On one occasion the children said : “How happy we are here!”

Later they said : “How happy we were there!”

What are they referring to in both the cases?

In both the cases, the reference is to the giant’s garden. On the first occasion, the children were playing into the garden and were referring to the pleasure they derived out of it. In the second case, the children were not being allowed to play in the garden and were referring to the happiness they derived while they played there in the past.