Hong Kong Court of Final Appeal amends traditional proportionality test in public law context

The Court of Final Appeal ("CFA") has handed down its much anticipated judgment in Hysan Development Co Ltd and Others v Town Planning Board (FACV 21/2015) (26 September 2016). In short, the CFA has decided that government imposed restrictions on building developments engage Articles 6 and 105 of the Basic Law, provisions which expressly require the HKSAR government to protect private ownership rights.

Importantly, the CFA also amended Hong Kong’s position in regards to the well-established proportionality test in the public law context, which will likely impact all those who seek to judicially review Government or related public decisions going forward. Government decisions, when judicially challenged on the basis of rights, would be put through this test, to decide if the decision was (a) serving a legitimate aim; (b) rationally connected to the aim; and (c) no more than necessary in attaining the aim. The CFA revised the test by including an additional fourth step which is (d) to weigh the detrimental impact of the decision against the societal benefits gained. In other words, do the ends justify the means?

Background

Hysan Development Company Limited ("Hysan") owns extensive properties in Hong Kong. It was subject to a series of planning restrictions by the Town Development Board ("Board"), such as building height restrictions and non-building areas. The restrictions served a public purpose, such as facilitating air ventilation and pedestrian traffic flow. Hysan challenged these restrictions, which the Board ultimately rejected. Eventually, Hysan brought judicial review proceedings to challenge the Board's decisions in rejecting its representations. The Court of First Instance ("CFI") dismissed the majority of Hysan's grounds of application. The Court of Appeal ("CA") allowed Hysan's appeal, quashed the Board's decision on traditional judicial review grounds but ruled that Articles 6 and 105 of the Basic Law were not engaged. The CFA decided otherwise, and remitted the decision to the Board, which now has to reconsider its decision with both Articles and an additional fourth step to the proportionality test in mind.

Judgment

Engagement of Articles 6 and 105 of the Basic Law

The relevant Articles are (emphasis added for the phrase in dispute):

• Article 6: "The Hong Kong Special Administrative Region shall protect the right of private ownership of property in accordance with law."

• Article 105: "The Hong Kong Special Administrative Region shall, in accordance with law, protect the right of individuals and legal persons to the acquisition, use, disposal and inheritance of property and their right to compensation for lawful deprivation of their property…"

The CFA found that both Articles were plainly engaged in that the qualifier, ‘in accordance with the law’, in no way restricts the parties’ rights; rather, it provides an additional layer of legal certainty. Conversely, the CA had held that Hysan's rights as property owners are intrinsically defined by and subject to legal restrictions, including those imposed by the Board, hence, the restrictions when imposed do not amount to incursions into those Articles. The CFA disagreed and held that 'in accordance with the law' appears in numerous other sections of the Basic Law, and the interpretation in those sections has been the requirement to pass clear and accessible laws, to avoid the government exercising 'unchartered administrative discretion'.

Amendment to the proportionality test

There has been much debate in common law jurisdictions as to whether the proportionality test ought to be a three-step or four-step approach. In line with English and Canadian jurisprudence, the CFA took the opportunity to add the fourth step and clarified the applicable standard of the third step.

First, the CFA ruled that the fourth step (i.e., to weigh the detrimental impact of the decision versus societal gain) should be added because the three-step proportionality test only measures the incursion in relation to the legitimate aim. The role of the Court, however, goes beyond that and is duty bound to protect human rights by balancing societal and individual interests against each other. That said, the CFA observed as follows in relation to the fourth step: (a) this addition in no way suggests that previous rulings based on the three-step approach are flawed; (b) the additional step is only necessary when the first three steps are satisfied, as there may be instances when the decision is legally proportionate but its practical implications suggest otherwise; and (c) in practice, the third and fourth steps often overlap and it is unlikely that a measure that survives the first three steps will fail on the fourth.

Second, the CFA ruled on what the standard of the third step threshold of ‘no more than necessary’ ought to be. Although the third step is typically characterised as 'no more than necessary', it by no means refers to strict necessity (i.e., 'only if there was no other less drastic remedy' available). Instead, it is better understood as a 'reasonable' necessity. Two standards were put forward in the appeal, namely 'no more than necessary' (as argued by Hysan) and 'manifestly without reasonable foundation' (as argued by the Board). The CFA ruled that the applicable standard depends on a host of factors but the decisive factor is the margin of discretion that the government enjoys in that specific matter. In cases which call for a wide margin of discretion, the 'manifest standard' would be appropriate, and in cases where there is a narrower margin of discretion, the 'reasonable necessity' would be more appropriate. For instance, the Court held that the Board should enjoy a broad margin of discretion, as 'planning is a holistic process, involving balancing numerous factors' (citing the CFI), hence the 'manifest standard' should apply.

Comments

This is a notably significant judgment in terms of the introduction of the fourth step to the proportionality test, and will likely have implications for all those seeking to judicially review Government or related public decisions going forward. It remains uncertain as to how the fourth step of the test might provide judicial review applicants with an additional weapon in their arsenal to challenge a government decision, given the CFA's comments on the overlap between the third and fourth step. In terms of the applicable standard in the third step, the CFA has provided extremely helpful guidance as to when a manifest as opposed to reasonable necessity standard would be applicable. Parties should pay careful attention to the nature of the government body that has made the decision being challenged. In general, the more stakeholders and interests that the body has to balance when making the decision, the wider the margin of discretion the Court might be willing to afford it.

For further information please contact Dominic Geiser, Rachel Yu, Vicky Man, or your usual Herbert Smith Freehills contact.