Mayloy Development Ltd. v. The Director of Lands

In The Lands Tribunal Of The

Hong Kong Special Administrative Region

Application Under Lands Resumption Ordinance

Application No. LDLR 4 of 1998

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Judgment

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1. These are two consolidated applications instituted under the Lands Resumption Ordinance, Chapter 124, against The Director of Lands for compensation. Mayloy Development Limited ("Mayloy"), the applicant in LDLR 4 of 1998, was the registered owner of Nos. 2 and 5, Man Hing Lane ("No. 2" and "No. 5"), whereas Julia Tam Kan ("Julia"), the applicant in LDLR5 of 1998, was the registered owner of Nos. 4 and 6, Man Hing Lane ("No. 4" and "No. 6"). The shares of Mayloy, a company incorporated in Hong Kong, were held upon trust for the wife and children of Kan Sik Ming, the brother of the deceased Kan Sik Kau. These 4 properties were resumed by the Hong Kong Government on 12.6.1993 under the Crown Lands Resumption Ordinance, pursuant to a notice of resumption dated 12.3.1993, published in the Government Gazette as G.N. 807. The amounts of compensation payable regarding the said resumption depend on whether Nos. 4, 5 and 6 formed a joint site or separate sites for development, whether No. 2, and Nos. 4, 5 and 6 respectively are Class A sites and the net developable area of Nos. 4, 5 and 6.

2. Man Hing Lane is located on the south-east side of Aberdeen Street and it is more or less parallel to Hollywood Road, which is on its south-west side, and to its south-east side is Peel Street. Nos. 1 to 6 roughly have the shape of a rectangle, and each of the numbers, separated by a boundary line, forms a small rectangle within this rectangle. They are contiguous to each other, and are on the same side of Man Hing Lane.

A joint site or separate sites for development?

3. It is not disputed that No. 2 could only be developed as a single site, for the purpose of compensation. The issue is: could Nos. 4, 5 and 6 form a joint site for redevelopment for the purpose of compensation? In this respect it is relevant to look at all the circumstances, including the background of the Kan's family. Nos. 2, 5 and 6 were initially owned by Kan Choi, the father of Kan Sik Kau and Kan Sik Ming. He was in the building business and during his life time ran a construction company called Choi Yuen Construction Company. After his death in 1959, No. 6 was inherited by Kan Sik Kau, whereas Nos. 2 and 5 were inherited by Kan Sik Ming. In 1983, Kan Sik Kau acquired No. 4 from Mrs. Kan Choi by a deed of gift. Kan Sik Kau died in 1995, and his wife Julia became the executrix of his estate. Mrs. Kan Choi died in 1992. Prior to her death, Julia heard her talk to Kan Sik Kau about buying Nos. 1 and 3. They planned to redevelop the whole lot together, namely Nos. 1 to 6. But the owner of No. 1 could not be traced, and the owner of No. 3 did not want to sell No. 3. Despite this, they still intended to re-develop Nos. 4, 5 and 6 together, as one site. Julia knew that Mrs. Kan Choi had wished his 2 sons to develop the site jointly and that she did not want them to be separated from each other. After his death, Kan Sik Kau carried on the business of Kan Choi. After Kan Sik Kau emigrated to U.S.A. in 1969, Mrs. Kan Choi and Kan Sik Ming carried on the building business.

4. May May Fung, the wife of Kan Sik Ming gave evidence. She testified that Mrs. Kan Choi was the person controlling the family estate. When Kan Sik Kau came to Hong Kong to visit Mrs. Kan Choi in Hong Kong, she heard them talk about re-developing Nos. 4, 5 and 6 as a joint site, for rebuilding. At that time Mrs. Kan Choi had intended to buy Nos. 1 and 3, and after the purchase of the whole length of the street, namely Nos. 1 to 6, they would be jointly re-developed.

5. Kan Sik Ming also testified. He said that his mother wanted to buy No. 1 and No. 3 so that she could have Nos. 1 to 6 for a joint development of these numbers. She told him that she could not find the owner of No. 1. As for No. 3, the asking price for its sale was too high and she was not willing to pay that amount of money.

6. The above pieces of evidence were not challenged. This Tribunal is satisfied that the above-mentioned witnesses were reliable witnesses, and their evidence is accepted as truthful evidence. It finds as a fact that Mrs. Kan Choi did try to acquire the ownership of Nos. 1 and 3 for the purpose of re-developing Nos. 1 to 6 as a single site, and that after failing to acquire the ownership of these two numbers, Mrs. Kan Choi and Kan Sik Kau did discuss on subsequent occasions on the redevelopment of Nos. 4, 5 and 6 as a joint site.

7. Mr. John Swaine, S.C., Counsel for the Applicants, submitted that the following citations referred to in the judgment of the Lands Tribunal in Crown Land Resumption Reference Nos. 18 and 19 of 1994 on 8.9.1995 were relevant in the present proceedings:-

' "In actual life people as a rule act in the way which they believe will conduce most to advancement of their own interests, and owners in such a case would thus not throw away an enhancement of value in which they would all share." per Fletcher Moulton L.J. in Lucas v. Chesterfield Gas and Water Board (1909) 1K.B. 16.'

' "An owner is entitled to the best market price for the land in its existing state. ..... If several resumed lots joined together would have a higher market value than the aggregate of their individual values, the owner should receive that higher value." (Quotations from Judge Cruden's work, Compensation for Expropriation, A Comparative Study at pages 286-287).'

' "If it is shown that a property has an added value on the open market because of the likelihood that it will be incorporated into a scheme of redevelopment then this added value must be taken into account when compensation is being assessed" per President Power in Cheung Lai-wan et al v. Director of Public Works (1977 H.K.L.T.L.R. 14).'

This Tribunal agrees that these citations are applicable to the facts of this case.

8. Mr. John Swaine submitted that "That the survivors and beneficial owners (or claimants) would have co-operated in order to bring about the most advantageous exploitation of their several sites is, we submit, beyond challenge." He further submitted "that given the state of the ownership at the time of resumption in 1993, it is, we submit, beyond challenge that Julia as the executrix of Philias, the owners of Nos. 4 and 6, would have co-operated with her sister-in-law, May May, wife of Eric, to jointly re-develop Nos. 4, 5 and 6. This would be entirely in keeping with the family policy, would be the obvious thing for the survivors to do, given in particular the family business of building contractors, ........" That plainly must be the situation. To reach a contrary decision would be inconceivable and unreasonable. The Tribunal accepts the above submissions without hesitation, and therefore rules that Nos. 4, 5 and 6 are to be treated as one single site for the purpose of assessing compensation.

Class A sites?

9. This Tribunal has to consider whether the sites at No. 2, and at Nos. 4, 5 and 6 are Class A sites, so that the site coverage and plot ratio stipulated under Regulation 19(1) of the Building (Planning) Regulation, Cap. 123 ("the Regulations") could be determined. A "Class A site" is, according to Regulation 2 of the Regulations, "a site, not being a class B site or class C site, that abuts on one street not less than 4.5m wide or on more than one such street", and Regulation 19(1) provides as follows:-

"Where a site abuts on a street not less than 4.5 m wide or on more than one such street the maximum site coverage permitted in respect of a building or buildings to be erected thereon shall be determined in accordance with regulation 20 and the permitted plot ratio of such building or buildings shall be determined in accordance with regulation 21."

10. The issue is whether Man Hing Lane on which these sites abut is not less than 4.5 metres wide. The portion of Man Hing Lane on which these sites directly abuts is more than 4.5 metres in width, but the portion which extends towards Peel Street is 2.4 metres in width. In this connection, it is important to ascertain the meaning of "abut" and "street".

The meaning of "abut"

11. There is no definition of the word "abut" in the Ordinance or in the Regulations. Resort has to be made to find out its meaning in the dictionaries. The Concise Oxford Dictionary (1976 edition) defines "abut" as "(of part of building) end on or against, lean on." According to the Oxford Advance Learner's English Chinese Dictionary, to "abut on/against something (of land or a building)" is to "have a common boundary or side with something; adjoin something". It is clear that when regard is paid to the meaning of the word "abut" as shown above, that portion of the street on which Nos. 2 and Nos. 4, 5 and 6 abut must be the portion of that street directly in front of these 4 numbers because Nos. 2 to 6 and the portion of Man Hing Lane directly in front of these numbers share a common boundary.

The meaning of "street"

12. The definition of the the word "street" can be found both in the Buildings Ordinance ("the Ordinance"), Cap. 123 and the Regulations. According to the Ordinance, "street includes the whole or any part of any square, court or alley, highway, lane road, road-bridge, footpath, a passage whether a thoroughfare or not." In the Regulations, the word "street" is defined to "include any footpath and private and public street." These 2 definitions are to be read together for the purpose of ascertaining whether Regulation 19(1) of the Regulations is satisfied: Mightystream Ltd. V Attorney General [1982] HKLR 56. In any event, Regulation 2(1) of the Regulations stipulates that "In these regulations, unless the context otherwise requires, words and expressions have the meaning attributed to them by the Buildings Ordinance." It is important to note that under the Ordinance, "street" includes the whole or any part of any footpath and under the Regulations, "street" includes any footpath. Thus, any part of a footpath can be a street when the definitions of "street" under the Ordinance and the Regulations are construed together. Accordingly, the portion of Man Hing Lane on which Nos. 2, 4, and 5 and 6 abut is a street.

13. The statutory definitions of "street" do not expressly refer to the element of vehicular access as part of the definitions. The inclusion of words such as "court", "alley", "lane", "footpath" in the Ordinance, and of the word "footpath" in the Regulations, by necessary implication excludes any element of vehicular access in the definitions. Therefore the Tribunal takes the view that "vehicular access' is not a requirement in the definitions of "street".

14. Counsel for the Respondent, Mr. Malcom Merry, submitted that the definition of "street" in section 2 of the Ordinance did not assist on the present issue, because it applies "unless the context otherwise requires". But this Tribunal could not see any context to which a different meaning should be given to the word "street". On the contrary, this Tribunal takes the view that the meaning attributed to it by the Ordinance should be adhered to. Section 17(1) of the Ordinance throws light on the intention of the legislature as to whether it intended to give to the word "street" a meaning which is different from the statutory definition given under section 2. Section 17(1) provides that "Where an application is made to the Building Authority in respect of any of the building works or street works set out in Column A, he may take such action by way of imposing conditions and requirements by orders in writing, and refusing his approval of plans or his consent to commence the building works or street works as is set out in Column B opposite the particular item in Column A." The particulars of Item 5 under Column A are as follows:-

"Consent to commence building works to be carried out on land -

(a) abutting or fronting on a new private street; or

(b) to which access is to be obtained by means of a new access road or an access road to which alterations are to be made."

The particulars of Item 5 under Column B are as follows :-

"For the purpose of making such private streets or access roads comply with the regulations -

(a) require plans of street works to be submitted and may refuse his consent to the commencement of the building works until he has approved such plans; and

(b) require street works to be carried out in accordance with an approved plan." (Underline provided)

15. According to section 2 of the Ordinance, "regulations" means "rules and regulations made under this Ordinance". Thus the phrase "comply with the regulations" means "comply with rules and the regulations made under the Ordinance", which would include the Regulations. The legislature must have intended to give the same meaning to the word "street", both in the Ordinance and in the Regulations. It would be illogical for the term "private street" under item 5 of Column A to mean 'the whole or part of a "private road"', whereas under the Regulations, a street could only mean the whole of a private road. A disparity in the meaning of the same word would generate difficulties to the Building Authority in the discharge of its statutory duties.

16. If the word "street" under Regulation 19 means the whole length of a street as submitted by Mr. Merry, Regulation 19 could have been clearly drafted to have that effect by the law draftsman. Secondly, the use of the word "abut" impliedly refers to "part of a street". If a site abuts on a street, it shares a common boundary with it. A site would very seldom have a boundary which has the length of the whole of a street. On many of the situations, a site which abuts on a street would have a common boundary with only part of a street. Therefore, the street it abuts on must be only part of a street.

17. Mr. Merry submitted that if the word "street" in Regulation 19 included any part of the street upon which the sites abut, maximum development would be permitted where a site abutted upon a narrow lane which was almost entirely less than 4.5m wide but which happened to broaden out to more than 4.5m at one point, which need not be anywhere near the site. But in that situation, the site was abutting the part of the street which was less than 4.5m wide. The site was not abutting on the part of the street which was more than 4.5m in width, because it was not sharing a common boundary with this part of the street. Thus, it would not qualify as a Class A site.

18. Since the portion of street on which the sites of Nos. 2 to 6 abut comes within the definition of a "street", and its width is not less than 4.5 metres, the sites in question are Class A sites, and the benefits conferred by Regulation 19 apply to them.

The net developable area

19. The registered area of the joint site at Nos. 4, 5 and 6 is 214.70 sq.m. This registered area covers the area of a side lane within the site of No. 6. If this side lane is excluded the net developable area is 142.7 sq.m, and 166.595 sq.m, if it is included.

20. This side lane was an old scavenger lane which ran alongside a public alleyway. It was used for the disposal of night-soil in the old days, for Nos. 4, 5 and 6; it only served these 3 blocks, and not the public at large. This is evident from the fact that it was separated from the public alleyway by a wall, and it led to Nos. 4, 5 and 6. If the existing lane pattern was preserved, and a new side lane was provided in its place, this lane would be redundant.

21. Regulation 23(2)(a) of the Regulations provides that in determining the area of the site on which a building is erected, no account shall be taken of any part of any street or service lane. Regulation 23(2)(a) is to be read together with Reg. 28 which provides:-

(1) In addition to any open space required under regulation 25 every domestic building shall be provided with a service land at the rear or side of much building.

Provided that a service lane shall not be required -

(a) where a public land not less than 3m wide or a street already exists;

(b) for detached and semi-detached buildings;

(c) where exempted by Building Authority.

(2) Every such service lane shall be accessible from an existing street ......."

(underline provided).

Provision is made by the Applicants for the retention of the old lane at the rear of Nos. 4, 5 and 6 to form a lane pattern with the buildings at Pak Tsz Lane which is parallel to Man Hing Lane, and is at the back of the subject sites. The re-provisioned rear lane would give access direct to the adjacent public lane at the side of No. 6 by a number of steps, as shown in the Applicant's (Prudential's) drawing No. SK 2A at D-628.

22. This Tribunal has decided that the highest and best use of the joint site at Nos. 2, 4 and 6 would be for a composite development, as hereafter mentioned. Under Regulation 28, the only requirement for a domestic building is for a lane at the rear or side of the building. There is a lane at the rear of Nos. 4, 5 and 6 and it would be re-provisioned. Thus, Regulation 28 is satisfied. Since the building to be erected on the joint site is a composite building, Regulation 28 does not apply. But as aforesaid, there would be a re-provisioned rear lane at the rear of Nos. 4, 5 and 6. Therefore, the area covered by the side lane should be included for the purpose of compensation payable to the Applicants.

Method of Valuation

The expert surveyors called by both parties adopted the same methodology in the valuation of the subject sites in these two applications. It is common ground that around the relevant date, there was no actual market sales evidence of development sites with location, size, development potential and permitted users similar to those of the subject sites. Under the circumstances, both surveyors, as was normally the case in practice, adopted the residual method as the appropriate valuation approach. This Tribunal accepts this methodology in the valuation in the present applications.

Also, the surveyors agreed on the formats and most of the basic parameters in the residual valuation. Mr. Brian Law, the surveyor for the applicant agreed to use the same typical Government's traditional residual valuation format used by Mr. Ngai Chi Kong, the surveyor for the respondent. These include the use of the same percentage for the professional fees (6%) and the builder's profits (20%) in the estimation of the development costs, the adoption of the same discount rate (9%) throughout the valuation and finally, the assumption of reserving 20% developer's profit on the residual land value.

Underlying assumptions adopted in the residual valuation

The parties had no dispute on the registered site areas of the individual sites. However, while the parties had agreed on the front and rear set backs for No. 2 (having a net developable area of 45.158 sq.m.), they could not agree on the net developable area of Nos. 4, 5 and 6. The parties disagreed on whether the existing side lane next to No. 6 had to be preserved upon redevelopment of the lot. In the preceding paragraphs, this Tribunal has determined that the re-provision of a rear service lane for the joint site of Nos. 4, 5 and 6 would be sufficient. As a result, the existing side service lane should be included in the calculation of the net developable area. The net developable area of Nos. 4, 5 and 6 would therefore be 166.595 sq.m.

The sites have been determined in the preceding paragraphs as to be Class A sites. Also, it has been assumed that Nos. 4, 5 and 6 would have been jointly developed by the applicants even if there had been no resumption.

Tribunal's valuation

Since the Tribunal has also decided that the subject sites are Class A sites, their developments should be governed by the provisions of the Building (Planning) Regulation. For No. 2, both parties agreed that on the basis that it was a Class A site, the optimal development would be a 6-storey building, either for wholly domestic use or for composite use (with the ground floor for non-domestic use and the upper floors for domestic use). The user that gives the highest residual land value will determine the highest and best use for No. 2. The Tribunal has therefore carried out valuation along the same lines as the surveyors for both parties. These valuations, on the basis of a wholly domestic, 6-storey building and a composite, 6-storey building are set out below respectively as Schedule I and II.

SCHEDULE I - Residual Valuation of No. 2 Man Hing Lane

Registered site area = 58.6 m² ; net developable site area = 45.158 m²

Assumed development: 6-storey pure domestic building. 1 flat of 17.09m² (saleable area) per floor.

Vacant Possession Value Assessment

SCHEDULE II - Residual Valuation of No. 2 Man Hing Lane

Registered site area = 58.6 m² ; net developable site area = 45.158 m²

Assumed development : 6-storey composite building with G/F shop and cockloft. 1 flat of 15.286m² (saleable area) per floor.

Vacant Possession Value Assessment

The valuation at Schedule I gives a residual land value of $3.29 million whilst the other valuation at Schedule II, a value of $3.14 million. The Tribunal's residual land value for No. 2 is therefore $3.29 million.

For Nos. 4, 5 and 6, the Tribunal has carried out similar residual valuation, the details of which are set out as Schedule III and IV below. The valuation at schedule III assumes the development of a 25-storey domestic development. The other valuation at Schedule IV is on the basis of a 23-storey composite development.

SCHEDULE III - Residual Valuation of Nos. 4, 5 and 6 Man Hing Lane

Assumed development : 25-storey domestic building with 2 flats per floor of about 16.5m2 (saleable area) each.

Vacant Possession Value Assessment

Redevelopment Value Assessment

SCHEDULE IV - Residual Valuation of Nos. 4, 5 and 6 Man Hing Lane

Assumed development : 23-storey composite building with G/F shops. 2 flats per floor of about 16.75 m2 (saleable area) each.

Vacant Possession Value Assessment

Redevelopment Value Assessment

The valuation at Schedule III and IV give a residual land value of $22.24 million and $22.53 million respectively. Thus, the Tribunal's estimate of the residual land value for Nos. 4, 5 and 6 is $22.53million.

Components in the valuation

As was rightly pointed out by the Counsel for the applicants in his final submission, once the major issues have been resolved, the remaining components in the valuation should be relatively straightforward.

Mr. Ngai's valuation included the elements of rental income during the term prior to possession for redevelopment, compensation to tenants and demolition costs. Mr. Law accepted these elements to be proper and have amended his valuation to reflect these. The only difference between the two experts was that Mr. Ngai assumed a period of 9 months for obtaining vacant possession while Mr. Law suggested 6 months. Having regard to the time for giving notice to quit to the tenants, the time for lodging application for possession, and the normal period of stay of possession given to the tenants, this Tribunal agrees that a period of 9 months to be more appropriate.

The parties agreed on the construction cost of a low-rise building, at $2,850 per sq.m. What the experts disagreed was the cost of construction of a high-rise building. The parties have not actually instructed any consultant to carry out any cost estimate. Instead, they just relied on the Levett and Bailey's average costs figures for the relevant period. The Tribunal agrees with the Respondent that the difference between the Levett and Bailey's figure for a low and a medium rise tenement building ($2,850) and a high rise tenement building ($3,050) was simply too small to support that the latter figure included the additional costs of lifts.

Because the accurate estimation of construction costs is one of the most important inputs in the residual valuation, the parties should consult the advice of quantity surveyors in similar instances in the future. In the present applications, both Mr. Ngai and Mr. Peter Lo were not experts in the field of estimating. In the final analysis, the Tribunal accepts Mr. Ngai's estimated unit cost of $4,000 per sq.m for a high-rise building.

Similarly, the Tribunal accepts Mr. Ngai's estimates for the construction period for the proposed developments on the subject sites as to be more reasonable.

The surveyors agreed on the unit rates of domestic space in the proposed developments on the subject sites, at $48,150 per sq.m for a low-rise building and $53,000 per sq.m for a high-rise building. The Tribunal adopts these figures in the valuations.

As for the shop space, the unit rates (per sq.m) advanced by the Applicants and the Respondent are as follow :-

No. 2	Applicants	Respondent
Ground Floor	$30,000	$20,000
Cockloft	$7,500	$5,000
Nos. 4, 5 and 6	Applicants	Respondent
Ground Floor	$27,000	$19,000

23. The Tribunal has considered carefully the comparables put forward by both surveyors, their submitted reports and their evidence at the hearing and came to the following conclusion as to the appropriate unit rates (per sq.m) to be adopted in the residual valuation :-

No. 2
Ground Floor	$22,000
Cockloft	$5,500
Nos. 4, 5 and 6
Ground Floor	$20,000

24. For the ancillary accommodation, both surveyors adopted the usual approach of using a fraction of the basic domestic unit rate in the valuation.

25. However, Mr. Ngai adopted 1/8 of the basic domestic unit rate as to be the unit rate for flat roof whilst Mr. Law used a factor of 1/6. The Tribunal accepts 1/8 as to be more appropriate.

26. The Tribunal has considered the parties' estimates of the "common areas" in the proposed developments for the subject sites. The Respondent called the expert evidence of Mr. Peter Lo, Authorised Person, regarding the proposed building plans for the hypothetical developments. On the basis of these drawings, the Respondent adopted very small "common areas" in the valuation. On the other hand, Mr. Ngai called by the Applicant proposed much larger common areas, based on his personal knowledge and experience, as well as the usual allowances adopted by the Lands Department in the past. The Tribunal finally adopts figures that appear to be reasonable for the proposed developments for the subject sites. In reaching that decision, regard has been given to the usual size of common areas for developments of the scales as proposed for the subject sites.

Determination of compensation

We therefore determine that the compensation payable by the Respondent to the Applicants, the former owners of the sites No.2 and Nos. 4, 5 and 6, are $3.29 million and $22.53 million respectively. Since No. 2 and No. 5 were owned by Mayloy, the applicant in LDLR 4 of 1998 while No. 4 and No. 6 were owned by Julia Tam Kan, the applicant in LDLR 5 of 1998, Mayloy should solely receive the compensation for No. 2. The compensation in respect of Nos. 4, 5 and 6 shall be apportioned between Mayloy and Julia Tam Kan in proportion to the registered site areas of the individual lots (No. 4 - 58.8 sq.m, No. 5 - 59.1 sq.m and No. 6 - 96.8 sq.m), as follows :

Summing up, the compensation payable by the Respondent to Mayloy, the applicant in LDLR 4 of 1998 should therefore be the sum of $3.29 million in respect of No. 2 and $6.20 million in respect of No. 5, which is equivalent to $9.49 million. As for Julia Tam Kan, the applicant in LDLR 5 of 1998, the compensation payable by the Respondent should be $16.33 million in respect of No. 4 and No. 6.

Deduction from these compensation monies of the previous provisional payments and interests paid by the Respondent to the applicants should be made. No interest is payable upon the provisional compensation from the date of payment.

Leave is reserved to the parties to apply to have the rate of interest thereon, if not agreed, determined by the Tribunal pursuant to Section 17 (3A) of the Lands Resumption Ordinance. There will be an order nisi that the Respondent pay the Applicants' costs, on the High Court party and party scale, to be taxed if not agreed, to become absolute if no application is made to the contrary within 14 days. Certificates for the counsels. Leave to apply is reserved for any consequential matters.

Dated this 29th day of February, 2000