YIELD-THE-BEST LTD v. THE SECRETARY FOR TRANSPORT AND HOUSING

LDMR 1/2021

[2023] HKLdT 75

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS REFERENCE APPLICATION NO 1 OF 2021

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BETWEEN

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D E C I S I O N

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1.  On 2 August 2023, we handed down a judgment (“the Judgment”)[1] which, inter alia, ordered that the respondent do pay the applicant compensation for the resumption of certain lots in Fanling, New Territories (“Subject Lots”) in the sum of $21,005,000. At the material times, the Subject Lots were used as brownfield sites. Our order was made on the principal ground, contrary to the submissions and evidence of the applicant, that the value of the temporary structures erected on the Subject Lots was to be disregarded: see §10 to 14, 56, 57, 64, 65 & 120 of the Judgment.

2.  This is applicant’s application for leave to appeal against the Judgment on the grounds more particularly elaborated in the Affirmation of Lui Yue Yun Gary (“Mr Lui”) dated 30 August 2023 and the draft Notice of Appeal exhibited thereto.

Legal Principles for Appeal

3.  Under s.11(1)(a) of the Lands Tribunal Ordinance (“LTO”), a decision of the Tribunal in determining the amount of compensation payable by the Government (acting on whose behalf, the Secretary for Transport and Housing) shall be the final determination thereof. However, under s.11(2) of the LTO, any party to the proceedings before the Tribunal may appeal to the Court of Appeal against a judgment of the Tribunal on the ground that such judgment is erroneous in point of law, subject to s.11AA.

4.  S.11AA(1) of the LTO requires leave to be granted by the Tribunal or the Court of Appeal before an appeal under s.11(2) can be made. S.11AA(5)(a) of LTO provides that leave to appeal may be granted in respect of a particular issue arising out of the judgment. S.11AA(6) of LTO further provides that leave to appeal shall not be granted unless the Tribunal is satisfied that:

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard.

5.  Such criterion of “reasonable prospect of success” was described in SMSE v KL [2009] 4 HKLRD 125 at para 17 by Le Pichon JA (as she then was) as involving the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful” without having to be “probable”.

6.  Even if it is not demonstrated that the appeal has any reasonable prospect of success, there may be many reasons why leave should still be granted in the interests of justice. For example, the issue may be one which the court considers should in the public interest be examined by appellate court or the court may take the view that the case raises an issue where the law requires clarifying: Ma Bik Yung v Ko Chuen [2009] 3 HKC 359, 361B-C.

Merits of Grounds of Appeal

7.  There are altogether 4 Grounds in the draft Notice of Appeal. We shall first consider Grounds 1 and 2 as a group, Ground 3 thereafter and, finally, Ground 4 on their respective merits.

Grounds 1 & 2 - Non-Application of Paragraph 5 and Misapplication of Section 12(b) of LRO

8.  To understand theses 2 Grounds, we repeat below the key legislative provisions set out in the Judgment.

9.  In the present case, the portions of the Subject Lots resumed, i.e. the Resumed Land particularised at §20 of the Judgment were resumed on 27 December 2019 pursuant to s.13 of Roads (Works, Use and Compensation) Ordinance[2] (“the Ordinance”).

10.  S.38(a) of the Ordinance reads: “Except to the extent that provision is otherwise made in this Ordinance – (a) the Lands Resumption Ordinance (Cap.124) (“LRO”) shall not apply to the resumption of any land ordered under section 13 nor to any claim for or determination, award or payment of compensation for such resumption”.

11.  Also, s.27(1) of the Ordinance reads: “The compensation referred to in section 26 is the right to recover from the Government for the matters set out in the first column of Part II of the Schedule a sum assessed on the basis specified opposite thereto in the second column thereof and with regard to the provisions of Part I of the Schedule, subject to – (a) … ; and (b) the other provisions of this Ordinance.”

12.  Part I of the Schedule to the Ordinance (“the Schedule”) starts with paragraph 1 (“Paragraph 1”) which states as follows:

“The provisions in this Part shall, where applicable, have effect for the purpose of assessing compensation under Part II of this Schedule and shall —

(a) be in addition to such of the provisions of [LRO] as apply, by virtue of Part II, to the assessment of compensation (“Paragraph 1(a)”); and

(b) prevail over any provision referred to in subparagraph (a) which is inconsistent or in conflict with a provision in this Part (“Paragraph 1(b)”)

(bold supplied).”

13.  Part II of the Schedule sets out 9 items for which compensation may be claimed under the Ordinance. For present purpose, item 1 is our concern and is set out below (with bold supplied):

	Matters for which compensation may be claimed	Basis on which compensation is to be assessed	Persons who may claim compensation for their respective losses	Period within which the claim must be served on the Secretary
1.	The resumption of land under section 13.	As if the claim were made under [LRO] for land resumed under that Ordinance.	Any person who would to entitled to claim compensation for land resumed under [LRO] if the land had been resumed thereunder.	Before the expiration of 1 year from the date of resumption.

The basis on which compensation is to be assessed on other items of Part II of the Schedule (e.g. items 6 and 7) is different from that of item 1 i.e. not by reference to LRO.

14.  For this application, the applicant has taken issue on paragraph 5 in Part I of the Schedule (“Paragraph 5”) which reads:

“Compensation may be reduced so far as may be just and equitable in respect of any building or part thereof which has been constructed or modified, or on which building works have been carried out, so as to amount to a contravention of the Buildings Ordinance (Cap. 123) being a contravention within the meaning of that Ordinance or to a contravention of a Government lease or other instrument under which land built upon is held (bold supplied)” .

15.  To put Paragraph 5 in its proper context, we also set out Paragraph 6 in Part I of the Schedule (“Paragraph 6”) which reads:

“The compensation assessed under item 6 or 7 of Part II of this Schedule shall be reduced to such extent as may be just and equitable having regard to the share in the responsibility for the loss or damage not reasonably attributable to or connected with the works (bold supplied)”.

16.  As the applicant submitted, this application involves the interface between the Ordinance and LRO. Hence, it is also necessary for us to set out ss.12(b), (c) & (d) of LRO below.

“In the determination of the compensation to be paid under this Ordinance – …

(b) no compensation shall be given in respect of any use of the land which is not in accordance with the terms of the Government lease under which the land is held (“s.12(b)”);

(c) no compensation shall be given in respect of any expectancy or probability of the grant or renewal or continuance, by the Government or by any person, of any licence, permission, lease or permit whatsoever:

Provided that this paragraph shall not apply to any case in which the grant or renewal or continuance of any licence, permission, lease or permit could have been enforced as of right if the land in question had not been resumed; and

(d) subject to the provisions of section 11 and to the provisions of paragraphs (aa), (b) and (c) of this section, the value of the land resumed shall be taken to be the amount which the land if sold by a willing seller in the open market might be expected to realize (bold supplied).”

17.  For this application, the applicant principally relied (and its contention is based) on §20.50 of Land Compensation & Valuation Law in Hong Kong by Gordon N Cruden and Liza Jane Cruden, 4^th (2017) Edition, where the learned authors commented on Paragraph 5 as follows:

“…Paragraph 5 introduced a change for unlawful building works. Other compensation Ordinances follow the established prohibitions in sections 11 and 12 of [LRO], that compensation is not paid for any use which is for an illegal purpose or not in accordance with the terms of a Government lease.

Paragraph 5 introduced a new twofold discretion to be exercised on just and equitable grounds. The Tribunal first has to decide whether because of the existence of unlawful building works compensation should be reduced. Secondly, if compensation is to be reduced, to determine the extent of the reduction. The Ordinance further provides that the valuation principles set out in Part 1 are to prevail over any inconsistent or conflicting provisions incorporated from [LRO]. This makes it clear that paragraph 5 not only applies to non-resumption compensation but also to resumption compensation under Item 1. Hence for the purposes of the Ordinance, the provisions of paragraph 5 prevail over the sections 11 and 12 compensation limitations of [LRO] (bold supplied).”

18.  On the above 2 Grounds, the applicant first complained that the Judgment was per incuriam, in that the Tribunal had explicitly failed to apply Paragraph 5, failed to make findings of what was “just and equitable” in deciding what (a) compensation may be reduced in the first place, and (b) if so, to what extent such compensation should be reduced in respect of any building built in contravention of the Government Lease pertaining to the Subject Lots. Even if compensation ought to be reduced under Paragraph 5, the applicant complained, the Tribunal was wrong to entirely disregard the existence of all the temporary structures, reject the rental income approach, and perform an assessment purely on the basis of “Melhado” use.

19.  The Tribunal, it was further complained, erred in ruling that it was obliged under s.12(b) to disregard enhancement in value attributable to temporary structures erected on the Subject Lots in contravention of the Government Lease. In particular, it failed to properly construe or apply Paragraph 1(b) and, as a result, wrongly determined that, as a starting point, Item 1 in Part II of Schedule allows all LRO provisions, including s.12(b), to be applied in assessing compensation for land resumed under s.13 of the Ordinance.

20.  The Tribunal, it was said, also erred in concluding that Paragraph 5 was merely “additional” to the LRO and would “never prevail” over s.12(b) when both provisions are triggered on the facts. In ruling that they were not inconsistent or in conflict with each other, the Tribunal took into account, it was said, erroneous or irrelevant considerations by postulating that there could be “hypothetical scenarios where a building constructed “in contravention of a Government Lease” under Paragraph 5 might not also fall afoul of s.12(b). However, whether the 2 provisions are inconsistent or in conflict with each other must logically be determined when the facts fall within the ambit of both provisions, and the only relevant factual circumstances must be those before the Tribunal.

21.  Finally, the applicant complained that the Tribunal had impermissibly construed Paragraph 5 well beyond what its natural words were capable of bearing to avoid contradicting s.12(b). It ignored the fact that s.12(b) is drafted imperatively whilst Paragraph 5 is drafted in permissive terms and operates on a purely discretionary basis. It accordingly failed to determine how Paragraph 5 ought to be read as a matter of construction. It failed to consider or give sufficient weight to the clear and unequivocal wordings in s.38 of the Ordinance, which disapply LRO by default unless provisions is otherwise made in the Ordinance. It erred in law by relying on non-contemporaneous legislative materials for other statues as a primary (if not sole) aid for interpreting Paragraph 5 without complying with the Pepper v Hart rule and other prohibitions against the use of extrinsic materials. For the same reasons, the Tribunal had insufficient basis to hold that s.12(b) and Paragraph 5 were enacted to deal with “different subject matters”.

22.  By advancing the aforesaid, the applicant is, we think, regurgitating the same submissions it had previously made before we handed down the Judgment.

23.  While we are not going to repeat all the discussions we made in the Judgment to lead us to agree with Ms Ling for the respondent that Paragraph 5 and s.12(b), dealing with different subject matters, is not inconsistent nor in conflict with one another and thus Paragraph 5 is an “additional” provisions under Paragraph 1(a) that never prevails over s.12(b), we would like to repeat and stress the following points.

(1) Unlike Paragraph 6 where the word “compensation” is qualified by the words “assessed under item 6 or 7 of Part II of this Schedule”, the word “compensation” in Paragraph 5, or its basis of assessment, is nowhere defined or qualified in Paragraph 5 or otherwise. Logically, one must first have “compensation” assessed before it may be reduced under Paragraph 5: see §86 & 87 of the Judgment.

(2) Item 1 of Part II of the Schedule expressly provides that where land is resumed under section 13 of the Ordinance, the basis on which compensation is to be assessed is “as if the claim were made under LRO for land resumed under [LRO]”: see §85 of the Judgment.

(3) Had, for example, the words “assessed under item 1 of Part II of this Schedule pursuant to LRO” been added by the drafter after the word “compensation” in Paragraph 5, the applicant would, we would have thought, have nothing to argue about.

(4) Comparing s.12(b) against Paragraph 5, they are really pointing to (or dealing with) different subject matters at different stages as Ms Ling had submitted on their different text and purpose, for which we agree: see §73-75, 88, 91, 92 & 96 of the Judgment. Paragraph 5 was enacted to provide for reduction of “compensation” at a later stage after “compensation” has first been assessed as if the claim were made under LRO, using also s.12(b) in the assessment process. Had Paragraph 5 prevailed over s.12(b) as alleged, it would have, we agree, been drafted in a more explicit way.

(5) Paragraph 1(a), we think, allows paragraphs in the Schedule to be applied as “additional” provisions to those of LRO as applied by the Ordinance: see §86 of the Judgment. And Paragraph 1(b) allows for remaining paragraphs in the Schedule to be applied as “overriding” provisions in place of those of LRO only if they are “inconsistent or in conflict” with those of LRO.

(6) The scenario we postulated at §89 & 90 of the Judgment, the different purposes and text of Paragraph 5 and s.12(b), the absurdity that could arise if Paragraph 5 (and similar paragraphs in other land resumption ordinances) is construed as an “overriding” provisions, and the 3 principles of statutory interpretation Ms Ling had referred us to all, we think, point to Paragraph 5 being an “additional” provision as per Paragraph 1(a) as we have decided and not an “overriding” provision as per Paragraph 1(b): see §78, 82, 93 to 95 of the Judgment

(7) For avoidance of doubt, we have merely quoted at §79 & 80 of the Judgment Ms Ling’s submissions on the Railways Bill. We have never accepted or applied such legislative materials in arriving at our construction of Paragraph 5 as we did in the Judgment.

(8) At §76, 77 & 98 of the Judgment, we agree with the respondent that Paragraph 5 was enacted to deal with a special circumstance that may be peculiar to road construction where there is any building or part thereof which has been constructed or modified, or on which building works have been carried out, so as to amount to a contravention of the Buildings Ordinance (“BO”)[3] or to a contravention of a Government lease or other instrument under which the land built upon is held.

(9) Where there is above circumstance, the respondent may, we agree, rely on Paragraph 5 to invite the Tribunal to reduce the amount of compensation assessed in accordance with the principles in LRO (including s.12(b)) because the Government would necessarily have to demolish all existing structures on the land resumed to make way for roads to be built. Paragraph 5 thus has the effect of reallocating the costs of demolishing such unlawful building works on the previous land owner who has built the same in contravention of BO, Government lease or other instruments.

(10) As the respondent has not, to the disadvantage of the applicant, relied on Paragraph 5 to seek the aforesaid reduction in the amount of compensation so assessed by us pursuant to the provisions of LRO (including s.12(b)), we did not take the matter further: see footnote 27 of the Judgment.

(11) Hence, we have not failed to apply Paragraph 5 as complained. On its proper construction, Paragraph 5 is simply not applicable to this case. Neither did we err in applying s.12(b) in disregarding value of temporary structures erected on the Subject Lots: see §99 of the Judgment.

24.  Regarding the views of the learned authors of Land Compensation & Valuation Law in Hong Kong, we cannot but state that their observations on Paragraph 5 cannot stand against its purpose, text and context, the general law of resumption and other similar resumption ordinances, general principles of statutory interpretation, and the case of Hon Mei Hing trading as Wing Tat Iron and Steel Engineering v The Secretary for Transport, unreported, LDMR 19/2000, 30 November 2001 (cited at §83 of the Judgment), not referred to therein. At §6.2 of this review decision, the Tribunal has seen fit to give similar paragraph 5 of the Schedule to Railways Ordinance a short shrift by stating that it “cannot see how this paragraph can be of any assistance to the Applicant”.

25.  For the above reasons we have stated in the Judgment, we do not find applicant’s interpretation of Paragraph 5 sustainable at all. Ground 1 and Ground 2 do not, we think, have any reasonable prospect of success.

Ground 3 – Abandonment by Acquiescence / Waiver

26.  We have dismissed in the Judgment this 2^nd argument also raised by the applicant in order to require value of temporary structures erected on the Subject Lots to be taken into account.

27.  For the present application, the applicant complained that, in dismissing its case of abandonment regarding restrictive covenants in the Government Lease, the Tribunal erred in failing to recognize that:

(1) As a matter of principle, a presumption of abandonment arises where a covenant affecting real property has been openly and uninterruptedly broken for more than 20 years;

(2) Acquiescence does not require the applicant to show that there has been unequivocal representation by the respondent that it would forego its right. The essential corresponding ingredient is an “assent or lying by” in relation to the applicant’s acts; and

(3) The Tribunal had no basis to discount and/or reject the unchallenged evidence of [Mr Lui] that [he] believed the Government would not take enforcement action against the breaches of covenants.

28.  By way of background to Ground 3, the Subject Lots are held on Government Lease subject to restrictions by way of user covenant and building covenant: see §36 of the Judgment. At various parts of the judgment, we have made factual findings as to applicant’s use of the Subject Lots, and its dealings with the Government over the aforesaid restrictions, over the years: see §21 to 29, 42 to 55 of the Judgment. On parties’ agreement, witness statements of Mr Lui and others have been admitted into evidence without cross-examination: see §15 of the Judgment.

29.  In reply to applicant’s submissions on this ground of appeal, we find it best to repeat our observation on the evidence at §118 of the Judgment (with our emphasis in bold).

(1) The Government Lease governs a host of lands in DD 51 and there is no evidence whatsoever that the Government had abandoned the user and building restrictions in any such land in DD 51 in the neighbourhood;

(2) The Government had previously granted the 1981 Short Term Waiver (in relation to portion of Lot 2848 RP) which was subsequently terminated by the 1991 Termination Notice;

(3) The applicant had repeatedly and actively applied to the Government for waiver of restrictive covenants under the Government Lease to allow erection of structures by making the 2000 Waiver Application, the 2001 Amended Waiver Application and the 2017 Waiver Application;

(4) A short period of only 9 years or so had elapsed from the 1991 Termination Notice to the 2000 Waiver Application made by the applicant;

(5) The applicant put forwards the 2000 Waiver Application and the 2001 Amended Waiver Application for no short period of time from August 2000 to May 2001;

(6) Though the 2001 Amended Application related only to Lot 2835 RP and Lot 2848 RP (as was the case with the 2017 Waiver Application), the applicant applied in the 2000 Waiver Application in the first place for short term waiver in respect of, importantly, all the Subject Lots;

(7) Another period of no more than 15 years or so elapsed between rejection of the 2001 Amended Waiver Application made by the applicant and the issue of the 2016 Warning Letters against unauthorized structures erected at Lot 2835 RP and Lot 2859 RP;

(8) Considering the 1981 Short Term Waiver and the many waiver applications above, at all material times between October 1989 when it acquired the Subject Lots until August 2017 when the 2017 Waiver Application was rejected, the applicant must all along been well aware of the continued existence of the restrictive covenants under the Government Lease;

(9) The Government had repeatedly and unambiguously rejected all the above many waiver applications made by the applicant;

(10) In processing and rejecting the above many waiver applications, and in issuing and registering the 2016 Warning Letters, the Government had made it clear to the applicant that compliance with the restrictive covenants of the Government Lease is required and that it will take divers enforcement actions for their breaches;

(11) Mr Lui of the applicant in effect acknowledged in his witness statement dated 10 June 2022 that the officer of the Lands Department told him that enforcement action would be undertaken when there was a complaint;

(12) In the applicant’s letter dated 6 May 2017 supporting the 2017 Waiver Application, the applicant had admitted that DLO’s staff had seen fit to inspect Lot 2835 RP and Lot 2859, discovered unauthorized structures on the said lots and requested that such unauthorized structures be demolished;

(13) This applicant’s letter dated 6 May 2017 was followed by a “豁免書個案適用申請表格” dated 8 May 2017 and signed by Mr Lui on behalf of the applicant; and

(14) There has been no evidence that the third-party contractor for the Bypass Construction which carried out the reinstatement works at Portion B was acting in the capacity of Government agent or department like the Lands Department which had the authority from the Government of granting a waiver of the restrictive covenants of the Government Lease.

30.  At §119 of the Judgment, we have also stated our views which are repeated below (with our emphasis in bold).

(1) There has not been open and notorious breach of restrictive covenants of the Government Lease for a sufficiently prolonged period to give rise to or to trigger any presumption of abandonment of the said covenants (as opposed to mere waiver of their breach);

(2) At all material times, the Government had never acted wholly inconsistent with the restrictive covenants of the Government Lease. Indeed, the Government had acted in line with them in terminating the 1981 Short Term Waiver by the 1991 Termination Notice, in processing and rejecting the many waiver applications above, in issuing and registering the 2016 Warning Letters, and in requesting unauthorized structures be demolished and that agricultural user be reverted.

(3) The fact that the Government had not taken (or delayed in taking) other enforcement actions during the material period should not be considered in isolation from the rest of the prevailing circumstances in our case;

(4) The Government had at the same time never made any unequivocal representation to the applicant that it would forgo its rights pursuant to the restrictive covenants. Such consistent communications it had given to the applicant throughout were that it would reserve (or consider exercising) its rights to enforce the restrictive covenants.

(5) All such acts and words having been considered in the round, there has not been any assent or lying by in relation to applicant’s breaches of the restrictive covenants on the part of the Government.

(6) And, by reason of aforesaid Government communications and actions, the applicant at all material times knew and knows that the Government had never waived the restrictive covenants under the Government Lease (or else the applicant would not have made the many waiver applications above);

(7) The applicant did not and does not believe and, in any event, could not reasonably have believed that the Government has abandoned its rights in relation to the restrictive covenants under the Government Lease (and we give no weight to Mr Lui’s bare allegation to that effect);

(8) Considering all prevailing circumstances during the material period, the Government had never waived or abandoned the restrictive covenants under the Government Lease before the Date of Reversion or before December 2016; and

(9) There is nothing unjust in all the circumstances of this case in allowing the Government to rely on the restrictive covenants under the Government Lease.

31.  Looking at, inter alia, §102, §103, §104(1) to (3) & (7), §118(4) to (7) and §119(1), (2) & (8) of the Judgment, we think that there cannot be any doubt that we have recognized that a presumption of abandonment arises where a covenant affecting real property has been openly and uninterruptedly broken for more than 20 years but that the facts of this case fall short of that such that the said presumption did not arise, unlike the different and stronger factual circumstances in Cheermark Investment Limited & Another v Director of Lands [2018] 1 HKLRD 79 and in Attorney General of Hong Kong v Fairfax Ltd [1997] HKLRD 243 that allowed the plea to succeed: see §114 & 117 of the Judgment.

32.  We have in the above process applied the well-established principles applied in Attorney General of Hong Kong v Fairfax Ltd [1997] HKLRD 243 to the evidence of this case, albeit in the circumstances and conditions prevailing in Hong Kong in 1990’s to 2010’s and not those of 19^th century England: see §116 of the Judgment. For avoidance of doubt, we have never “departed” from the above principles as complained by the applicant.

33.  In the above process, we are also well aware that the essential ingredient of abandonment is “assent or lying by” on the part of the Government in relation to the applicant’s breaches. On that, Ms Ling has already cited to us The Incorporated Owners of Freder Centre v Gringo Ltd [2016] 2 HKLRD 190 (see §111 & 112 of the Judgment) and we have applied the said principles in that case at, inter alia, §118(3), (8) to (13) and §119(4) to (7) of the Judgment.

34.  While acquiescence does not require the applicant to show that there has been unequivocal representation by the respondent that it would forego its right, such communications shed light, we think, on the belief of Mr Lui on behalf of the applicant: see, inter alia, §118(8), (11) & (12) and §119(2), (4) to (7) & (9) of the Judgment.

35.  With due respect, the mere fact that Mr Lui was not subject to cross-examination by no means shut down the analytic faculties, or ties the hands, of the Tribunal as a fact-finding tribunal. We do not think that we are obliged at law to take at face value whatever Mr Lui has said in his witness statements: see Chan Chi Ling Elwyn v Richfield Realty Ltd, unreported, HCLA 9/2013, 11 July 2014, §108.

36.  In giving no weight to Mr Lui’s bare assertions in his witness statements as we did at §104(9), §119(7) (and §26) of the Judgment, our reasons for the same are apparent in the Judgment for Mr Lui to read. With respects, Mr Lui’s own words, conducts and documents referred by us at §26, 118(11), (12) and (13) of the Judgment, and at §119(6) & (7) of the Judgment have betrayed Mr Lui himself.

37.  Moreover, the rule of Browne v Dunn is not inflexible. It is not broken even though a material matter is not put to a witness if the witness can fairly and objectively be said to be on notice of it: Chan Chi Ling Elwyn v Richfield Realty Ltd, supra, §54 & 107.

38.  As a matter of procedural history, the documents evidencing the 2000 Waiver Application, the 2001 Amended Waiver Application and the 2017 Waiver Application (produced as exhibits to Affirmation of Fung King Wat (“Mr Fung”)[4] dated 9 February 2023 (“Fung’s Affirmation”) were disclosed by way of respondent’s list of documents filed on 20 February 2023, after leave was given by the Tribunal at pre-trial review held on 17 February 2023.

39.  Mr Fung has made it clear in Fung’s Affirmation that the aforesaid exhibits to Fung’s Affirmation are relevant to the issue whether the Government had abandoned the restrictive covenants in the Government Lease and they tend to show that applicant’s allegation that the Government had taken no action to enforce them for more than 25 years is incorrect (see e.g. §21(1), (2) & (4) of Fung’s Affirmation).

40.  It was pursuant to leave of the Tribunal given at pre-trial review that Mr Lui made his supplemental witness statement dated 3 March 2023 in reply to Fung’s Affirmation and the exhibits thereto (see §2 thereof) and claimed, for the first time, that circumstances referred by him therein “led me to believe that the Government would not enforce the restrictive covenant” (see §13 thereof).

41.  Against the above background, the applicant (and Mr Lui) can, we believe, fairly and objectively be said to be on notice that applicant’s claim of alleged abandonment of restrictive covenants on the part of the Government (and Mr Lui’s corresponding belief to the same effect) is not accepted by the respondent, notwithstanding that Mr Lui was not required to be cross-examined. In the circumstances, we do not believe that the rule of Browne v Dunn was broken in this case.

42.  For the above reasons, we also find Ground 3 without merit. It is no more than a dressed-up attack on our factual findings which are not allowed under LTO.

Ground 4 – Reliability of Income Method

43.  On this ground, it is complained that, in discrediting the tenancy records[5] supporting the income method of valuation, the Tribunal remarked that even earlier tenancies made after 31 December 2015 were unreliable as the Government had announced the Resumed Land “shall be resumed” and reverted to the Government on 31 December 2015, pursuant to s.13 of the Ordinance. The Tribunal erred, it was said, in so holding, as:

(1) There was never any evidence that the Government announced on 31 December 2015 that the Resumed Land “shall be resumed” and reverted to the Government pursuant to s.13 of the Ordinance. On the contrary, it was agreed in the List of Issues filed by the parties that the relevant Government Gazette Notice (GN 5965) (“GN5965”) was only published on 26 September 2019;

(2) As a matter of fairness, whether or not the Applicant or its tenants knew on or around 31 December 2015 that the Resumed Land was to be resumed was never put to the Applicant’s witnesses at trial as their evidence was admitted without any oral examination.

44.  In order to deal with this ground, we need to start with the valuation difficulties faced by the applicant.

45.  In the present case, applicant’s valuation expert (“Ms Lau”) dropped the usual direct comparison approach but relied on the income approach in assessing the market value of the Resumed Land. At §136 of the Judgment, we recorded that Ms Lau had fallen into the impasse that she was left with no comparable for the income approach. At §138 of the Judgment, Ms Lau, we recorded, tried to make use of prevailing tenancy information for Portion A and Portion B of the Subject Lots to overcome the impasse. Unfortunately, we found at §140 of the Judgment that Ms Lau had made wrong assumptions in forming two simultaneous linear equations in order to solve the problems. And at §143 of the Judgment when we tried to rewrite the simultaneous linear equations, no solution could be found as the equations are illogical.

46.  Then we remind ourselves at §144 to 146 of the Judgment that we should not rely on transactions (or rental) of the Subject Lots when the resumption itself was forthcoming, citing several authorities that were derived from Pointe Gourde Quarrying and Transport Co. v Sub-Intendent of Crown Lands [1947] AC 565 – commonly known as the Pointe Gourde principle.

47.  Eventually, at §147 of the Judgment, we refer to §2 of the Judgment where we note that the Government announced on 31 December 2015 that the Resumed land shall be resumed from the Subject Lots to facilitate the Bypass Construction.

48.  In so far the applicant complained that there is no evidence to support §147 of the Judgment, this is, we think, incorrect. Respondent’s valuation expert (“Ms Ng”) had stated clearly at §1.6 of her Expert Report dated 8 February 2022 as follows:[6]

“The Government proposed to execute the Fanling Bypass under Advanced Site Formation and Engineering Infrastructure Works at Kwu Tung North New Development Area and Fanling North New Development Area which was published in the Government Gazette Notice No. 10021 on 31 December 2015, and the Subject Lots were listed to be resumed (bold supplied).”

Ms Ng then at §1.7 of the same report referred to GN5965 published on 26 September 2019 (GN5965 was cited at §4 of the Judgment).

49.  It was against the aforesaid background that we approached at §147 of the Judgment the latest tenancy agreement dated 29 November 2019 for Portion A (i.e. soon after publication of GN5965 on 26 September 2019). Of particular interest is its clause 14 which stated that, even though resumption was imminent, the tenant company was prepared to continue paying the increased rental of $250,000 per month stated in the said agreement. It reads in Chinese as follows.

“業主與租客雙方同意，租客並知悉在該用物業已被香港政府劃出一部份（見附圖），有可能在租賃期內被香港政府收回，現租客向業主確認及承諾，在租賃期內如被香港政府收回該部份，租客將會繼續支付本租約上之租金，並不會要求業主減租，並不會得到任何賠償 (粗體後加)。”

50.  The contents of the aforesaid Chinese clause are, we think, contradictory to the contents of witness statement of one Mr Chan Hoi Yuen Peter (“Mr Chan”), the majority shareholder and director of the said tenant company of Portion A. As recorded at §32 of the Judgment, Mr Chan claimed on the other hand that that, owing to the resumption, Portion A would be substantially reduced and could not meet his operational needs. His company therefore moved out from Portion A to Sha Tau Kok, New Territories in or about the end of October 2020 i.e. soon after the date of Reversion. Such inconsistency, we think, casts doubt on reliability of the said increased monthly rental of $250,000 for Portion A.

51.  Hence, we took the view that §148 of the Judgment that this latest tenancy over Portion A in December 2019, and latest tenancy for Portion B in February 2020, should be disregarded for assessment purpose under Pointe Gourde principle.

52.  While we added at §148 of the Judgment the words “even the earlier tenancies entered after 31 December 2015 were questionable for that purpose”, such market information, if any, is questionable not because of its unreliability per se as was the case with latest tenancy in December 2019 for Portion A. They are questionable by reason of the application of Pointe Gourde principle only.

53.  As the several authorities we quoted at §144 to 146 of the Judgment show, “the affect of a resumption scheme on market value is at least liable to occur from the date of formal public notification. In many cases, it may occur even earlier, particularly where the likelihood of a future resumption is well-known”.

54.  We fully agree with the respondent that, so long the aforesaid tenancies entered after 31 December 2015 may have been affected by the resumption scheme in question, they are questionable by reason of Pointe Gourde principle. The precise timing at which the applicant or its tenants knew that portions of the Subject Lots were to be resumed in irrelevant to the issue of compensation.

55.  Hence, though Mr Lui and Mr Chan were not called to the stand to be cross-examined on the precise timing the applicant or its tenants knew that portions of the Subject Lots were to be resumed, those tenancies entered after 31 December 2015 remain questionable by reason of Pointe Gourde principle as we have determined in the Judgment.

56.  In any event, as the latest monthly rental of $250,000 paid for Portion A, or that $190,000 paid for Portion B, included the benefits and enjoyment of temporary structures erected on the Subject Lots that have to be disregarded, they should not be considered in determining market value of the Subject Lots under LRO in the first place: see §149 of the Judgment.

57.  In the premises, like Grounds 1 to 3, Ground 4 enjoys on appeal no reasonable prospect of success either.

Other reason in the interests of justice

58.  On top of its submissions on the merits of its 4 Grounds, the applicant submitted that the interrelationship between Paragraph 5 and s.12(b) (i.e. Grounds 1 and 2) warrant appellate clarification and guidance in all the circumstances and that leave to appeal on these 2 grounds should also be granted under s.11AA(6)(b) of LTO.

59.  Prior to this case, there is indeed, as the applicant submitted, no previous authority discussing, or analysing, the relationship between s.12(b) and Paragraph 5.

60.  The only authority that the respondent cited on this issue i.e. Hon Mei Hing trading as Wing Tat Iron and Steel Engineering v The Secretary for Transport, supra, concerns similar paragraph to Paragraph 5 in the Schedule of Railway Ordinance[7]. This is a 2001 review decision. Unfortunately, the Tribunal had not discussed the matter in any details on that earlier occasion.

61.  As we recorded at footnote 38 of the Judgment, the commentary of Paragraph 5 in Land Compensation & Valuation Law in Hong Kong that the applicant relied upon first appeared in its 2^nd (1999) edition. It has remained until today in its current 4^th (2017) Edition for practitioners’ guidance.

62.  As we recorded at §93 of the Judgment , similar paragraphs to Paragraph 5 appear in 4 other resumption-related ordinances on top of the Ordinance[8] i.e. Mass Transit Railway (Land Resumption and Related Provisions) Ordinance[9], Railway Ordinance, Land Drainage Ordinance[10], and Water Pollution Control (Sewerage) Regulation[11]. The first of these 5 paragraphs appeared in 1974 (or 1982), and 4 of these paragraphs remain in our statute book today.

63.  While we hope we have clarified the relationship between Paragraph 5 and s.12(b) by the Judgment, it is, we believe, not binding on our other colleagues at Lands Tribunal.

64.  Though we are told by the respondent at the hearing on 25 September 2023 that there is no outstanding case touching the relationship between Paragraph 5 and s.12(b), we cannot rule out future cases touching the same issue in view of continued commentary in Land Compensation & Valuation Law in Hong Kong about a change in the law and presence of similar paragraphs to Paragraph 5 in, at least, 3 other resumption-related ordinances in our statute book.

65.  This is all the more so as disputes involving whether or not value of temporary structures erected in brownfield sites in breach of restrictive covenants in Government Lease should be considered may likely increase in future in view of the development of Northern Metropolis and other planned and potential developments in the New Territories by the administration.

66.  For the above reasons, we come to conclude that it would be in the interests of justice that leave to appeal on Grounds 1 and 2 be granted to the applicant.

Disposition

67.  Accordingly, pursuant to s.11AA(6)(b) of LTO, we grant the applicant leave to appeal against the Judgment on Ground 1 and Ground 2 of the draft Notice of Appeal exhibited in Affirmation of Mr Lui dated 30 August 2023. Save except for such leave, the rest of applicant’s Form 1 application filed on 30 August 2023 be dismissed. And we make a costs order nisi that 60% of the costs of this application be in the cause of the appeal.