant to the adversarial position of
the parties when involved in negotiations. Each party to the

- 23 -

negotiations is entitled to pursue his (or her) own interest, so


long as he avoids making misrepresentations.

In my view the opinions expressed in these cases are clearly


applicable to the present case. Mr Leong submitted that since the
Secretary was obliged to consider whether there was negotiation on terms
which are fair and reasonable, this means the Corporation could not simply
apply prudent commercial practice in its dealings with the Applicants.
I agreed with Mr Yu SC, counsel for the Corporation, that one has to focus
on the terms and asked whether they are fair and reasonable, and one must
not confuse with the notion of terms which are fair and reasonable with
any concept of duty to act fairly.
FAILURE TO REALLY NEGOTIATE WITH THE APPLICANTS
The complaint
The Applicants contended that the Corporation failed to really
negotiate with them to arrive at an offer agreeable to all parties, but
remained firm in its own stance throughout. They complained that the
offers made by the Corporation were simply on the basis of vacant
possession or subject to tenancy. In some cases, a further offer with an
additional 5% incentive was given. This demonstrated inflexibility on the
part of the Corporation. The Corporation rejected the counter-offers of the
Applicants without explanation, thus leaving no room for further
negotiations. The Corporation had further failed to provide comparables of
the valuation. This last matter is one I had already dealt with.
Falling market

- 24 -

In my view, there is no merit in this argument. According to


the Corporation, its position is that it does not offer at below market price
and bargain upwards. Its practice is to make offers according to the higher
of two independent valuations. The offers are open for acceptance for a
sufficient time to enable the owners to take advice and consider
acceptance. Once these offers lapsed, any new offers that the Corporation
makes would have to take into account the prevailing market condition. In
the present case, the Corporation made its first offers in July 1997. The
deadline for the first offer was three months which was subsequently
extended. These offers were left open until 8 January 1998 or 28 February
1998 despite the falling market. The Corporation in adopting the practice
had successfully acquired 90% of the properties affected by the
development proposal. In Silver Mountain v. Attorney General [1994] 2
HKLR 297, a number of offers were made in view of a rising market. It is
not the case here. The fact that the Corporation had in the majority of
cases only made two offers to the Applicants is not something that could be
held against it.
Failure to give reasons for rejecting the counter-offer
As to the failure by the Corporation to give reasons in
rejecting the counter-offer, there really is no duty on the Corporation to do
so. It was simply purchasing the properties from the owners.
Furthermore, a comparison of the Corporations offers and the Applicants
counter-offers in eight properties revealed that the majority of the
counter-offers in fact exceeded the offers by as much as two times. This
being the case, it would be unreal to demand the Corporation to give
reasons for rejecting the counter-offer.

- 25 -

A Comparison of the Corporations Offers and Applicants Counter-offers


The Corporations Offers

Applicants Counter-offers

37
9

2nd Offer (26.10.98)

HK$4,972,000

1 counter-offer on 19.5.98:

HK$7,389,900

38
0

Revised Offer (6.2.98)

HK$7,599,000

1 counter-offer on 2.9.97:

HK$19,029,100

38
1

3rd Offer on 12.2.98

HK$7,208,000

1st counter-offer on 29.5.98 at


2nd counter-offer on 22.8.98 at

HK$13,568,850
HK$12,890,407

38
2

2nd Offer on 13.1.98


3rd Offer on 26.10.98

HK$6,572,000
HK$4,830,000

1st counter-offer on 29.5.98 at


2nd counter-offer on 22.8.98 at

HK$13,838,175
HK$13,146,266

39
0

2nd Offer on 26.10.98 at:


No.15: (ET + ex-gratia)
No.17: (ET + ex-gratia)

HK$3,798,000
HK$3,832,000

1 counter-offer on 9.6.98 at
HK$13,725,000
No.15 (ET only)
HK$5,870,000
No.17 (ET only) Business loss: HK$5,870,000
HK$1,985,000

39
2

2nd Offer (25.10.97) (ET) HK$5,908,000


3rd Offer (6.2.98) (ET)
HK$6,203,000
4th Offer on 18.1.99 (VP) HK$5,295,000

1st counter-offer on 15.12.97 at HK$7,500,000 (ET)


2nd counter-offer on 10.7.98 at HK$7,500,000 (VP)
3rd counter-offer on 21.8.98 at HK$7,380,000 (VP)

39
4

2nd Offer on 13.1.98 at


3rd Offer on 26.10.98 at
4th Offer on 7.12.98 at

HK$4,149,000
HK$3,764,000
HK$4,696,000

1st counter-offer on 29.5.98 at


2nd counter-offer on 22.8.98 at

HK$10,831,500
HK$10,272,825

39
6

2nd Offer on 6.2.98 at


3rd Offer on 26.10.98 at
4th Offer on 7.12.98 at

HK$4,668,000
HK$3,764,000
HK$4,696,000

1st counter-offer on 29.5.98 at


2nd counter-offer on 22.8.98 at

HK$10,813,500
HK$10,272,825

BREACH OF SECTION 15(5) OF THE LDC ORDINANCE


In a letter dated 16 June 1999 from the Director of Lands
(the Director) of the Lands Department to the owners of No.4 Kin Man
Street, the Director referred to the assessment of the open market value of
the properties by the Government Consultant. He stated, among other
things, that :
Please be assured that the valuation assessment was
prepared by the Consultant and audited by the LDC Section of
the Lands Department. The assessment is to assist SPEL in
deciding if LDCs offer is fair and reasonable for the purpose of
handling the land resumption application submitted by LDC.

- 26 -

The Applicants seized on the word audited and argued that


by allowing the LDC Section to audit the valuation assessment prepared by
the Government Consultant, the Secretary was in breach of section 15(5)
of the LDC Ordinance. In Kaisilk, I stated that this section is both an
enabling and a prohibition section. The prohibition is against the Secretary
from consulting a public officer on matters such as valuation which are
relevant to determine whether a fair and reasonable offer had been made.
The Applicants argued that as the auditor of the Government
Consultant, the LDC Section was actively involved in matters of valuation
which are relevant to determining whether a fair and reasonable offer had
been made. It is natural and reasonable to assume that if the LDC
Sections auditing indicate that the valuation of the Government
Consultant is wrong, the Secretary would not have made the decision.
They also referred to the affirmation of Patrick Lau (Mr Lau), the
Deputy Secretary for Planning and Lands who held the position of the
Secretary for Planning and Lands (Acting). Mr Lau stated that on 2 March
2000, Mr Ho Siu Shun (Mr Ho) who is the Assistant Secretary in the
Urban Renewal Unit of the Planning and Lands Bureau, had reported to
him about all aspects of the Corporations application; after fully
considering all the materials submitted to him including the various
contentions of the Applicants, he (i.e. Mr Lau) was satisfied that, among
other things, Mr Ho, the LDCS and the government consultant had
thoroughly considered the representations from the owners and concluded
that the grounds of objection raised by the owners were unfounded to
which conclusion I have in agreement.

- 27 -

Mr Hos explanation
Mr Ho in his affirmation stated that the auditing of the
valuation assessments prepared by the consultant was meant to refer to
work of the LDC Section in checking the accuracy of the data, calculations
and measurements. The LDC Section could not and did not in any way
attempt to change, interfere with or overrule the consultants opinion on
valuation matters or on the terms of the Corporations offers. Mr Ho
explained that the LDC Section is a section of staff who possess expertise
in property valuation and market practices. Apart from collating and
summarising the representations made by the Applicants and the
Corporation in respect of the section 15 applications for the Secretarys
consideration, the LDC Section is entrusted with the work of instructing
the Government Consultant to give advice as to the value of the properties
and whether the Corporations offer had been reasonable in monetary
terms. The Director himself played no part in the section 15 applications
or the Secretarys decision to recommend resumption. In relation to the
processing of these applications, the LDC Section takes instructions from
and reports to the Secretary directly. The reason why the Director wrote to
the Applicants in June 1999 was because of specific complaints made to
him about the alleged misconduct of the LDC Section which had to be
replied to and addressed.

My view

- 28 -

In my view, what Mr Ho said must be the end of the matter.


The Applicants had read too much into the word auditing. Further, Lord
Diplock in Bushell v. Secretary of State for the Environment [1981] AC 75
had held that :
The collective knowledge, technical as well as factual, of the
civil servants in the department and their collective expertise is
to be treated as the Ministers own knowledge, his own expertise.
This is an integral part of the decision-making process itself.
It is not to be equiparated with the Minister receiving, expert
opinion or advice from sources outside the department

As I had said in Kaisilk, the Secretarys reliance on the assistance of the


LDC Section is not by way of consultation. The work of the LDC Section
is a necessary part of the process in order to enable the Secretary to reach a
decision on the matter. The Secretary is clearly entitled to rely on the
collective knowledge, experience and expertise of the government offices
serving directly or indirectly under his bureau. In my view, there is no
breach of section 15(5). This being my view, it is not necessary for me to
consider further the arguments of the Respondents and the Corporation that
since the Applicants had specifically asked the Lands Department to use its
expertise and knowledge of the property market in advising the Secretary,
they must have waived any breach of nature justice : Supperstone and
Goudie, Judicial Review, 2nd Edn. para.8.60. It is also not necessary to
revisit the arguments on the Carltona principle.
WEDNESBURY IRRATIONAL
The Applicants contended that in all the circumstances no
reasonable Secretary would have made the recommendation. It is not
necessary for me to repeat the general principles stated in cases such as
Associated Provincial Picture House Limited v. Wednesbury Corporation

- 29 -

[1948] 1 KB 223 or Secretary of State for Education and Service v.


Tameside Metropolitan Borough Council [1977] AC 1014. In my view the
Applicants clearly failed to make out a case of Wednesbury
unreasonableness.
THE SECRETARY FAILING TO GIVE REASONS FOR HIS DECISION
The correspondence
The Applicants complained to the Director by letter dated
26 May 1999. They said that they were dissatisfied with the unfair
handling of the relevant acquisition procedure by the Corporation, the
unfair valuation assessment by the surveyor of the Corporation and the
improper handling of their complaints by the Acquisition Department
LDC Section. A similar letter was written to the Secretary. In response,
the Director by letter dated 16 June 1999 wrote to the Applicants stating,
among other things, that if the Secretary is satisfied that a recommendation
for land resumption to the Executive Council can be made, you will be
informed of the reasons leading to this decision. On 10 March 2000, the
Director wrote to two of the Applicants stating that :
I am instructed to inform you that the Secretary has carefully
considered your representation together with all other relevant
information available, and he is now satisfied that the
Corporation has taken all reasonable steps to otherwise acquire
the land including negotiating for the purchase thereof on terms
that are fair and reasonable, and the Secretary has under
section 15 of Land Development Corporation Ordinance
(Cap.15) decided to recommend to the Chief Executive in
Council the resumption of your above property under the Lands
Resumption Ordinance (Cap.124).

The complaint

- 30 -

The Applicants complained that they were promised to be


given reasons for the decision. The letter of 10 March 2000 did not give
any reasons, instead the letter merely repeated the wording of section 15(4)
(c) of the LDC Ordinance without providing specific grounds. As a result,
they are precluded from making any useful representations to the Chief
Executive in Council. The Applicants argued that the promise by the
Director had given rise to a legitimate expectation on their part. The
statement which gives rise to the legitimate expectation is clear,
unambiguous and devoid of relevant qualification; further, it is not
necessary for the Applicants to have changed their position or to have
acted to their detriment in order to obtain the benefit of a legitimate
expectation : Hong Kong and China Gas Company Limited v. Director of
Lands [1997] 3 HKC 520. Procedural fairness will very often require that
a person affected be informed of the gist of the case which he has to
answer in order to make worthwhile representations : R v. Home Secretary,
ex parte Doody [1994] 1 AC 531, followed in Fok Lai Ying v. The
Governor-in-Council and others [1997] HKLRD 810.
Justification for legitimate expectation
The justification for the principle of legitimate expectation is
that when a public authority has promised to follow a certain procedure, it
is in the interest of good administration that it should act fairly and should
implement its promise, so long as implementation does not interfere with
its statutory duty. Further, when the promise is made, the authority must
have considered that it will be assisted in discharging its duty fairly by any
representation from interested parties : Attorney General of Hong Kong v.
Ng Yuen Shiu [1993] 2 AC 629 at page 638, per Lord Fraser of
Tully Belton. See further, the comment of Megarry J in John v. Rees

- 31 -

[1970] 1 Ch.345 at page 402 on the importance of the rule of natural


justice.
Obligation to give reasons
On the requirement to give reasons, the common law, which
encompasses the principle of natural justice, does not of itself require a
public law authority or tribunal always, or even usually, to give reasons for
its decision; nevertheless, circumstances might establish a special case in
which natural justice would require reasons to be given : Lau Tak Pui &
Others v. Immigration Tribunal [1992] 1 HKLR 374. The case reviewed
the authorities in this area including the decision of the High Court of
Australia in Public Service Board of New South Wales v. Osmond
[1985] 159 CLR 656. Lord Lane CJ in R. v. Immigration Appeal Tribunal
ex parte Khan [1983] 1 QB 790 stated that in respect of the issue which a
tribunal is determining and the basis upon which the tribunal had reached
its determination upon that issue, in many cases it may be quite obvious
without the necessity of stating it, in other cases it may not.
My view
The decision made by the Secretary to recommend
resumption is purely an administrative decision. As a general rule, he is
not obliged to give reasons for his decision. However, in this case, the
Director had informed the Applicants that if the Secretary should decide to
make the recommendation, he would give reasons. The Lands Department
is one of the departments under the Planning and Lands Bureau (the
Bureau) headed by the Secretary. The Bureau is responsible for policy
formulation. The departments under it, including the Lands Department,
are responsible for policy implementation : Kaisilk. It would be too much

- 32 -

to expect from the laymen that they should know precisely about the
hierarchy of the government structure. All that they were concerned with
is how their properties would be dealt with by the authority. Although the
promise to give reasons for the decision was not given by the Secretary
himself, in my view, the present case is one of the special cases, in which
the Secretary is required to give reasons for his decision because of the
earlier promise by the Director.
What is a special case depends on the facts of each case. It is
not necessary for me to rule whether with this promise, the right had
become crystallised. It is sufficient for me to say that as a matter of good
administration, the authority should observe what it had openly stated on
this issue. This is in fact what happened in this case : the reasons for the
decision were given in the letter dated 10 March 1999. In my view, the
reasons given by the Secretary were sufficient reasons. It identified the
issues in which the Secretary had to decide. This is not a case where the
Secretary was not aware of the concerns of the land owners prior to his
recommendation. The LDC Section had been in correspondence with the
land owners. The land owners had complained about the manner of
negotiation of the Corporation and its disregard of the valuation and
evidence produced by the owners surveyors. The LDC Section had called
for the Corporations comments, a summary of the owners complaints and
the comments were provided to the owners. In the letter dated 18 May
1999, the LDC Section informed the land owners that their comments and
the LDCs response would be presented to the Secretary for his
consideration under section 15 of the LDC Ordinance. The land owners
had made further representations to the Secretary.

- 33 -

Mr Wong, counsel for the Respondents, referred to Bolton


MDC v. Secretary for Environment [1995] 3 PLR 37 in which the House of
Lords was concerned with town planning rules which required the
Secretary of State to notify his decision and his reasons for it in writing to
persons affected. The regulation also required the Secretary of State to
have regard to the provisions of the development plan and to any other
material considerations. Lord Lloyd stated that there is nothing in the
statutory language which requires the Secretary of State, in stating his
reasons, to deal specifically with every material consideration, otherwise,
his task would never have been done and the decision letter would be as
long as the inspectors report; he has to have regard to every material
consideration but he needs not mention them all. Latham J stated in R v.
The Secretary of State for Education, ex parte G [1995] VLR 58 at
page 67G that : What might appear to the uninformed observer to be a
statement of a conclusion will be to the other person concerned with the
way in which a dispute has developed, a full and sufficient explanation of
the reason for the decision. The reasoning of the two cases apply equally
here. See also R. v. The Chief Constable of the Thames Valley Police
ex parte Cotton [1990] IRLR 344.
The letter of 10 March 2000 clearly provides a full and
sufficient explanation of the reasons for the decision bearing in mind the
history of the matter. In any event, Mr Ho had given detailed reasons of
the decision on affidavit. The authors of De Smith, Judicial Review of
Administrative Actions, 5th Edn. para.9-005 suggested that where a
decision-maker attempts to remedy a failure to give reasons by providing
justification of the decision in affidavit evidence on judicial review, the
court is unlikely to quash the decision or make any order unless the

- 34 -

reasons so disclosed are inadequate or unlawful. The reasons disclosed in


the affidavit clearly cannot be so described.
The Applicants complained that the failure to give reasons by
the Secretary at the time of the recommendation precluded them from
making any useful representation to the Chief Executive in Council. The
reality of the situation is that the Applicants had not indicated what new
representations they would have made in the light of all the reasons
disclosed.

The Applicants further relied on In re Le Tu Phuong and

Another [1993] 2 HKLR 303 where Liu J (as he then was) held that where
reasons are given, they must not be so vague, inadequate and unintelligible
as to cloud the issue and the evidential basis. Once given, the reasons
ought to measure up to the standard of administrative law principles. In
my view, the reasons given for the Secretarys decision, in the whole
context of the negotiation, clearly fulfill the obligations imposed by
administrative law principles.

MATTERS RELATING TO THE LANDS TRIBUNAL AND HIGH COURT


JUDICIAL REVIEW
I had already dealt with the arguments on these matters
earlier.

INDIVIDUAL CASES
REDEVELOPMENT VALUE OF NO.4 KIN MAN STREET

- 35 -

No.4 Kin Man Street is a four-storey building. The


Corporation obtained a valuation report from Vigers who assessed the
existing use value of the property at $5,101,000 and the redevelopment
value at $4 million. The redevelopment value was based on a plot ratio of
2.2. The offer made by the Corporation to the owners of No.4 Kin Man
Street was based on the higher of the two valuations plus an ex gratia
payment. Thereafter, there were discussions between the owners and the
Corporation regarding the plot ratio of the property. The owners argued
that the property could have attracted a much higher plot ratio and a
six-storey building could be built.
On 20 May 1998, Vigers prepared a further valuation of the
property using a plot ratio of 4.5 on the assumption that a six-storey
building could be built. The redevelopment value based on this
assumption came up to $5.2 million. However, after deducting domestic
tenant compensation of $948,000 and other adjustments, the
redevelopment value was assessed at $4,268,000. This is still lower than
the existing use value. By letter dated 28 May 1998, the Corporation
informed the expert instructed on behalf of the owners of No.4 Kin Man
Street that although it did accept the argument that the property could be
redeveloped to a six-storey building, it had obtained further valuation on
the redevelopment value of the property under this assumption. The value
that was assessed was still lower than the existing use value.
In January 1999, the expert for the owners asked the Building
Authority to determine the plot ratio of the property. The Building
Authority, on 12 February 1999, stated that it would allow a plot ratio of
4.37 for the redevelopment of the property. By then the offers made by the

- 36 -

Corporation had long lapsed and the Corporation had requested the
Secretary to make the recommendation.
Factually, the Applicants were wrong when they said that the
Corporation had not taken into account, the redevelopment potential of
their properties. Furthermore, the plot ratio used by the Corporation was in
fact higher than the one permitted by the Building Authority. The owners
complained that the valuation report of Vigers of May 1998 was not
supplied to them until much later in August 1999. I do not see how this
would assist the owners because the Corporation had clearly stated in the
letter of 28 May 1998 that a further assessment had been made by the
valuation consultants. Surely, the experts for the owners could have asked
for a copy of this report instead of making the request much later on.
Furthermore, on the authority of Wong Tak Woon, matters relating to the
actual calculation of plot ratio are valuation matters and are not subject to
judicial review. More importantly, the Secretary clearly had a rational
basis to make the recommendation because the Government Consultant
was of the view that the offers made by the Corporation were reasonable.
RIGHT OF WAY
The owners of No.4 Kin Man Street granted a right of way to
the adjoining property owner in respect of a side lane. The Applicants now
contended that the side lane should not be excluded from valuation.
Factually, the owners own experts had excluded the lane from the
calculation of the value of the property. The owners now relied on
two cases in support of their argument that the right of way should be
included for the purpose of calculating the property value. In Cinat

- 37 -

Company Ltd v. The Attorney General [1994-95] CPR 59 it was held by


the Privy Council that :
A development site might include some particular area of
land owned or controlled by the developer which was not
intended to be built on but which was necessary to enable the
proposed building to comply with regulations. There was no
basis for assuming that the unbuilt on part of land in a proposed
development was to be confined within some notional curtilage.

As rightly pointed out by Mr Yu, the question there was whether the
redevelopment could take place on a vacant piece of land once it had been
included as part of a site for the purpose of calculating permissible site
coverage and plot ratio of another development. It does not establish the
principle that land which is subject to a right of way can be included in the
site area for the purpose of assessing the plot ratio. In Lea Tai Property
Development Ltd v. Incorporated Owners of Leapoint Industrial Building
Ltd. [1996] 1 HKC 193, Godfrey JA (as he then was) held that in relation
to interference with an easement :
... the owner of the dominant tenement had no absolute right to
use each and every portion of the right of way. He was entitled
to complain only of substantial interference with that right by the
owner of the servient tenement. The owner of the servient
tenement was the owner of the land and was accordingly entitled
to use it for whatever purposes he liked, so long as he did not
substantially interfere with the use of the way by the owner of
the dominant tenement.

The issue there was whether one party to a deed granting mutual right of
way in respect of a driveway could restrain the other party from using the
driveway. Again, it does not support the Applicants contention that the
right of way should be included in calculating the plot ratio.

- 38 -

The position is governed by Regulation 23(2)(a) of the


Building (Planning) Regulations which provides :
In determining for the purposes of regulation 20, 21 or 22, the
area of the site on which a building is erected
(a) no account shall be taken of any part of any street or service
lane;
(b) there shall be included any area dedicated to the public for
the purposes of the passage.

Regulation 20 deals with permitted site coverage. Regulation 21 deals


with permitted plot ratio. Regulation 2 defines street to include any
footpath and private and public street.
The principle is that an area of land over which there are
private rights of passage in an adjoining occupier cannot be taken into
account for the purpose of determining the area of the site by reason of
regulation 23(2)(a); unless and until the rights of adjoining occupiers are
surrendered or extinguished, such an area remains as unavailable for
building purposes as an area dedicated for passage by the general public :
Hinge Well Co. Ltd v. The Attorney General [1988] 1 HKLR 32, per
Lord Oliver of the Privy Council.
TAKING ILLEGAL STRUCTURES INTO ACCOUNT FOR THE
VALUATION
The Applicants submitted that the Corporation in assessing
the valuation should take into account the existence of unauthorized
structures. The structures had existed in the properties for many years and
they had not been challenged by the Building Authority. The
Corporations stand is that in calculating the floor areas, it would only

- 39 -

adopt the latest approved building plans to measure the floor areas. The
reason is to discourage people from constructing unauthorized structures in
contravention of the Buildings Regulations.
The authorities
In my view, reliance on property cases such as Active Keen
Industries Ltd v. Fok Chi Keung [1994] 2 HKC 67 or the recent decision of
the Court of Appeal in Spark Rich (China) Ltd v. Valrose Ltd,
CACV249/1998 is not helpful. They are all concerned with the question of
whether illegal structures present in a property would constitute a defect in
title in conveyancing transactions.
It has been established by a series of land resumption cases
that unauthorized structures do not attract compensation : Cruden, Land
Compensation and Valuation Law in Hong Kong, 2nd Ed., page 81,
Director of Lands and Survey v. Lau Kin and Chan Yau and Others [1977]
HKLTR 95, Director of Lands and Survey v. Lee Yat Ping and Others
[1977] HKLTR 138, Cham Hon Chi v. Director of Lands (Crown Lands
Resumption Ref. No.8 of 1995).
Mr Leong relied on Linen Export Co. Ltd v. Director of Lands
(Crown Lands Resumption Ref. No.24 of 1994), in which the Lands
Tribunal was assessing a claim for compensation under the LR Ordinance.
It expressed the view that whether a cockloft is approved by the Building
Authority or not, such a cockloft affects the market price realized for
shops. This is clearly not a case which establishes that unauthorized
structures will attract compensation in land resumption. All that the
tribunal was concerned with was how the price of a property used as a

- 40 -

comparable could be affected by the presence of a cockloft. In


Chan Kai Yuen and Another v. The Director of Lands (Lands Resumption
Application No.LDLR8/1999), the Lands Tribunal recognized that the
established practice is that the value of unauthorized buildings is to be
excluded from the assessment of compensation. In that case, it enhanced
the unit rate in assessing the ground floor of the premises merely because
of the extra headroom space occupied by an unauthorized cockloft. In
other words, the height of the ground floor was higher than the normal
headroom height in calculating compensation. It does not show that a
cockloft is to be valued for compensation.
COUNTER-OFFER ARGUMENTS
I had already dealt with arguments on failure to give reasons
for rejecting the counter-offers.
FAILURE TO CONDUCT SITE MEASUREMENTS
The Applicants complained that the Corporation should
conduct actual site measurements instead of measuring from the building
plans. In my view as the Corporation is merely purchasing the properties
from the land owners on a commercial basis, there is no duty imposed on it
to conduct a site measurement. Unless it can be shown that the
measurement adopted by the Corporation is so substantially different from
that of the owners, this is hardly a ground of complaint. As a matter of fact
the Corporation was always willing to conduct a measurement of the
properties jointly with the Applicants or their valuers if requested to do so.
This had happened in No.27 Cadogan Street and Nos.105, 107, 115,
117 Catchick Street.

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The Applicants stated that the LDC Section had in fact


arranged for a site inspection of the ground floor and cockloft of
No.27 Cadogan Street and there is no justifiable reason not to measure
other properties on site. As explained by Mr Ho, the LDC Section
attended No.27 Cadogan Street in response to repeated request by the
owners to visit the property. The LDC Section agreed to do so with a view
to ascertaining the owners contention on whether there was any
unauthorized structure in the cockloft which might trigger the difference
between the difference in measurement. It was never the LDC Sections
intention to take measurements of the floor area of the cockloft or other
parts of the property. The LDC Section had advised the owners at the site
that the latest approved building plans should be used and that site
measurements should not be relied on.
FAILURE TO TIMELY ADDRESS THE CLAIM FOR BUSINESS LOSS
This concerns Nos.15 & 17 Cadogan Street. A lard factory by
the name of Hoi Yau Lard Factory (the Factory) operated on the ground
floor of these two premises. The owners of these two premises claimed
that the Factory was operated as a family concern. The owners claimed
that it was not until 4 November 1999 that the Corporation agreed to take
the business loss into consideration.
The policy of the Corporation in buying business premises
would depend on whether the business is operated by the owner or by a
tenant. In respect of owner occupier, the Corporation will offer the
valuation plus a 35% ex gratia sum unless the owner can prove actual loss
of business exceeding 35% of valuation, in which case the Corporation
will compensate the owners for actual loss of business. Where the

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premises is tenanted, the Corporation will offer valuation plus a 20%


ex gratia sum to the owner and the Corporation will deal with the tenant
separately to compensate him for business loss.
When the Corporation first made its offers to the owners of
these two premises, they were treated as separate properties because the
Corporation was not aware at that time that the owners were related or that
they were related to the proprietor of the Factory. The offers were not
accepted. On 30 December 1997, the owners first mentioned about the
claim for compensation for the business loss of the Factory. The
Corporation explained that it would pay the business loss if owners could
provide evidence to prove the business loss was over 35% of the market
value of the property. The owners surveyor agreed to provide evidence
for claiming business loss.
On 9 June 1998, the owners surveyor submitted a claim for
business loss to the Corporation. However, it was not possible for the
Corporation to assess any claim for business loss because it did not have
access to any audited accounts or tax returns to verify the information.
Then on 10 June 1998, the owners confirmed that they would want the
Corporation to treat the properties as subject to tenancies. However, they
changed their mind again in October 1999 when they informed the
Corporation that they would wish to deal with the acquisition of the
two properties and the question of business loss as one matter. In reply, the
Corporation, on 4 November 1999, asked the owners for the audited
accounts and tax returns of the Factory in order for it to consider the
business loss claim. However, the owners had not responded to this
request.

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The owners explained that at the meeting on 10 June 1998,


the Corporation had suggested that the premises should be first sold to the
Corporation under existing tenancy and thereafter the Factory could still
claim business loss as the tenant of the two properties. It was also
suggested that this alternative would be an easier and quicker alternative
for the Corporation to handle. After a further discussion with the
Corporation, the owners were given the impression that if the claim for
business loss was to be separated, it would facilitate the Corporations
valuation of the overall compensation, including business loss of the
Factory, and would facilitate the Corporation to make a new offer. The
owners were led to believe that by picking this alternative, they might end
up with a greater compensation.
Irrespective of the reasons why the owners changed their
mind, the fact remains that after October 1999, when they wished to claim
for business loss, they had not provided proof of their loss. Without
providing the Corporation with such documents, I fail to see how it could
be argued that the Corporation had failed to deal timely with the matter of
business loss of the owners.
INDEPENDENT MEZZANINE FLOOR
In respect of the ground floor of No.27 Cadogan Street, the
Building Authority had approved the extension of a cockloft so that the
whole of the headroom space above the ground floor was covered by the
cockloft. The Applicants contended that the area had become an
independent mezzanine floor so that the salable area of the cockloft should
not be computed as a common cockloft being confined to the interior of

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the four walls. They referred to Hinex Universal Design Consultants Co.
Ltd v. Chan Lai Hing [1998] 1 HKC 317, in which Le Pichon J held that a
subsequent owner had the same unfettered right as the developer in the
allocation of undivided shares vested in him, subject to any prior
prohibition which existed in the deed of mutual covenant or some other
documents. The deed of mutual covenant of No.27 Cadogan Street
enabled the owners to dispose of the whole or any part of their share in the
building and their right to use floor of the building allotted to them for
their exclusive use and enjoyment to any person they may think fit. They
further argued that the mezzanine floor had an independent entrance, hence
it should also attract HPA as well.
To deal with this problem, the starting point must be that the
owners had not formally subdivided their interest. There is no formal
documentation that a separate independent floor had come into existence.
In the circumstances, it is hardly reasonable for them to say that HPA
should have been given to them in respect of a separate independent floor
of the building. In any event, there was never any claim for extra HPA
until the matter was raised in these proceedings.
As to the method of valuing the cockloft, this clearly is a
matter of valuation which is not subject to judicial review. The issue here
is whether there are grounds for the Secretary to be satisfied that the
Corporation had negotiated on terms that are fair and reasonable. In my
view, there clearly are such grounds. The measurement by the Corporation
and by one of the valuers of the owners of this property of the cockloft
area is about the same. The valuation by the Corporation is based on
existing guidelines for valuing cockloft.

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There is a further argument by the Applicants that the rate


used for valuing the cockloft is only one-sixth of the value of the ground
floor. It is suggested that the Corporation had in fact agreed to this rate in
the correspondence. Reading the letter of 13 March 1998 from the
Corporation, one just cannot say that it had agreed to this rate at all.
Similar arguments advanced for 105 Chickick Street was
abandoned.
CASE AGAINST THE SECRETARY
The Applicants failed in their case against the Secretary.
CHALLENGE AGAINST THE DECISION OF THE CHIEF EXECUTIVE
IN COUNCIL
THE DECISION IS BASED ON THE RECOMMENDATION
As the Applicants have failed to set aside the recommendation
of the Secretary, the Chief Executive in Council could clearly acted upon
the recommendation in ordering the resumption. This being the case, it is
not necessary for me to deal with the alternative argument that the Chief
Executive in Council could, in any event, make an order for resumption
independently.

REPRESENTATIONS TO THE CHIEF EXECUTIVE IN COUNCIL


A fundamental question arises as to whether the Applicants
are entitled to make representations to the Chief Executive in Council on

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matters of valuation and the reasonableness of the steps to be taken by the


Corporation in the negotiation. The Secretary informed the Applicants that
they were entitled to make representations to the Chief Executive in
Council other than on these two matters.
Whenever the Chief Executive in Council decides that the
resumption of any land is required for a public purpose, the Chief
Executive may order the resumption thereof under section 3 of the LR
Ordinance. Resumption in pursuance of a recommendation by the
Secretary shall be deemed to be a resumption for a public purpose within
the meaning of the LR Ordinance (section 15(6)). Assistance can be
gathered from the case of The State of South Australia v. OShea
[1987] 163 CLR 378. The Criminal Law Consolidation Act 1935 in
Australia empowers a judge to declare a person convicted of sexual
offences against young children to be incapable of exercising proper
control over his sexual instincts, and to order that he be detained during her
Majestys pleasure. This Act also provides that the Governor-in-Council
might, on the recommendation of the parole board, release an offender on
licence. The Correctional Services Act provided that the parole board was
not to recommend to the Governor-in-Council, the release of a person
declared to be incapable of exercising proper control over his sexual
instincts unless two medical practitioners had examined him and were of
opinion that he was fit to be released. In that case, two medical
practitioners had examined the offender and reported that he was fit to be
released on licence. The board considered the report at a meeting at which
the offender and his counsel were present. Submissions were made on his
behalf. The board recommended that the offender be released on licence,
but the Governor-in-Council declined to act on the recommendation. The

- 47 -

offender commenced proceedings for an order quashing the determination


of the Governor-in-Council and a declaration that the Minister for
Correctional Services was obliged to afford him a hearing before making a
recommendation to the Governor-in-Council. Mason CJ held that the
statutory scheme :
allows a place for the presentation of the offenders
case before the Board when it is considering whether it should
make a recommendation for release. There are many
illustrations of this legislative model which entails the holding of
an inquiry by a body authorized to make a recommendation to a
Board or Minister which may make a decision rejecting the
recommendation without conducting any further inquiry: see
Taylor v. Public Service Board (N.S.W.); Kioa v. West; Minister
for Aboriginal Affairs v. Peko-Wallsend Ltd. The hearing before
the recommending body provides a sufficient opportunity for a
party to present his case so that the decision-making process,
viewed in its entirety, entails procedural fairness. If the
decision-maker intends to take account of some new matter, not
appearing in the report of the recommending body, and the party
has had no opportunity of dealing with it, the decision-maker
should give him that opportunity: Peko-Wallsend.

Brennan J held that :


The pyramidal structure of administration by which the
powers of discretionary decision-making are reposed in a
Governor (acting on the advice of the Executive Council),
Minister or senior official standing at the peak of a bureaucracy
could not operate efficiently if the decision-maker were required
to give an opportunity for a hearing in every case affecting an
individual after that individual had had an opportunity, in the
course of the administrative process, of dealing with every fact
which is to be taken into account in reaching the decision.

The Privy Council in Fok Lai Ying v. Governor in Council &


Others [1997] HKLRD 810 held that it was :
not willing to reject the conclusion that s.3 of the Land
Resumption Ordinance should now be construed, at least when
the compulsory acquisition of a home or part of a home is at

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stake, to require a fair procedure including a reasonable


opportunity of objection.

The issue before the Privy Council was not about a statutory
scheme involving a body evaluating facts and making a recommendation
to a decision-maker as in this case. Its decision on the LR Ordinance must
be the binding authority on our courts. The position in this case is
different : it deals with the relationship between the LDC Ordinance and
the LR Ordinance. If the approach of the High Court of Australia is
adopted in the present case, then it would appear that procedural fairness
had been observed if the Applicants were given the opportunity of making
representations to the Secretary on the two issues. On this issue, confining
myself specifically to the statutory scheme under the LDC Ordinance and
the LR Ordinance, since the Secretary is specifically required to be
satisfied that the Corporation has taken all reasonable steps to acquire the
land including negotiating for the purchase on term that are fair and
reasonable and representations had been made by the Applicants to the
Secretary on these issues, procedural fairness will indeed preclude the
Applicants from raising the same representations to the Chief Executive in
Council. In any event, as disclosed in the affirmations of
Ms Cheng Mei Sze, Maisie, the clerk to the Executive Council,
representations, including submissions on these two topics, were made by
the Applicants to the Executive Council. In the circumstances, there is
clearly no cause for complaint of any lack of procedural fairness.
THE CHIEF EXECUTIVE IN COUNCIL TO AWAIT FOR THE RESULT
OF THE CHALLENGE AGAINST THE SECRETARY
As to the complaint that the Chief Executive in Council
should wait for the decision of the Court against the Secretary before

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making the resumption, Mr Wong stated that there is no question of the


Chief Executive in Council being disrespectful to the Court. It is stated
that any order of the Court would be obeyed subject to appeals.
The reality of the situation is that the demolition of the
properties will not take place until February 2001, the resumption would
not cause immediate irreparable damage to the Applicants. Furthermore,
as disclosed in the evidence, the Applicants are not challenging the
redevelopment proposal of the Corporation, their emphasis is really on
matters of a monetary nature. This is not a ground that will assist the
Applicants.
DISCRETION
In my view the Applicants have failed to make out a case
against the Secretary and the Chief Executive in Council. Both parties
have argued extensively on the question of discretion. Their arguments are
fully set out in their written submissions. As the Applicants have failed in
their application, it is not necessary for me to consider the question of
discretion or to repeat the arguments here.

CONCLUSION
The applications against the Secretary and the Chief
Executive in Council are dismissed.
COSTS

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There shall be costs nisi to the Secretary, the Chief Executive


in Council and the Corporation. The Corporation is justified to intervene
in view of the allegations made against it. In the applications for judicial
review against the decision of the Chief Executive in Council, the
Applicants solicitors prepared separate bundles consisting the same
documents used in their applications against the Secretary. This is a
complete waste of costs. I would make an order nisi that in respect of the
applications against the Chief Executive in Council, all the costs relating to
the preparation of the bundles and photocopying charges are disallowed on
the solicitor and own client taxation.

(P. Cheung)
Judge of the Court of First Instance,
High Court
Mr Alan Leong SC and Mr Tommy K.K. Ho, instructed by
Messrs Simon C.W. Yung, for the Applicants
Mr Wong Yan Yung and Mr Law Man Chung, instructed by
Department of Justice, for the Respondents
Mr Benjamin Yu SC and Mr Anthony Ismail, instructed by
Messrs Kao, Lee & Yip, for Land Development Corporation