PENNY'S BAY INVESTMENT CO LTD v. DIRECTOR OF LANDS

CACV 176/2007 AND CACV 177/2007 (Consolidated)

CACV 176/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 176 OF 2007

(ON APPEAL FROM LDMR NO. 23 OF 1999)

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(Consolidated pursuant to the Order of the
Honourable Mr Justice Rogers, Vice President dated 26^th June 2007)

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal from a decision of Lam J, sitting as the President of the Lands Tribunal, given on 25 May 2007.  The judgment was in respect of preliminary issues ordered to be tried as part of a claim for compensation under the Foreshore and Sea-bed (Reclamations) Ordinance Cap. 127 (“ the Ordinance”).  The judge held that in answer to the issue as to whether on a proper construction of the Ordinance, the proper basis for assessing compensation in respect of the claims made by the applicant was based on the actual damages sustained by the applicant calculated as at the date of assessment by reference to principles in tort as opposed to one based on a notional purchase, “the primary approach … should be the notional tort approach”.  The alternative basis, namely on a notional purchase of the applicant’s right that had been extinguished calculated as of the date of the 1995 authorisation by reference to principles in contract had been contended for by the applicant.  In particular the judge said that “the notional purchase approach may exclude some relevant developments since the date of extinguishment from consideration to generate a distorted picture regarding the real loss suffered by the applicant.”

2.  In respect of the other questions that were before the judge, the judge considered that questions (2) and (4) did not arise on the basis of his finding that the notional tort approach did provide compensation for the real loss suffered by the applicant and hence there was no infringement of Article 105 of the Basic Law.

3.  At the conclusion of the hearing of this appeal judgment was reserved which we now give.

The background

4.  The following facts appear not to be in dispute between the parties and, indeed, for the most part, have been taken from the statement of agreed facts for the determination of the preliminary points of law before the judge below. 

5.  In 1970 the applicant acquired Lot 22 in DD 356, Penny’s Bay, Lantau.  Although the lease granted would have expired in 1997 the term was extended by reason of the New Territories Leases (Extension) Ordinance, Cap. 150.

6.  Lot 22 had an area of just over 2,000,000 sq. ft.  The Lot was required to be used for general industrial and/or godown purposes but no less than 285,000 sq. ft. had to be used for shipbuilding purposes only.  Under the terms of the grant the applicant was required to reclaim a large portion of the area and to construct a sea wall along the boundary of the new sea frontage.  It had to construct landing steps and be responsible for the maintenance of the sea wall.  There was a slipway and four launch-ways which were constructed and extended into the foreshore and sea-bed.

7.  As is recorded in paragraph 5 of the Agreed Facts, pursuant to the Special Conditions of the Exchange Agreement, the applicant enjoyed what was referred to as a “marine right” in and over areas of the foreshore and sea-bed.

8.  By a tenancy agreement dated 8 December 1975 the Lot was let to Cheoy Lee Shipyards Ltd for the purpose of shipbuilding and related purposes at the monthly rental of $10,000, which was increased to $40,000 with effect from 1 April 1984.  Throughout the period of the applicant’s ownership, Lot 22 was not accessible by vehicles but was accessible on foot.

9.  In March 1994 the Director of Lands published a Gazette Notice GN 847, pursuant to section 5 of the Ordinance, delineating and describing a proposed reclamation of the foreshore and sea-bed at Penny’s Bay to provide for the construction of two container terminals.  A year later a draft Outline Zoning Plan, outlining the development plan for the container terminals was published.  The area to be reclaimed at Penny’s Bay, which included part of Lot 22, was zoned for industrial use, container terminals, container back-up area and a business park.  The majority of Lot 22 was zoned for industrial use.  The remainder was for other uses.  There was to be a new access road linking the North Lantau Expressway with the container terminal site.  That road would run through Lot 22.

10.  In April 1995 the Secretary for Transport published another Gazette Notice, No. GN 1450, this time pursuant to section 8(2) of the Roads (Works, Use and Compensation) Ordinance Cap. 370 which provided a description of the general nature of the proposed road works.  On the same day the Governor in Council, pursuant to section 8(1)(c) of the Ordinance, authorised a proposal to reclaim about 1260 ha of the foreshore and sea-bed at Penny’s Bay for the purpose of the construction of the two container terminals and the associated infrastructure.  That authorisation was subsequently published in Gazette Notice No. GN 1574 on 5 May 1995 and has been referred to as the 1995 authorisation.

11.  In 1995 and thereafter until 3 April 2001 Lot 22 was used by Cheoy Lee Shipyards Ltd for the shipyard purposes using the marine access.  Whether and the extent to which those shipyard activities were curtailed by reason of the existence and publication of the 1995 authorisation is not known.

12.  On 3 May 1996 the applicant lodged a claim with the Director of Lands for compensation pursuant to section 12(1) of the Ordinance.  The total claim included a claim for loss in value of Lot 22 in the sum of $2,200,000,000.

13.  The proposal in respect of the container terminals never reached fruition.  In August 1999 an amended draft Outline Zoning Proposal was published in which the scheme in relation to the container terminals was amended to a proposed theme park.

14.  Quite soon thereafter, on 2 November 1999, the applicant applied to the Lands Tribunal pursuant to section 13(3) of the Ordinance to determine its claim for compensation arising from extinguishment of its marine rights caused by the 1995 authorisation and its publication.  Notice of opposition was filed on 19 November 1999.  At that stage the Director of Lands opposed the applicant’s claim on the ground that the applicant had suffered no loss compensatable under section 12 of the Ordinance.  In the alternative it was said that the amount of compensation claimed was excessive.  Later, in January 2000, the Department of Justice wrote to the applicant’s solicitors stating that the infrastructure referred to in the 1995 authorisation covered roads which, when completed, would open up the future redevelopment potential of Lot 22 for industrial and godown purposes save for the minimum area required for shipbuilding.  This was put forward as a further ground upon which it could be concluded that the applicant had suffered no loss.

15.  The 1999 proposal ultimately went ahead and although it entailed the reclamation of part of the foreshore and sea-bed the area was smaller than that covered by the 1995 authorisation.  On 28 March 2000 the Chief Executive in Council withdrew the 1995 authorisation.  On the same day in the same capacity he authorised the reclamation for the purposes of the theme park (“the 2000 authorisation”).  The withdrawal of the 1995 authorisation was published on 10 April 2000 and the 2000 authorisation was published 4 days later.  It was agreed between the parties that the publication of the 2000 authorisation extinguished whatever right, if any, of the applicant remained over the foreshore and sea-bed that had not been extinguished by the 1995 authorisation.

16.  In March 2001 Cheoy Lee Shipyards Ltd surrendered its tenancy to the applicant and by deed dated 3 April 2001 the applicant surrendered Lot 22 to the Government.  That surrender was made without prejudice to the applicant’s claim for compensation under the Ordinance.  Upon the execution of the deed of surrender there was anex gratia payment by the Government to the applicant of $1,483,380,000 which was part of a total payment of $1,506,098,750.  That included a sum of $22,710,000 as the stated value of the land without marine rights at the date of the surrender.

17.  On 11 April 2001 the applicant submitted a further claim for compensation under the Ordinance based on the publication of the 2000 authorisation.  That claim was expressly stated to be without prejudice to the applicant’s contention that its rights to marine access had already been extinguished by the publication of the 1995 authorisation and that the claim for compensation consequential upon the 1995 authorisation was not thereby affected in any way by the 2000 withdrawal and the 2000 authorisation.

18.  There was a certain amount of vacillation by those conducting the proceedings on behalf of the Government as to the basis on which it was said the calculation of compensation, if any, should be made.  The applicant invited the Government to agree to a number of preliminary questions of law being decided and in December 2003 an application by the applicants to that effect was refused.  The matter then came before this court in November of the following year.  At that hearing it was clear that the Government was indeed vacillating in its approach as to how the compensation, if any, should be calculated.  It was in those circumstances that this court said in the course of judgment:

“A consideration of the varying attitude on the part of the Government demonstrates quite clearly that this is a case where special attention needs to be paid to the process of defining the issues.  It may be that when the different contentions of the parties as to the basis upon which the compensation should be assessed is known, there should be a preliminary trial of issues of law so that unnecessary expenses are not incurred in preparing evidence on alternative bases depending upon what might emerge.

17.  Furthermore, it would be quite wrong for either of the parties to be taken by surprise by any arguments raised in the course of the claim on the basis that something might have been put into the evidence which had been omitted because the issues had not been clarified.  Even whilst this appeal was pending there was a letter from the District Lands Officer of 26 July 2004 in which it was said that the events relating to the withdrawal of the 1995 Authorization and the new authorization in 2000 are part of a sequence of events relevant to the applicant’s claim.  The vacillating approach coupled with the imprecise contentions put forward in the letters from Government leave no doubt that it is high time, nearly 10 years after the 1995 Authorization, that the position and contentions of the Government are properly spelt out.”

The hearing below

19.  It thus came about that pleadings were ordered to be served.  Following service of the pleadings application was again made for there to be a trial of preliminary issues.  Ultimately those issues were defined in the following way:

“(1)  On a proper construction of the Foreshore and Sea-bed (Reclamation) Ordinance [“FSRO”], whether the proper basis for assessing compensation is one based on actual damages sustained by the Applicant by reference to principles in tort as at the date of assessment (as contended by the Respondent) or one based on a notional purchase on the date of the 1995 Authorization of the Applicant’s right that has been extinguished by reference to principles in contract (as contended by the Applicant);

(2)  If the correct basis is one of contract, whether betterment arising from the scheme relating to the 1995 Authorization can be taken into account.  In other words, whether the Pointe Gourde principle has any application in the context of a claim under the FSRO;

(3)  If the correct interpretation of the FSRO is the one as contended by the Respondent, whether there is any infringement of Article 105 of the Basic Law;

(4)  If the correct interpretation of the FSRO is the one as contended by the Applicant and the Pointe Gourde principle is applicable, whether there is any infringement of Article 105 of the Basic Law.”

20.  As already indicated, issue (1) was decided on the basis that the primary approach for assessing compensation should be the notional tort approach.  Issues (2) and (4) were said not to arise and it was held that there was no infringement of Article 105.  In the course of giving judgment the judge said at paragraph 100 that it was still open for the parties to argue:

“…whether de facto access, “betterment” occasioned by the unexecuted scheme under the 1995 Authorization, the 2000 Withdrawal and the 2000 Authorization, the Deed of Surrender of 3 April 2001, the ex gratia payment and the costs of the decontamination works should have any impact on the fair compensation by applying the principles of assessment of damages in tort.”

This appeal

21.  The passage quoted in the previous paragraph alone, causes some concern.  The marine rights are agreed to have been extinguished in 1995.  These proceedings for compensation were commenced in 1999.  It is now 9 years since these proceedings were commenced.  Yet the process of valuation of the claim even after preliminary issues have been decided would still seem to be open.  As will be explained below the arguments in favour of most of the matters which the judge thought might be open for argument at a later stage have been abandoned by the Government.  In reality one of the major issues between the parties appears to be whether the ex gratia payment made in 2001 should be taken into account when assessing the compensation under the Ordinance.

The event which gives rise to a claim for compensation

22.  Compensation under the Ordinance is governed by section 12 which reads:

“(1)Any person who claims that his interest, right or easement in or over such foreshore and sea-bed will be injuriously affected by the reclamation may deliver to the Director a written claim stating the sum of money which he is willing to accept in full and final settlement of his claim together with such particulars as he may possess to substantiate the claim and shall furnish to the Director such accounts, documents and further particulars as the Director may request him to furnish, in support of the claim.”

23.  As can be seen the Ordinance uses the expression injuriously affected.  That, now rather quaint, expression has been used in legislation for more than a century.  It appears to me that little benefit is to be derived from a consideration of the history behind the present Ordinance.  What must be considered is what compensation is appropriate by reason of the fact that the claimant’s rights “will be injuriously affected by the reclamation”.  Thus, although, the rights in relation to the foreshore and sea-bed are extinguished and cease to exist as of the date of the publication of a notice: see section 10 of the Ordinance, the injurious affection to those rights in respect of which sections 9(2)(c) and 12 are concerned is that which is occasioned by the reclamation.  The distinction is not, in my view, semantic.  Section 12 allows a claim to be made where a right is injuriously affected by the reclamation.  In distinction section 10(2) prevents a claim being made because a right has been extinguished because of the publication of the notice of authorisation:

“(2)  No action shall be brought or continued in respect of the extinguishment under subsection (1), in whole or in part, of any public or private right.”

24.  In this respect reference may also be made to section 11 which provides:

“No person shall have any right against the Government or any other person to claim any money in respect of anything authorized under section 7, 8(1)(b) or 8(1)(c) except to the extent of the entitlement to claim compensation under section 12.”

25.  In my view, those sections make it clear that, despite the word “includes” in the definition of “reclamation” in section 2, it is not possible to give the word “reclamation” a meaning which would include extinguishment of rights in accordance with section 10(1)(a).  The Ordinance must be read as of its date and, given that was before the Basic Law, it seems to me quite possible that the legislature of the day considered it appropriate that mere extinguishment of rights of sea access, even if that right had been acquired as a private right, would not give rise to a claim.  What would give rise to a claim would be the disruption, or in the words of the statute injurious affection caused by the  reclamation itself and if the assessment were done promptly, no doubt it would be on the basis that the reclamation would be carried out.  The Tribunal would then have to assess the likely extent of the injurious affection.  But, if on the other hand, the assessment were delayed and it became clear that no reclamation was to place despite the authorisation or because the authorisation had been withdrawn, the Ordinance gives no right to compensation simply on the basis of extinguishment of rights whether temporary or permanent because there would have been no reclamation and, hence, no disruption of access to the foreshore or sea-bed.

26.  The argument in this court proceeded on the basis that the applicant’s claim was based on the extinguishment of the marine rights.  Indeed, reference can be made to the parties’ pleadings, for example paragraph 10 of the amended points of claim and paragraphs 11A and 22 of the amended points of defence.  The extinguishment of the rights took place on the publication of the authorisation see section 10(1)(a).  The applicant’s claim must be based on the injurious affection to the marine rights caused by the reclamation and not by the extinguishment. 

27.  It is to be noted that the time limits in the Ordinance would lead to the conclusion that the assessment is to be made as of the date of the publication of the notice even though the compensation is predicated upon the injurious affection to the interest, right or easement being caused by the reclamation, which will take place in the future.

How injurious affection can be quantified

28.  In his speech in the case of Wildtree Hotels Ltd and others v Harrow LBC [2001] 2 AC 1 Lord Hoffman was concerned with the meaning of the words injuriously affected as used in section 10 of the Compulsory Purchase Act 1965.  It may be noted that that section gave a right to compensation after the injurious affection had already taken place.  At page 7 of the report Lord Hoffman set out what he said were principles which were settled by decisions of high authority.  Whilst not disregarding those I would simply observe that on the basis of statutory construction as well as authority there was no difficulty in coming to the conclusion that the term injuriously affected related to damage, or injury, which would have been wrongful had there not been statutory authority to cause the damage.

29.  As is stated at paragraph 1-002 of McGregor on Damages, 17^th edition:

“Damages are dominated by the idea of compensation in money; such compensation is the rule.  Day after day, in case after case, damages are awarded to claimants to compensate them for loss and damage.”

30.  When dealing with cases of compensation, the courts have referred to the principal of assessing fair compensation as the principle of equivalence.  See for example the passage quoted in paragraph 43 of the judgment below from the advice delivered by Lord Nicholls in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111 at page 125, a passage cited with approval in Director of Lands v Yin Shuen Enterprises Ltd & Another [2003] 2 HKLRD 399 at page 407.

31.  What, at first sight, might have caused some difficulty was the fourth proposition referred to by Lord Hoffman namely that compensation is payable only for damage to the plaintiff’s land or interest in land.  The owner is not entitled to any compensation for loss caused to him in a personal capacity.  Mr Barnes QC, who appeared for the respondent, specifically accepted that damage to business was recoverable and that no difficulty arose in the present context from any application of that proposition.

32.  There were a number of issues involved in the Wildtree case.  High amongst those was the argument that section 10 required the assessment of compensation by a deduction of the capital value of the land at completion of the work from its estimated value had it not been injuriously affected and thus it did not allow for compensation for temporary damage during the work.  It was in relation to that that at page 16 of the report Lord Hoffman rebutted that argument by saying:

“This reasoning assumes that compensation under section 10 of the 1965 Act can only be assessed by considering the capital value of the claimant’s land at a given date and by deducting that sum from an estimate of what its value would have been if it had not been injuriously affected.  But there is nothing in the section which says that compensation for damage to the land must be calculated in this way.  The claimant is simply entitled to compensation for the damage to his land.”

33.  From this I derive the conclusion that an assessment of the claim is often made by “considering the capital value of the claimant’s land and deducting that sum from an assessment of what its value would have been if it had not been injuriously affected.”  In other words, in this case, it might be the difference in value of the land before and after the marine rights had been injuriously affected by the reclamation. 

The approach of the parties

34.  In some respects I see little difference between the arguments of the parties.  The question must be what loss the particular applicant has sustained by reason of the marine rights having been injuriously affected by the reclamation.  The expressions “principles of tort” and “notional purchase” have been used, but I do not see that they are helpful.

35.  Mr Barnes stated expressly that it was the applicant’s loss in relation to the land that was relevant.  In so doing he disavowed a point raised in the course of argument that there could be some difficulty in that the legislation made no mention of rights appurtenant to a piece of land.

36.  In trying assess the position of the respective parties, I have considered the pleadings.  They have been amended after the judgment in the court below, purportedly to reflect the decision of the judge.  It is in my view regrettable that the pleadings, particularly those filed on behalf of the Director of Lands are prolix and contain matter which should never find its way into pleadings.  The judge may wish to give serious consideration to striking out the pleadings, particularly the amended points of defence, and requiring the documents to be pleaded anew in their entirety in a concise and precise manner as befits pleadings.

37.  As regards the applicant, the claim appears to be based on an assessment of the diminution in capital value of the land at the date of the original extinguishment of the marine right that is the date of the 1995 authorisation.  It is somewhat difficult to make out from the amended points of defence precisely what it is said on behalf of the Director of Lands is the correct way of calculating the loss for which the applicant is entitled to recover, but, as already noted, the amended points of defence also proceed on the basis that the compensation is referable to the extinguishment of the marine rights rather than to the reclamation.  Paragraph 28 of the amended points of defence appears to divide the calculation into 2 separate parts.  The first part, subparagraph (i), is directed to a loss occasioned in the period between 5 May 1995 and 3 April 2001.  This would seem to be a loss in income caused by a loss in business.  The argument put forward against any such loss is threefold; one of the planks is that there was no loss because access to the sea remained, albeit not as of right.  The difficulty with that argument is that, if the argument addresses a claim based on extinguishment of rights consequent upon publication of the 1995 authorisation, as seems to be the case, a business may well be hampered if long term planning becomes impossible.  Subparagraph (ii) however commences:

“The second category is the difference between the sum obtained by the Applicant on the disposal of the lease by them and the value which that leasehold interest would have had at the time of the disposal if the marine rights had not been extinguished in 1995.”

38.  If it be right that the stated value of the lease without marine rights on 3 April 2001 was 10% of the value of the lease with marine rights as of the valuation date as stated in a letter of 20 December from J S Corrigall for the Director of Lands, I find it difficult to see on the Director’s own arguments how the sum referred to in the opening words of paragraph 28(ii) of the amended points of defence is not a capital sum namely $204,390,000.  Whether that is a calculation on the so-called tort or contract basis seems to be a matter of semantics of little consequence.

39.  Even on the approach adopted by the parties, any question of “betterment” by reason of the scheme underlying the reason for the extinguishment of the rights can be seen to be irrelevant.  As I have already indicated, when the claim for compensation was first made the Government sought to avoid any such claim on the basis that the land would be improved by reason of the proposal to build a road.  That argument has now been specifically abandoned although it still remains in the amended points of defence.  In my view it has been rightly abandoned.  If the reclamation causes extinguishment of rights which event constitutes injurious affection the fact some other event, such as the building of a road, may happen does not alter the injurious affection constituted by the reclamation.

40.  Mr Barnes argued that the starting point for the calculation of the compensation was the loss of the various rights in 1995 but taking into account the subsequent events.  When asked to specify what subsequent events the Government now said had to be taken into account he enumerated three points.  The first was that the applicant, or rather Cheoy Lee Shipyards Ltd, had de facto access to the sea for 6 years 1 month until surrender of the land in April 1991.  The second was that the land had been sold 6 years later at a price which reflected only about 10% of what it would have fetched if the marine rights had remained as a matter of law.  Lastly, and this seems to be the real point upon which the Government hopes to rely, namely the ex gratia payment.

41.  That formulation, in itself, constitutes a considerable reduction of the matters to be taken into account in comparison with those enumerated at paragraph 100 of the judgment below.  It also is far less than that set out in respondent’s skeleton argument.

42.  Turning to the last point, it is right to say that on this appeal there was no full argument and very little discussion about the ex gratia payment.  Mr Barnes put it on the basis that it was in fairness to the applicant that this court should not deal with it.  I have to say that ensuring the point was not argued was more probably the route by which the Government could keep the point open.  Whether or not the applicant could have enforced the ex gratia payment made in this case is not clear.  Nevertheless, it does seem to be the case that it was Government policy to make the ex gratia payment in circumstances such as pertained in the present case.  What is clear is that for the Government to succeed on its present argument it has to establish that the payment was anything other than a pure gift, which would be the normal meaning of the term ex gratia.

43.  If the foregoing be right I find it difficult to see how it can be said that the ex gratia payment should be taken into account.  It was apparently a sum that would be paid because of Government policy then in force.  It would be paid in addition to compensation for the surrender of the land based on its value.

44.  Assuming that the ex gratia payment was other than a simple gift, it seems it was one which was made on a basis calculated according to set criteria.  Given the amount of the payment it can only be hoped that the manner in which the payment was made in this case was truly extraordinary in the full sense of that word.  That the Government should pay out more than $1.4 billion without making it clear precisely what that payment was in respect of, more particularly after a claim for injurious affection had been made and the claimant had stated specifically in correspondence that any payment would be accepted only on condition that that payment would not be taken into account or prejudice the assessment of the claim under the Ordinance, is something which it can only be hoped is a unique occurrence.

45.  In keeping with the fact that this payment did not feature fully in the argument before this court I would confine myself to saying that I find it difficult to understand how a payment calculated on the basis of an interest in land in respect of which 6 years earlier any marine rights had been extinguished could be said to be in respect of the extinguishment of those marine rights.  Furthermore, in so far as there was a formula for the calculation of the amount payable in respect of the ex gratia payment, it mandated calculation on the footing of land and not on the footing of marine rights.

46.  The argument that the applicant was able to use the foreshore and sea-bed for a period of 6 years and 1 month after publication of GN 1574 does not provide a complete answer if what is considered is the reclamation rather than the extinguishment of the rights.  Any use by the applicant or its lessee of the foreshore and sea-bed was not a use as of right, but constituted little more than a trespass upon an area from which either of them could be excluded at any time.  Hence, neither of those parties had either the right to use the foreshore and sea-bed or the right to pass any rights to the use thereof whether by lease, sale or otherwise of Lot 22.  What effect that had, and what effect the Tribunal should accept it would have had, would be a matter for the Tribunal.  On any footing, it would seem that the Tribunal would be entitled to take cognisance of the fact that the notice of the 1995 authorisation would not at the time have been expected to have immediate practical effect since the reclamation would presumably not have been expected to start until sometime in the future.  Nevertheless the fact that it was to happen would have constituted an overhang, quite possibly hampering the applicant’s business.

47.  In those circumstances it is likely that the applicant, or its lessee, would have to give credit for the fact that it still exercised de facto, if unauthorised, access but it is difficult to see how it could be said that there was no injurious affection of the land simply because the Government for a period of time did not enforce its rights.

48.  The remaining matter relied upon by Mr Barnes as being something which should be taken into consideration was that the land had been sold 6 years later at only 10% of what it would have fetched if the marine rights had remained.  The relevance of this point appears to me to be that it may be said that the calculation of the value of the marine rights should be nine times the value put upon Lot 22 when it was surrendered to the Government.  As such that remains an argument as to valuation but that does not, it seems to me, justify it being said that it constituted a matter which altered the way in which the injurious affection should be measured.

Resolution of this appeal

49.  It seems to me that the starting point when assessing the claim must be that the Tribunal has to consider as of the date of publication of the notice of the relevant authorisation how the applicant’s rights will be injuriously affected by the reclamation.  In this case it would be relevant for the Tribunal to approach the matter on the basis that the reclamation would not take place until some considerable time after the 1995 authorisation.  On the basis that it is right that it is possible to take into consideration events which took place up until the time of the assessment, then the conundrum in this case is that the reclamation authorised under the 1995 authorisation never took place.  Taken to its logical conclusion that might mean that although the publication of the notice of the 1995 authorisation had been in effect for some 6 years, no award could be made because no reclamation had taken place albeit the marine rights had been extinguished.

50.  In those circumstances, it may well be said that the provisions of Article 105 of the Basic Law might be applicable.  They provide:

“ The Hong Kong Special Administrative region shall, in accordance with the 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.

Such compensation shall correspond to the real value of the property concerned at the time and shall be freely convertible and paid without undue delay.”

51.  The reality of the situation, however, is that the original authorisation was, at least in so far as it affected the applicant, continued by reason of the 2000 authorisation and that reclamation did take place.  Again in so far as the applicant is concerned, the reclamation under the 2000 authorisation was equally injurious to its rights as the reclamation under the 1995 authorisation would have been.

52.  Since the effect of the reclamation under the 2000 authorisation was that the applicant surrendered the whole of the Lot 22 to the Government, in practical terms selling the Lot to the Government, I consider that it follows that the injurious affection to the applicant’s rights in or over the foreshore and sea-bed caused by the reclamation was its loss of the marine access.  The applicant anticipated that loss and sought to alleviate it by selling Lot 22 which was destined to be denuded of its sea access.  It may be considered that the sale of the land to the Government was the natural consequence of the reclamation that was about to take place.  Since the sale of the land was specifically on the basis that the marine rights no longer existed, the injurious affection to the marine rights caused by the reclamation was manifested in the lower price achieved on the sale of the land.  It was one of the points made by Mr Barnes that when the land was sold to the Government the price fetched was only 10% of what it would have been if the marine rights had remained.  It seems to me, therefore, on the Government’s case that must be a starting point for the calculation of the award. 

53.  It seems to me that it is legitimate to view the matter as outlined in the previous paragraph.  Were it not the case that it was the reclamation which caused the sale of the land at a price that did not include the value of the marine rights, the position would be that the applicant had been deprived of the marine rights in relation to Lot 22 without compensation.  In those circumstances the validity of section 10(2), if not also section 11, would be called into question given the provisions of Article 105.

54.  I would, therefore, allow this appeal and order that compensation for the injurious affection to the rights of the applicant in relation to the foreshore and sea-bed of Lot 22 should be assessed as a capital sum which represents the value of those rights had they existed as of 3 April 2001 plus any loss that can be shown to be consequent upon the reclamation being about to take place in the period from the publication of the 1995 authorisation up to 3 April 2001.  The question of the ex gratia payment is a matter which either can be shown to have been paid in satisfaction of the applicant’s claim or cannot.  It is not for this court to determine that.  I would direct that the parties make submissions as to costs.

Hon Cheung JA:

The cardinal rule

55.  The cardinal rule where a person’s land is compulsorily taken from him is to provide him with a fair compensation.  Thus as Lord Nicholls of Birkenhead observed on an appeal from Hong Kong to the Privy Council in Director of Buildings and Lands v. Shun Fung Ironworks Ltd [1995] 2 A.C. 111 at 125 that,

‘No allowance is to be made because the resumption or acquisition was compulsory; and land is to be valued at the price it might be expected to realise if sold by a willing seller, not an unwilling seller.  But subject to these qualifications, a claimant is entitled to be compensated fairly and fully for his loss.

Conversely and built into the concept of fair compensation, is the corollary that a claimant is not entitled to receive more than fair compensation: a person is entitled to compensation for losses fairly attributable to the taking of his land, but not to any greater amount.’

This rule is also known as the ‘principle of equivalence’ which Lord Nicholls held to be the ‘touchstone with its two facets, that all claims for compensation succeed or fail’.

56.  This is the position under common law in Hong Kong which is expressly confirmed by the Court of Final Appeal in Director of Lands v. Yin Shuen Enterprises Ltd & Another [2003] 2 HKLRD 399.

The Basic Law

57.  As from 1 July 1997, the Basic Law expressly gives recognition to this cardinal rule by the following two provisions :

‘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.

Such compensation shall correspond to the real value of the property concerned at the time and shall be freely convertible and paid without undue delay.

The ownership of enterprises and the investments from outside the Region shall be protected by law.’

58.  Although the appeal is not concerned strictly with resumption of land, the relevance of these principles in ascertaining the proper measurement of compensation is not in any way disputed by the parties.  An examination of the issues in this appeal will proceed with these provisions in mind.

Background

59.  On 2 February 1970 the applicant acquired Lot 22 (‘the lot’) which was situated by the sea in the Lantau Island.  The terms of the ‘Agreement and Conditions of Exchange’ (‘the Lease’) upon which the applicant acquired the lot, stipulated that a substantial area of the leased area was to be used for shipbuilding purposes only.  The applicant in fact used the lot as a shipyard.

60.  It is accepted by the respondent that the applicant had proprietary rights to go to the sea across the foreshore of the lot.  Under the conditions imposed by the terms of the Lease, the original foreshore of the lot was reclaimed and fenced by a seawall built by the applicant after acquiring the lot.  Apart from a jetty and steps on the seawall, the applicant also built, as required by the terms of the Lease, four slipways so that vessels may enter the land area of the lot from the sea.  The slipways were partly on land and partly submerged under the sea.  The rights of the applicant were described as marine rights in this appeal.  The lot was landlocked and access by the sea was the only means of access to the lot.

61.  On 5 May 1995 the then Governor-in-Council, pursuant to the powers conferred by the Foreshore and Sea-bed (Reclamations) Ordinance (‘the FSRO’) reclaimed property in Lantau including the foreshore and sea-bed of the lot for the purpose of building a new container port.  This was done by publishing in the gazette on that date of the authorization of the reclamation (‘the authorization’).  As a result the marine rights of the applicant were extinguished and it was entitled to claim compensation for the reclamation.  The container port project, however, was not proceeded with and was subsequently withdrawn. 

62.  In 2000 the Government made a new reclamation of the lot in order to build the Disney theme park.  On 3 April 2001 the applicant surrendered the lot to the government.  At the time of the surrender, the applicant had already lodged a claim for compensation under FSRO for the extinguishment of the marine rights.  It received $1,506,098,750 from the government for the surrender of the lot.  This sum was paid in two portions : $22,710,000 (being the open market value of the lot on 3 April 2001 without the marine rights that were extinguished on 5 May 1995) and $1,483,380,000 being expressed as an ex-gratia payment and calculated by reference to the area of the lot of 2,010,000 sq. ft. multiplied by $615 which was the basic rate for building land within Zone A, plus 20%.  The lot falls within Zone A of the ‘New Town Development Areas’ which are the areas within the New Town boundaries as shown on the gazetted outline zoning plans for new towns.  A professional fee of $8,750 was also included.

63.  In one of the correspondence referred to at the hearing of the appeal, when the applicant agreed to accept the payment it expressly made known to the government that the payment ‘will not be taken into account in or prejudice the assessment of [the applicant’s] claim under the [FSRO].  That is to say, both issues are “delinked” one from the other’.

FSRO

64.  Section 3 of FSRO provides that,

‘Where a reclamation is proposed in relation to any foreshore and sea-bed, the Director of Lands shall prepare a plan delineating and describing the proposed reclamation and the foreshore and sea-bed intended to be affected thereby.’ 

The Director of Lands (‘the Director’) is required under section 5 to publish notice of the plan in, among other things, the Gazette.  Objections may be raised by persons who have an interest, right in or over the foreshore and sea-bed under section 6.  If there is no objection or after objection has been considered by the Chief Executive-in-Council, the reclamation may be authorized (Sections 7 and 8).  The Director shall then publish the notice of authorization and invite claim for compensation under section 9.  Section 10(1) provides that upon publication of the notice of authorization :

(a)  all public and private rights in relation to the foreshore and sea-bed affected thereby shall be extinguished and cease to exist; and

(b)  no person shall have any right against the Government or any other person to compel or restrain anything authorized under section 7, 8(1)(b) or 8(1)(c).  (emphasis added)

65.  Section 10(2) expressly prohibits any action to be brought in respect of the extinguishment of the rights.

66.  The claim for compensation is provided by section 12 :

(1)  Any person who claims that his interest, right or easement in or over such foreshore and sea-bed will be injuriously affected by the reclamation may deliver to the Director a written claim stating the sum of money which he is willing to accept in full and final settlement of his claim together with such particulars as he may possess to substantiate the claim and shall furnish to the Director such accounts, documents and further particulars as the Director may request him to furnish, in support of the claim.  (emphasis added)

Reclamation and extinguishments of rights

67.  I will address an issue concerning reclamation and extinguishment of rights.

68.  Section 12(1) is the only provision for compensation.  Although the term ‘reclamation’ and not ‘extinguishment of rights’ is used, the section must be read together with the other preceding sections i.e. section 3 to section 11.  Reading them together, the ‘reclamation’ under section 12 does not mean an actual reclamation but a ‘reclamation’ that has gone through the statutory process.  This can be seen from section 12(2) which requires the claim for compensation to be lodged within a specified time commencing from the publication of notice of authorisation (section 9(2)(c)).  Hence the compensation is tied to the authorization of reclamation and not the actual reclamation.

69.  The matter can be further tested this way : if actual reclamation is required, then the present owner whose marine rights have been extinguished by the statutory process will not be able to get compensation at all.  This will be contrary to Article 105.  In this context the only permissible way to read section 12(1) is to enable the owner to receive compensation by reason of the extinguishment of its rights.  Hence I do not see a real distinction between ‘reclamation’ and ‘extinguishment of rights’ for the purpose of compensation.

Nature of the applicant’s right

70.  The applicant was granted a right of access from the lot to the sea.  This right is in addition to the rights of the public to navigate on the sea.  The marine rights of the applicant were in the nature of a proprietary right. 

71.  As the Chief Justice observed in In the Matter of an Award of Compensation made by H. E. the Governor to the owners of Kowloon Marine Lots 29, 30, 31, under Section 12 of Ordinance, No. 31 of 1909 [1912] HKLR 110 (‘the Kowloon Marine Lots case’) at page 112 the real meaning of sea access means ‘the right resulting from the position of the property on the sea front’.  At page 113, he stated,

‘they do find a practical expression in the value of the property in the eyes of the public, and this again finds practical expression in the amount of rents which people are willing to pay for the houses fronting the sea, one of the determining factors in this being the amount of profit they anticipate deriving from the existence of this sea access.’

72.  Further as Mills-Owen J observed in In re Trustees of the Estate of Tsang Hung-tim deceased and Sui Heong Yuen Godown Company [1971] HKLR 68,

‘On the face of it, this “marine right”, as it has been termed, was a valuable proprietary right─a private riparian right, interference with which would be actionable without proof of special damage (vide A.G. of Straits Settlement v. Wemyss).  In Lyon v. Fishmongers’ Company, Lord Selborne referred to such a right in the following terms :-

“Such a right of access is his only, and is his by virtue, and in respect of, his riparian property; it is wholly distinct from the public right of navigation.”.

............

Before us the Crown concedes that, immediately prior to the material time, the marine right existed and was a proprietary right incident to and enjoyed with the ownership and occupation of the godown.  The material time is, of course, the date upon which the right was extinguished by virtue of section 5 of the Ordinance.  The section reads :-

“5.  Upon publication of the authorization of an undertaking, all public and private rights of navigation or fishing and all public and private rights of access, user, possession or occupation, and all other public or private rights (if any) in, upon or over the Crown foreshore, seabed and land occupied by the undertaking shall be extinguished and cease to exist.”.

see further : Wisdom, The Laws of Rivers & Watercourses (4^th Ed, 1979) pp 59, 73-74.

The dispute

73.  The core dispute between the parties is the proper measurement of the compensation that the applicant is entitled to.  In my view, although FSRO itself does not provide any formula for the measurement, the answer will ultimately depend on the wording of FSRO and the starting point of the inquiry is the meaning of the expression ‘injurious affection’.

Injurious affection

74.  The meaning of injurious affection has a long history.  As Lord Hoffmann in his review of the older cases in Wildtree Hotels Ltd. v. Harrow LBC [2001] 2 A C 1 shows, the case law in this area developed in the 19^th century with the construction of railways which disrupted the lives and business of the population.  This resulted in conflicting judicial decisions on how the affected person should be properly compensated.  Many of these decisions cannot be reconciled and reflected a fundamental difference in approach by the judges towards public acts on the one hand and private rights on the other hand.  It is not necessary to go into such historical details and it is only necessary for this appeal to refer to the modern definition of this expression by Lord Hoffmann at pg 7,

‘ The term “injuriously affected’ connotes “injuria”, that is to say, damage which would have been wrongful but for the protection afforded by statutory powers.......  In practice, this means that a claimant has to show that but for the statute he would have had an action for damages for public or private nuisance.....  To support an action for damages, the plaintiff has to prove that he suffered particular damage greater than that suffered by members of the public in general.’

The principle is said to be based on the ‘McCarthy Rules’ propounded in the case of The Chairman etc of the Metropolitan Board of Works v. Owen McCarthy (1874) LR 7 HL 243.

The Respondent’s case on measurement

75.  It is the respondent’s case that the measurement of damage for injurious affection is based on tort.  In practical terms it means that all relevant matters that had occurred after the loss and up to the time of the assessment should be taken into account.  Mr. Barnes Q.C. who appeared with Mr. Valentine Yim, as counsel for the respondent, referred to the Kowloon Marine Lot case which deals with the Harbour of Refuge Ordinance that authorized the building of a harbour of refuge in the Yaumatei area.   This affected the rights of owners of properties with right of access to the sea.  Section 12 of that ordinance gave compensation to these owners in respect of the ‘injurious affection of their property by reason of its access to the sea being interfered with by the work’.  The Chief Justice at pg 123 held that the principle of compensation is based on same principle as that on which damages would be awarded in an action for tort for the same act if unauthorized.

76.  More recently in Clift & Another v. Welsh Office [1999] 1 WLR 796 Sir Christopher Slade of the English Court of Appeal, at page 801 stated that amount of compensation must be ascertainable in accordance with the general principles which apply to damages in tort.  See also Moto Hospitality Ltd v. Secretary of State for Transport [2008] 2 All ER 718 where the claimant claimed that its motorway service station near a road junction was injuriously affected when the authority carried out alteration to the junction resulting in a longer and less direct route to the station.  The English Court of Appeal held that the loss arising from the new road system was too remote because it arose from the junction improvements as a whole rather than from the execution of parts of the works that would have given rise to an actionable wrong in the absence of the special Act.

77.  In Encyclopaedia of Compulsory Purchase and Compensation (‘the Encyclopaedia’) Vol 1, Para B─0482 (the citation referred to by Mr. Barnes was Release Bulletin No. 89 para 2─1574 of the Encyclopaedia) it is stated that,

‘The general rules applicable to damages in tort apply to compensation under this section.’

78.  The section referred to in this extract is section 10 of the Compulsory Purchase Act 1965 of the United Kingdom which states that

“10.─(1) If any person claims compensation in respect of any land, or any interest in land, which has been taken for or injuriously affected by the execution of the works, and for which the acquiring authority have not made satisfaction under the provisions of this Act, or of the special Act, any dispute arising in relation to the compensation shall be referred to and determined by the Lands Tribunal.”   (emphasis added)

79.  Although this section refers to land or interest in land ‘which has been taken for’, the editors of the Encyclopaedia at page B─0306 stated that the importance of the section, for modern purposes, has been solely in regard to injurious affection of land not taken.

Examples of injurious affection

80.  The Encyclopaedia at paragraph B─0482 identified some of the specific instances of injurious affection where compensation is payable  :

1.  Rights of access to and from public highway.  Such a right is a legal right, interference with which gives a right to compensation if the value of the premises is thereby diminished.

2.  Rights of riparian owners.  The right of access to and the use of a river and the sea is a right incident to the property of riparian owners or seafront owners and interference with such an owner’s access to the river or sea entitles the owner to compensation.

3.  Easements and profits à prendre.

4.  Breach of covenant by acquiring authority.

The four categories

81.  Mr. Barnes identifies the four different situations relating to compulsory acquisition and its measurement of compensation by reference to Hong Kong and United Kingdom legislations

	Category		Basiss		H.K.		England
1.	Land resumed		Open Market value at date of resumption		s.10(2)(a) and s.12(d) of Lands Resumption Ordinance (Cap 124) (‘LRO’)		Land Compensation Act 1961 s.5, and Rule 2
2.	Disturbance		Damages		s.10(2)(d) of LRO		Land Compensation Act 1961 s.5 and Rule 6
3.	Retained land		Damage due to severance		s.10(2)(c) of LRO		Compulsory Purchase Act 1965 s.7
4.	No land resumed, ancillary rights removed or reduced		Injurious affection: damage to Land		No similar provisions. In H.K. s.12(1) of FSRO		Compulsory Purchase Act 1965 s.10

82.  Mr. Barnes submitted that as the marine rights were appurtenant or ancillary to the lot, what was injuriously affected in this case was the lot itself.

The applicant’s case

83.  For the applicant, Mr. Chang S.C. who appeared together with Mr. Johannes Chan S.C. and Mr. Jeremy Chan, submitted that it was the marine rights that were injuriously affected because many of such rights may not be purely appurtenant or incidental to the land but also may be independent of the land itself such as fishing rights by fish farms.  Mr. Chang supported his argument by reference to, first, the wording in section 12, namely, the person’s claim that his interest, right or easement in or over such foreshore and sea-bed will be injuriously affected by the reclamation and second to the wording of two ordinances which were repealed and replaced by FSRO namely, the Public Reclamations and Works Ordinance (‘PRWO’) (Cap. 113, 1984 Ed) and the Foreshores and Sea-bed Ordinance  (‘FSO’) (Cap. 127, 1984 Ed).

The two replaced ordinances

84.  The two old ordinances dealt with the use and reclamation of sea-bed.  As summarized in the speech of the Secretary for Lands and Works when he introduced the bill of the current FSRO in 1985, PRWO was normally used when the works were to be carried out by the government for a public purpose while FSO was used when the sea-bed was to be leased to a private individual to carry out such works for private purposes.

85.  In deference to the research by counsel, I will briefly set out the operations of these two ordinances.

PRWO

86.  PRWO began life as the Public Reclamations Validation and Clauses Ordinance (Ordinance No. 40 of 1936).  Part I validated certain undertakings which extinguished rights of navigation, fishing, access, user, possession or occupation in, upon or over Crown foreshore, sea-bed.  Section 2(2) provided that,

‘No claim shall at any time be made, or action brought or continued, in respect of the extinguishment under this section, in whole or in part, of any public or private right, or the injurious affection of any land or other property resulting therefrom’.  (emphasis added)

Part II authorized future reclamation over foreshore and sea-bed.  Section 7(1) provided that,

‘No action shall at any time be brought or continued in respect of the extinguishment under section 6, in whole or in part, of any public or private right, or the injurious affection of any land or other property resulting therefrom’.  (emphasis added)

87.  This Ordinance then became the PRWO 1956. It repealed Part II of the previous Ordinance and set out the procedure for reclamation.  Upon publication of the authorization, Section 5 provided that

‘all public and private rights of navigation or fishing and all public and private rights of access, user, possession or occupation, and all other public or private rights (if any) in, upon or over the Crown foreshore, sea-bed and land occupied by the undertaking shall be extinguished and cease to exist’.  (emphasis added)

Compensation was provided by section 6,

‘6.

(1)  No action shall be brought or continued in respect of the extinguishment under section 5, in whole or in part of any public or private rights.

(2)  Any person who submitted a claim of private right in accordance with the notification under section 2 may within two months of the notification under section 4 of the authorization of the undertaking submit a claim for compensation in respect of the extinguishment of such private right.’  (emphasis added)

FSO

88.  The FSO (Ordinance No. 21 of 1901) validated lease of foreshore and sea-bed and authorized the granting of such lease in the future.

89.  In the 1950 version, section 3(3) provided that,

‘(3)  Any person who deems that his property may be injuriously affected by any such Crown lease by reason of the access of such property to the sea being interfered with, and who claims compensation in respect thereof, shall deliver to the Director of Public Works particulars in writing of such injurious affecting and of his claim in respect thereof’.  (emphasis added)

Mr. Chang’s four propositions

90.  Mr. Chang further submitted four propositions regarding the ambit of FSRO, namely,

1.  Under the FSRO, a right or interest “in or over” the foreshore or sea-bed (“a marine right”) includes a leasehold interest of a portion of foreshore or sea-bed, whether or not it forms part of a single Lot comprising land that is in part below and in part above the high water mark.

2.  A marine right includes profits-a-a prendre as well as easements and rights of navigation and other public or private rights of access, user, possession or occupation in upon and over the foreshore and sea-bed.  It may but need not be a right which is appurtenant or ancillary to an interest in land above the high water mark.

3.  “Injurious affection” within the meaning of the FSRO includes extinguishment and other injury to a marine right as well as damage to a defined lot of land (if any) with which a marine right is held.  There is thus “injurious affection” to the marine right in each of the following 6 principal scenarios :-

(1)  Where the marine right extinguished consists of or includes a leasehold interest in a portion of the foreshore and sea-bed affected by the gazetted reclamation;

(2)  Where what is extinguished or also extinguished is some other private proprietary right or interest or easement in or over the foreshore and sea-bed, whether existing independently of or is held with or otherwise connected with the ownership of a defined Lot of land and/or the purposes for which the land was granted;

(3)  Where there is diminution in the value of the claimant’s land as a result of the extinguishment of the marine right, whether characterized as proprietary in all its components or not;

(4)  Where damage to the claimant’s retained land is caused by reason of actual or anticipated reclamation works wholly or partly in an area in or over which the marine right had subsisted prior to its extinguishment.

(5)  Where, in the case of partial extinguishment, what was extinguished diminishes the value of the retained marine right or of any defined land with which the marine right is held or is otherwise connected; or

(6)  Where, by reason of actual or anticipated reclamation works in one area of the foreshore and sea-bed, injury is caused to the claimant’s marine right in an adjoining or contiguous area or to an interest in land with which the marine right is held or otherwise connected.

4.  Where the claim by the owner of the marine right is for compensation for the permanent extinguishment or taking away of his marine right in Scenarios 1 and 2, the basic principle of compensation is to assess the value of the marine right extinguished upon a notional purchase on the date of extinguishment (the so-called deemed contract approach, as on a taking of property). This is so regardless of whether there is, subject to the principle against double recovery, an additional claim for injurious affection under Scenario 3 or indeed under any of the other scenarios.

91.  Mr. Chang recognized that his propositions may cover issues not relevant to the dispute in this case.

My view

92.  The propositions of Mr. Chang provide a useful summary of the situations covered by FSRO but it is not necessary for me to go into this.  As I have said earlier, the answer to the proper measurement of compensation is to be ascertained by reference to the terms of the FSRO itself.  While the judicial interpretation of injurious affection may be a useful aid it does not provide a complete answer to how compensation should be calculated under the FSRO.  Neither is the debate as to whether it was the lot or whether it was the marine rights that were injuriously affected.  In my view, in the context of FSRO, it is not helpful to say that the approach to compensation is based on the principles on tort because it does not answer the fundamental question of how the compensation should be measured in the first place.  This is demonstrated by the judgment itself when many of the contentious issues were not resolved and await further adjudication.  If the purpose of the preliminary issue hearing is to address the issues which had set the parties apart so that the assessment will proceed more or less on a mathematical basis then such intention is not achieved in the present case.  I would respectfully urge the Courts not to adopt the terminology in the future.

93.  Ultimately I think the key to the solution is to look at the end result of the authorization.  The one and only result and this point needs to be emphasized is that the rights of the affected claimant are under section 10 ‘extinguished and cease to exist’.  In other words there is a total and permanent deprivation of such proprietary rights.  This distinguishes the ‘injurious affection’ in the FSRO from many of the English cases where the ‘injurious affection’ did not involve an extinguishment or permanent deprivation of rights.  In the context of the FSRO there is a diminution in value of the property (as agreed by the parties herein) as a result of the extinguishment of the marine rights.  Such a loss can be quantified by the ‘notional purchase’ approach advanced by the applicant which capitalize the loss.  In my view this is the proper means to quantify the compensation.  Under this approach the diminution in value of the lot is the difference between the open market value of the lot with and without the marine rights.

94.  On first principles the relevant time to crystalise the loss is at the time of the loss and in the context of this case, this happened on 5 May 1995 when the marine rights were extinguished by section 10(1) of FSRO.  This is indeed the most natural and relevant time and accords with cases decided in Hong Kong on extinguishment of marine rights.  Further the provision of interest under section 14(1)(b) of FSRO which is payable from ‘the date of publication of the notice of authorization in the Gazette under section 9(1)(b)’ reinforces the view that the relevant date for assessment is 5 May 1995 when the marine rights were extinguished.

The supporting cases

95.  In the Kowloon Marine Lots case, although the Chief Justice said that the award of compensation was based on tort, he also recognized that the starting point for the measurement of compensation was the date when the Harbour of Refuge Ordinance (No. 31 of 1909) was passed which sanctioned the creation of a Harbour of Refuge.  At page 113, the Chief Justice said,

‘This is practically admitted by the learned Attorney General, who defined the measure of damages, that is, the amount of compensation payable, to be, the difference between the rent accruing at the time of the passing of the Ordinance and after the completion of the proposed reclamation, as brought about by the access to the sea being interfered with, and by nothing else, the latter being of course an estimate.

With this definition, I entirely agree, adding only that it is this difference capitalized;...’

96.  In Li Ling Shi and others v. The Government of Hong Kong [1963] HKLR 595, the government invoked PRWO 1956 to reclaim the foreshore and sea-bed adjoining the claimant’s land.  The government accepted that the measurement of compensation was the difference between what a willing purchaser would pay for the land with the rights which were to be extinguished and what he would pay for the land without rights.

97.  Judge Huggins (as he then was), the President of the Lands Tribunal, further accepted that the date to be used for assessment was the date upon which the notification of the authorization for reclamation was published in the gazette.  Although he added the following observation that,

‘But then it is submitted (and again I think this is clearly right) that one must not entirely close one’s eyes to the future.  That is to say, one does not have to value the right on the basis that the status quo would continue indefinitely.  We do not live in a static environment and any valuer must have regard to foreseeable, and even to likely, developments in the future.  Changes in the law reasonably foreseeable at the material date should also properly be considered’,

I do not regard this qualification, in the context of the FSRO, mandates a departure from the approach I have stated.

98.  In re Trustees of the Estate of Tsang Hung-tim deceased, Mills-Owens J held that the material time for computation of compensation was the date upon which the marine right was extinguished by the publication of the authorization under section 5 of the PRWO.

99.  In my view the fact that concessions were made in these cases on the measurement of compensation does not distract the validity of this approach.

100.  Lord Hoffmann in Wildtree at page 16 did not exclude the method of considering the capital value of the claimant’s land at a given date and deducting that sum from an estate of what its value would have been if it had not been injuriously affected.  In fact he specifically stated that,

‘Obviously if one is considering damage of which the effects will continue for some time into the future, such as the permanent deprivation of light or a right of way, it is sensible to take a valuation date and capitalise the value of the future loss at that date.’

No actual sale is required

101.  Lam J was of the view that it is only when it is reasonably foreseeable that the extinguishment of the marine rights would cause the applicant to sell its land and the applicant had actually sold its land that the compensation could properly be assessed by the ‘notional purchase’ approach.

102.  The method adopted by the applicant is a means to ascertain the diminished value of the lot as a result of the extinguishment of the marine rights.  I do not consider that an actual sale is required because, as Mr. Chang submitted, this would lead to an absurd consequence that the applicant would be forced to sell its land in order to establish its loss.

The case of Bwllfa

103.  Mr. Barnes relied on the case of The Bwllfa and Merthyr Dare Steam Collieries (1891), Limited v. The Pontypridd Waterworks Company [1903] A.C. 426 where owners of coal mines were notified by the authority on 15 October 1898 not to mine the coal of a certain area and that the authority was willing to pay compensation.  The coal owners’ case was that the coal in the protected area would have been reached about June 1900 and would have been worked out in about two years from that date.  The proceedings began in June 1900 and concluded on 1 February 1901.  The price of coal increased subsequent to 15 October 1898.

104.  The arbitrator took into account the evidence of increase in value and rejected the authority’s contention that the award should be made solely be reference to facts known on 15 October 1898.

105.  The House of Lords upheld the arbitrator’s view.  Lord Macnaghten at pg 431 held that,

‘Why should he listen to conjecture on a matter which has become an accom­plished fact? Why should he guess when he can calculate?  With the light before him, why should he shut his eyes and grope in the dark?  The mine owner prevented from working his minerals is to be fully compensated─the Act says so.  That means that so far as money can compensate him he is to be placed in the position in which he would have been if he had been free to go on working.  Here it has been proved to demonstration that if he had not been interfered with he would have made between 5000Į. and 6000Į.  I cannot understand upon what principle it is maintained that he should be content with half, and that that half is full compensation.’

106.  As can be seen from the judgment of that case, the focus of the argument was that the authority contended that the notice not to work was equivalent, or at least analogous, to a contract to purchase and the value must be ascertained at the date of the notice.  This approach was rejected.  Lord Halsbury LC approved the statement of Phillimore J, who earlier had also upheld the award, that,

‘the true inquiry here is not what is the value of the coalfield or of the coal, but what would the colliery company, if they had not been prohibited, have made out of the coal during the time it would have taken them to get it.’

107.  I do not regard Bwllfa to be an authority which requires this Court to exclude the ‘notional purchase’ approach.  In this case both parties agree that there was a diminution in the value of the lot without the marine rights.  This diminution is to be ascertained by reference to the before and after value as a result of the authorization.  The respondent is certainly not advancing another basis of valuation such as the applicant’s loss of trade or profit arising from the loss of the marine rights.  Hence the focus of the argument was entirely different in Bwllfa.  In any event in the present case the proper measurement of compensation is to be decided by the statutory framework of FSRO and not otherwise.

Slipways

108.  At the hearing both parties advanced arguments that the marine rights that were extinguished can be considered under two aspects.  First, the marine rights other than the slipways.  Second, the slipways themselves.

109.  The slipways, in their physical state, formed part of the lot.  The lot remained intact until it was eventually surrendered to the government in 2001.

110.  In my view, at the end of the day, it is not necessary to draw such a distinction.  If the marine rights were extinguished, such rights including those of the slipway were also extinguished. 

The true measurement

111.  A very useful statement on the position can be found in the case of Attorney General v. Blake (Jonathan Cape Ltd Third Party) [2001] 1 AC 268.  Lord Nicholls at pg 278 stated that,

‘So I turn to established, basic principles.  I shall first set the scene by noting how the court approaches the question of financial recompense for interference with rights of property.  As with breaches of contract, so with tort, the general principle regarding assessment of damages is that they are compensatory for loss or injury.  The general rule is that, in the oft quoted words of Lord Blackburn, the measure of damages is to be, as far as possible, that amount of money which will put the injured party in the same position he would have been in had he not sustained the wrong: Livingstone v Rawyards Coal Co (1880) 5 App Cas 25, 39.  Damages are measured by the plaintiff’s loss, not the defendant’s gain.  But the common law, pragmatic as ever, has long recognised that there are many commonplace situations where a strict application of this principle would not do justice between the parties.  Then compensation for the wrong done to the plaintiff is measured by a different yardstick.  A trespasser who enters another’s land may cause the landowner no financial loss.  In such a case damages are measured by the benefit received by the trespasser, namely, by his use of the land.  The same principle is applied where the wrong consists of use of another’s land for depositing waste, or by using a path across the land or using passages in an underground mine.  In this type of case the damages recoverable will be, in short, the price a reasonable person would pay for the right of user: see Whitwham v Westminster Brymbo Coal and Coke Co [1896] 2 Ch 538, and the “wayleave” cases such as Martin v Porter (1839) 5 M & W 351 and Jegon v Vivian (1871) LR 6 Ch App 742.  A more recent example was the non-removal of a floating dock, in Penarth Dock Engineering Co Ltd v Pounds [1963] 1 Lloyd’s Rep 359.’

112.  In this case we are concerned with the first situation mentioned by Lord Nicholls and not with the alternative situation.

Subsequent Events

113.  Mr. Barnes does not dispute that the measurement of compensation is by reference to the value of the lot with and without the marine rights.  He does not advocate a different method.

114.  However what sets the parties apart is whether events subsequent to the authorization are required to be taken into account.  Mr. Barnes argued that in the assessment, all events relevant to the amount of the loss which are known to the Lands Tribunal should be taken into account.  In this regard, he submitted that the relevant events include

1)  The enhanced value of the lot by virtue of the 1995 container port scheme and the 2000 Disney theme park scheme.  This point seemed to have been abandoned by Mr. Barnes when he was asked by the Court to state precisely what are the subsequent events to be considered.  For completeness, I will address this matter as well.

2)  The actual use by the applicant of the marine rights from 1995 to 2000 despite the authorization of reclamation.

3)  The valuation in 2001 of the lot without the marine rights at $22,710,000 and the payment of ex-gratia payment of $1,483,380,000.

Overview on subsequent events

115.  In my view, if the compensation is to be ascertained at the time of loss, namely, 5 May 1995, then on principle subsequent events are not relevant and should not be taken into account.

116.  On any view any reliance on the enhanced value of the land by reason of the reclamation is not permissible by law.  The actual use by the applicant of the marine rights after their legal extinguishment again does not affect the proper measurement for its loss arising from the authorization.  At most, it gives the respondent a claim for damages, if any, for breach of the terms of the Lease as ‘varied’ by the authorization.  Further the payment received by the applicant for surrendering the lot does not by itself affect the validity of the notional purchase approach which is to be ascertained at the time of the loss. 

Enhanced value of the lot

117.  I will address the issue of enhanced value first.  In my view any attempt to take into account the enhanced value of the lot by reason of the statutory schemes, namely, the container port and Disney theme park schemes will run into conflict with the principle affirmed in Pointe Gourde Quarrying and Transport Company Ltd v. Sub-intendent of Crown Lands [1947] AC 565 (an appeal from the Supreme Court of Trinidad and Tobago to the Privy Council) that compensation for compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the acquisition.  This is generally known as the Pointe Gourde principle.  In my view this principle is consistent with the cardinal principle of equivalence in that a person should receive no more and no less for giving up his land on a compulsory basis.

118.  Mr. Barnes, however, argued this principle does not apply to injurious affection cases.  I disagree because, as I said earlier, this is a case where the applicant has been permanently deprived of a proprietary right. 

119.  If the applicant’s marine rights are permanently deprived why should his compensation be reduced because the value of his land may be enhanced by the scheme which caused the permanent deprivation of his rights in this first place?  In terms of compensation it is like giving something with the left hand and then taking it back with the right hand.

120.  In re Trustees of the Estate of Tsang Hung-tim deceased, Mills-Owens J rejected the contention by the government that betterment should be taken into account in order to set off the deprivation, citing Senior v. Metropolitan Railway Company (1863) 2 H & C 258 and Eagle v. Charing Cross Railway Company (1867) LR 2 CP 638.

121.  Without going into the technical meaning of ‘betterment’, in the present context it is properly understood to mean that the value of the land is enhanced as a result of the statutory scheme.  Express statutory provision is required before betterment can be taken into account.  There is none under FSRO. 

122.  In Eagle, a public scheme injuriously affected the plaintiff’s entitlement to light.  It was argued that notwithstanding such diminution of light, the saleable value of the plaintiff’s interest in the premises was not diminished by reason of the value of property in the neighbourhood generally having become greatly enhanced by reason of the public scheme.  This was roundly rejected by the Court.  Bovill CJ at pg 648 held that,

‘The amount of compensation the plaintiff is entitled to for the diminished light to his premises is not to be estimated with reference to what they will sell for.’

123.  In Senior, the plaintiff’s business suffered because of the temporary blockage of the highway due to the construction of a railway.  It was argued by the railway company that it should be entitled to set off against the claim for damages in respect of the temporary obstruction, the permanent increased value of the premises as a result of the construction of the railway.  Contrary to Mr. Barnes’s submission that Bramwell B did not deal with this point on the ground that it was not raised earlier, Bramwell B actually stated that such a set off ought not to be allowed, since it would lead to absurd consequences.  He gave the example that,

‘Again, suppose a man has two neighbouring houses, the one benefited, the other injured by the Company’s works, is he not to get compensation for the one that is injured because the other is benefited?

124.  It was only after he had decided on this point that he added that,

‘Further, I do not think any question of benefit to the premises is now open.  It might have been a matter for the consideration of the jury in assessing the compensation, but not having been brought before them there is an end of it.’

125.  Wilde B also decided against this argument :

‘I doubt whether, in a case of compensation for injury to land, a Company can claim a set-off by reason of the land being subsequently benefited.  It is obvious that where a railway passes through a neighbourhood, wherever there is a station the adjacent premises may be greatly benefited.  But if any individual happens to have a portion of his land taken he is entitled to be paid the value of that land: if his land is injuriously affected, he is entitled to compensation for the injury.  If the Company were entitled to set off the benefit derived from proximity to the station, one individual would be made to pay something for that, whereas his neighbour would pay nothing.  It is the first time such an idea has been brought forward, and I see no reason for giving countenance to it.’

126.  Both of these authorities remain to be good authorities as can be seen from the Encyclopaedia at Para B─0482,

‘In the absence of any special provisions it appears that betterment arising from the exercise of the statutory powers cannot be set off against compensation for injurious affection: Senior v. Metropolitan Ry (1863) 2 H. & C. 258; Eagle v. Charing Cross Ry (1867) L.R. 2 C.P. 638.’

127.  Halsbury’s Laws of England Vol 8(1) (Compulsory Acquisition of Land) 4^th Ed, 2003 Reissue at para 360 :

‘and in assessing the value after injury there is no right to take into account a general increase in the value of property by reason of the works or their imminence.’

The two cases were cited in support of this view.

Continuous use of marine rights

128.  In truth what the respondent seeks to do in respect of the continuous use of the marine rights by the applicant between 1995 and 2000 is to raise a defence and counterclaim to extinguish or set off in whole or in part the compensation that may be payable to the applicant.  This has nothing to do with the methodology of quantifying the compensation payable for injurious affection.  The respondent’s approach raises an issue on jurisdiction, namely, whether it is entitled to raise this defence and counterclaim in the Lands Tribunal under the provisions for compensation.

129.  The issue of jurisdiction has not been addressed either by Lam J or in this Court by counsel.  On this basis I will leave open whether this matter can be raised at the Lands Tribunal.  But I wish to emphasize that this issue has nothing to do with the method of quantification and the Lands Tribunal has to decide whether it has jurisdiction to consider this issue, before it proceeds to consider the merits of this defence and counterclaim.

Payment for surrender

130.  In my view the payment received by the applicant, in particular, the ex-gratia payment of $1,483,380,000, although featured so prominently in this case is in fact a red herring.  As the applicant’s claim is based on the 1995 valuation, the payment by the respondent of $1,506,098,750 in 2001 upon the surrender of the lot by the applicant, forms a separate and discrete issue as to whether the applicant had agreed that it would treat this sum as the compensation in satisfaction of its claim for the extinguishment of the marine rights.  This can only be ascertained by considering the evidence relating to this payment and the relevant policies on payment for surrender of land in the New Territories and the terms of the ex-gratia payment.

131.  All that this Court is aware of at this stage is that the applicant had stated that the payment was not linked to its claim for compensation and that the respondent in a letter dated 20 December 2000 stated that he was prepared to accept in assessing compensation under FSRO or Lands Resumption Ordinance (Cap. 124) or the amount of any consideration for the surrender of the lot, the value of any marine rights amounts to 90% of the total value of the lot, and the value of the lot without such rights amounting to the remaining 10% of such value.

132.  Again the respondent’s stand is in the nature of a defence and counterclaim to the applicant’s claim for compensation.  It does not answer the fundamental question of how the compensation should be assessed in the first place.  But since whether the Lands Tribunal has jurisdiction to consider this issue has not been addressed before us, I will also leave open the issue for the Lands Tribunal to decide.

Conclusion

133.  In my view, Lam J’s answer to the first preliminary question that ‘the primary approach for assessing compensation under the FSRO should be the notional tort approach’ does not provide an answer to the inquiry on compensation.  I would say respectfully that he was wrong in rejecting the ‘notional purchase’ approach. 

134.  In my view the answer to the first preliminary issue is that the compensation payable to the applicant for extinguishment of the marine rights by reason of the authorization is to be measured by the difference in value of the Lot with and without such rights as of 5 May 1995. 

135.  The answer to the second preliminary issue is that the issues regarding the enhanced value of the lot arising from the statutory schemes, the actual continuous use of the marine rights between 1995 and 2000 and the payment on surrender are not relevant and will not be taken into account for the purpose of assessing the compensation for injurious affection.  Whether the respondent can then rely on the continuous use of the marine rights between 1995 and 2000 and payment on surrender as a defence or counterclaim in order to set off or extinguish the applicant’s claim for compensation will depend on whether the Lands Tribunal has jurisdiction to consider these two issues.  If it has, then these two matters can be considered as part of the applicant’s claim for compensation.  If not, then they have to be ignored.  I do not need to address the third and fourth preliminary issues. 

136.  I will accordingly allow the appeal and substitute the orders made by Lam J with those stated above.

Hon Yuen JA:

137.  The facts have been set out in the judgments of Rogers V-P and Cheung JA.  My thoughts appear below. 

138.  It seems to me that stripped to its bare bones, this appeal involves the following issues:

(1)  What were the rights which were affected by the 1995 Authorization?

(2)  How have those rights been affected?

(3)  What detriment has been suffered?

(4)  What is the measure of compensation for the detriment suffered?

In considering this issue, the following sub-issues arise:

(4.1)  What would have been the cause of action if the extinguishment of the right to access the sea had not been authorized by statute?

(4.2)  What would be the measure of damages under that cause of action?

(4.3)  In quantifying those damages, can events between the accrual of that cause of action and the date of assessment be taken into account?

(4.4)  Does the FSRO impose a regime different to the above in the assessment of compensation?

(5)    Can subsequent events be taken into account:

(5.1)   de facto access to the sea for 6 years and 1 month, and

(5.2)   the Surrender in 2001 at a price which included an ex gratia component for Zone A building land.  

As Mr Barnes QC leading counsel for the Government has withdrawn his submissions on the issue of betterment, I will say no more about it.

(1) What were the rights which were affected by the 1995 Authorization?

139.  Before the 1995 Authorization, the Applicant had first, the right to access the sea from Lot 22 (and vice versa), and secondly, a leasehold interest in the slipways which it was required to construct under the Conditions of Exchange. 

Right to access the sea

140.  It is not disputed that the right to access the sea was not merely a public right but a private right enjoyed by reason of Lot 22's frontage to the sea: A-G of the Straits Settlement v Wemyss (1888) 13 AC 192, 196.  (Clause 31 of the Special Conditions specified certain restrictions but these are not material to the appeal).  It is also clear that the right to access the sea (which has been referred to as a “marine right”) is a valuable proprietary right (In re Trustees of Tsang Hung-tim deceased and Sui Heong Yuen Godown Company [1971] HKLR 68).

141.  However, because it is only a right of access (to be contrasted with say, fishing rights), it is only a right which is incident or appurtenant to Lot 22 and enjoyed by the land.  Put another way, there is no intrinsic value in this particular marine right (unlike the value of the catch of fish) - its value lies only in its usefulness to the land.  Compensation should therefore be payable for the damage suffered by Lot 22 for the remaining term of the lease (and statutory extension).  This is important when we come to consider the Applicant’s “notional contract/purchase” argument and Government’s “notional tort” argument. 

The slipways

142.  As for the slipways, I think it may be arguable that the slipways (or part  thereof) may be regarded as land covered by water and to that extent the 1995 Authorization affecting the seabed may have effected a “taking” of those portions of land.  However even if there was a “taking”, it was minimal, both quantitatively and qualitatively.

143.  Quantitatively, those parts of the slipways constituted less than 1% of the Lot.  Qualitatively, as the only purpose of a slipway is to launch vessels into the sea, the use of those portions of land was in real terms ancillary to the right to access the sea.  Once the right to access the sea was lost, the slipways became useless.  So even if there may have been a taking of those portions of land and consequently the range of compensation may be different, in real terms I do not think it would make a difference in this case. 

144.  Although the Tribunal has considered compensation on the basis of damage for Lot 22's loss of access to the sea, it has not considered the issue whether compensation should be payable on the basis of acquisition (as in resumption or purchase) for loss of the slipways and possibly other ramifications.  No issue therefore arises on appeal.

145.  Having put the slipways to one side, I turn to the real right which was affected by the 1995 Authorization which was the right to access the sea which had been enjoyed by Lot 22. 

(2) How has the right to access the sea been affected?

146.  On 5 May 1995 when GN1574 was published, the right to access the sea from Lot 22 was extinguished.  In my view, whether physical works for reclamation were carried out or not, and if so, when, does not affect the fact that in law the Applicant’s  right to access the sea was extinguished at that date when GN1574 was published.  Under the FSRO, compensation is payable for the extinguishment of rights – if it results in damage suffered by a claimant.  Normally if one has rights, the extinguishment of those rights would lead to damage, but it does not necessarily follow.  So, for instance, if a person has fishing rights over an area, but no fish has ever appeared (or will appear) in that area, then although his rights are extinguished when the Notice of Authorization is published, there is no damage for which he can be compensated.  Whilst s.12 of the FSRO refers to a person’s “claim that his interest, right or easement in or over such foreshore and sea-bed will be injuriously affected by the reclamation”, that does not mean in my view that physical reclamation has to take place before compensation can be awarded on a claim.  In my view the word “reclamation” in s.12 does not mean the physical works, but the reclamation project (the term “proposed reclamation” used in s.7 and s.8 being no longer applicable after the proposal has been authorized).  In other words, what is compensatable is the damage a claimant suffers as a result of his rights having been extinguished for a reclamation which has received authorization.

147.  Coming back to the appeal in hand, it has been said that notwithstanding the legal effect of GN1574, there was de facto access to the sea until 2001.  In Lam J’s judgment he held that it was the Applicant’s lessee Cheoy Lee Shipyards Ltd who derived access (paragraph 26).  The parties have not advanced any arguments on how this affects the Applicant.  In any event as there was no arrangement with Government validating such access, its exercise was precarious.  As a matter of law the de facto use by the shipyard company did not give back to the Applicant the right to access the sea.  (I will discuss later in section 5.1 the effect of the de facto use in the assessment of compensation). 

(3) What detriment has been suffered?

148.  When the 1995 Authorization extinguished the right of access to the sea, that effected an interference with the enjoyment of Lot 22 and the Applicant was entitled to compensation under the FSRO (as claimants in the same position as the Applicant were under the clearer provisions of the FSRO’s precursor the Foreshores and Sea Bed Ordinance 1950, s.3).  I do not understand Mr Barnes to dispute that the Applicant would be entitled to compensation if any detriment to the enjoyment of Lot 22 is proven.

149.  Coming then to the nature of the detriment in the present case, the interference with the enjoyment of Lot 22 was permanent as the access to the sea was not going to be restored.  This may be contrasted with a temporary interference such as would occur in cases where temporary (albeit lengthy) roadworks block access to premises. 

150.  It is also clear, and I think it is important to note, that (apart from the minimal impact of the slipways) in substance there was no taking of the land itself and the detriment was simply a non-physical interference with its enjoyment. 

(4) What is the measure of compensation for the detriment suffered?

(4.1) What would have been the cause of action if the extinguishment of the right to access the sea had not been authorized by statute?

151.  If the obstruction of access to the sea had not been authorized by statute, it is clear in my view that the Applicant would have had a cause of action in the tort of nuisance for permanent, non-physical interference with the enjoyment of land.

152.  As for a claim for derogation from grant, it is well-established that Government’s actions in its capacity as a public authority are different from those in its private capacity as a landlord (Hang Wah Chong Investment Ltd v Attorney General [1981] HKLR 336, P.C., Director of Lands v Yin Shuen Enterprises Ltd and another [2003] 2  HKLRD 399, §9).  

(4.2) What would be the measure of damages under that cause of action?

153.  Where a nuisance is permanent but does not entail physical damage to land, the diminution in the value of the land is regarded as an acceptable measure of damages: see McGregor on Damages 17^th ed. (§34-015) citing as authority Snell & Prideaux Ltd v Dutton Mirrors [1995] 1 EGLR 259, C.A. 

154.  In that case the defendants erected a building on their land which obstructed a right of way enjoyed by the claimants, narrowing it so that it was no longer accessible by vehicles.  The claimants failed to obtain a mandatory injunction to compel the defendants to demolish the building.  The Court of Appeal awarded them damages for the partial but permanent obstruction of their right of way.  The measure of damages was the difference between the value of the property with the full right of way and its value with the limited right.  Although it does not appear from the report that the claim for damages was in nuisance, it seems that that has been assumed in subsequent cases (e.g. Galun v Wright-Bevans , unrep. 2 May 2002, Kirkham J). 

155.  Subsequently in Hunter v Canary Wharf Ltd [1997] AC 655, 724 G-H, Lord Hope made it clear that where plaintiffs have suffered a nuisance by way of interference with the quiet enjoyment of their land, “diminution in the value of the plaintiffs’ interest, whether as owner or occupier, because the capital or letting value of the land has been affected, is [a] relevant head of damages”.

156.  Accordingly, had the extinguishment of the Applicant’s right of access to the sea not been authorized by statute, the diminution in the value of Lot 22 may be a valid head of damage, although it is not the only head (Eagle v The Charing Cross Railway Company (1867) LR2 CP 638).

157.  However in my view one should not allow the concept of diminution in value of land as a measure of damages in nuisance to be confused with the concept of a purchase of land.  The former is a means of compensating for an ongoing detriment to land, the latter is a finite, one-time event.

(4.3) In quantifying those damages, can events between the accrual of that

  cause of action and the date of assessment be taken into account?

158.  In quantifying damages in personal injuries cases, there is now “universal acceptance” of the “sensible and realistic rule” that events between the accrual of the cause of action and the date of assessment should be considered (McGregor on Damages para. 35-022). 

159.  Where a subsequent event increases the loss, the court has to consider whether the aggravation in damage should or should not be borne by the tortfeasor, depending on whether the aggravation of the injury was connected with the tort. 

160.  However all ameliorations in the damage in whatever form are taken into account in the assessment (McGregor, para. 35-030). 

161.  There is no reason why that principle should not apply to the assessment of damages for nuisance for interference with the enjoyment of land.  Take the case of temporary works expected to last 3 years which close an access road to a hotel, thereby interfering with the enjoyment of the land on which the hotel stands.  Obviously the hotel would suffer a loss of profitability which if it affects the value of the interest in the land is compensatable (Wildtree Hotels Ltd and others v Harrow LBC [2001] 2 AC 1, 18 ).  During Year 1 however, the hotel suffers a fire (unconnected with the works) which requires it to be closed for the remaining 2 years.  In Year 2, the hotel owner claims damages for nuisance as a result of the road closure.  Should he be awarded damages for his loss for the full period of 3 years?  It is clear that he should not, because the loss was not entirely caused by the nuisance. 

162.  In my view, the same principle should apply where the interference was permanent, for instance if the access road to the hotel was closed permanently as a result of the works.  It is important to note that the nature of the injury is the same – there is similarly an ongoing interference with the enjoyment of the land – and it is only the period of interference that is different. 

163.  So if there was a fire in Year 1 immediately after the closure of the road, and the assessment of damages takes place in Year 2, similarly the hotel owner should not be awarded damages as if he could have continued to use the land as a hotel throughout the entire period of landholding.  His loss was not entirely caused by the nuisance.  The effect of the fire - albeit subsequent to the road closure - would have to be taken into account.  

164.  Coming back to Snell and Hunter, they provide that when assessing damages for a permanent nuisance, the diminution in the value of the land may be a relevant head of loss.  But in my view that does not mean that time stops on the day when the permanent interference began, as if there was an assignment of the land that day.  On the contrary, the land remains with the claimant - there is just an ongoing interference with a right it had enjoyed, for which the law provides compensation.  In striving to quantify the loss due to an ongoing interference, a diminution in value on the date when the permanent interference began may be a convenient means of calculating the loss - but it should not detract from the fact that it is the ongoing interference that gives rise to the claim for damages. 

165.  Once it is recognized that the claim in nuisance compensates not an appropriation of land but simply an interference with the enjoyment of land, it is clear in my view that all events relevant to that enjoyment prior to the date when the court assesses damages should be taken into account.   In the nature of things, the assessment exercise cannot be completed on the day the interference (whether temporary or permanent) began.  Usually it makes no difference when the assessment takes place.  The court strives always to find the true loss suffered.  

166.  So where a detriment to the enjoyment of land is ongoing and a subsequent event is relevant to that enjoyment (for instance the fire in the hotel example), a failure to take it into account at the assessment would result in the court producing a false value for that ongoing loss.  The use of a valuation date and the capitalization of the value of the future loss as at that date is a convenient method of assessing damages in nuisance, but the convenience of that method does not require the court to ignore everything that has occurred before assessment. 

(4.4) Does the FSRO impose a regime different to the above in the assessment of compensation?

167.  In In the matter of an Award of Compensation made by H.E. the Governor to the Owners of Kowloon Marine Lots 29, 30, 31 [1912] HKLR 110, the Chief Justice considered a claim under s.12 of the Harbour of Refuge Ordinance, No. 31 of 1909, which provided for claims for injurious affection, similar to s.12 of the FSRO.  The Chief Justice held that the compensation was “based on the same principle as that on which damages would be awarded in an action for tort for the same act if unauthorised”: p.123.  This is consistent with a number of English authorities including the House of Lords decision in Wildtree. 

168.  It is also well-established that in assessing compensation the courts may look to facts which have occurred after the extinguishment of rights (Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v The Pontypridd Waterworks Company [1903] AC 426).  As Lord Macnaghten colourfully put it (at 431):

“Why should he [the arbitrator] guess when he can calculate?  With the light before him, why should he shut his eyes and grope in the dark?” 

169.  In Wildtree, Lord Hoffmann rejected the assumption that compensation “can only be assessed by considering the capital value of the claimant’s land at a given date and deducting that sum from an estimate of what its value would have been if it had not been injuriously affected” (16F-G).  Lord Hoffmann held that the claimant is “simply entitled to compensation for the damage to his land”.  When considering the permanent deprivation of a right of way, Lord Hoffmann said that it was “sensible” to take a valuation date and capitalize the value of the future loss at that date, but he did not say that that constituted an exception to the general principles of assessing damages or compensation.  On the contrary he held that “in respect of damage which has occurred in the past, there seems to me no reason why one should not calculate the effect which it has had upon the value of the land in the sense of reducing its letting value in the open market while the damage continued”.  The words I have emphasised are consistent with the approach that damage, and compensation for it, are viewed as at the date of assessment.

170.  It has been argued that the procedure of making claims and the provision of interest in the FSRO from the date of extinguishment somehow indicate that the Government is taken to have acquired the right of access in a “notional purchase”.  I do not agree.  Claims may be (and are often) amended in the Tribunal and there is every justification to amend a claim to cater for facts as they arise.  Interest simply compensates the claimant for the loss of use of his money (when his claim is quantified after assessment) from the date when his right was affected.  It does not provide support for the argument that the court should shut its eyes to events before assessment.

171.  I consider therefore that as far as the claim for extinguishment of access to the sea is concerned, the FSRO has not imposed a regime different to that in the tort of nuisance in the assessment of damages payable for a permanent, non-physical interference with the enjoyment of land. 

(5) Can subsequent events be taken into account?

172.  For those reasons I take the view that relevant events between the commencement of the interference and the assessment may be taken into account in quantifying compensation.  Mr Barnes has referred us to 2 events: first, the enjoyment of de facto access to the sea for 6 years and 1 month; and secondly, Government’s acquisition of Lot 22 in 2001, by means of voluntary surrender from the Applicant, for a consideration which reflected the fact that the land no longer enjoyed the right to access the sea, but which expressly included an ex gratia payment valuing Lot 22 at the basic rate for building land within Zone A plus 20%.

173.  It is evident from Lam J’s judgment that he has not had submissions from the parties as to how these subsequent events might fit into an assessment of the compensation (para. 100).  Accordingly it would not be appropriate for this court to express any views and I only raise the following matters as issues which may call for particular consideration.

(5.1) De facto access to the sea for 6 years and 1 month

174.  First, the de facto access to the sea for the 6 years and 1 month.  I have mentioned earlier that on Lam J’s finding, the de facto use was that of the Applicant’s lessee the shipyard company and there may be arguments as to how it affects the Applicant. 

175.  Assuming the exercise of access by the shipyard company was that of its lessor the Applicant, the Tribunal may need to consider the effect of the benefit obtained by the de facto enjoyment of access to the sea, albeit precarious.  This is essentially a matter for expert valuers who would have to evaluate the effect of the precarious nature of the de facto user on the business carried out on Lot 22, taking into account I suppose such matters as loss of goodwill for long-term shipbuilding or repairing contracts (if any); the availability of local competitors with secure frontage to the sea (if any); the effect on plans for future expansion (if any); and any liability to damages for unauthorized access to the sea, etc.  These and other matters may be relevant in the valuation exercise which will have to be undertaken in the Tribunal.

(5.2) The Surrender in 2001 at a price including the ex gratia component

176.  Secondly as far as the Surrender and the price paid for it are concerned, for the reasons I have discussed earlier, these may be pertinent to the assessment of compensation – except that the matter is rendered more complicated by the parties’ agreement that “the surrender was made without prejudice to the Applicant’s claim for compensation under the FSRO” (Agreed Facts para. 16). 

177.  The circumstances surrounding the Surrender and the parties’ agreement have been made the subject of detailed pleadings and the Tribunal has yet to adjudicate on them.  Accordingly we should not express any views at this stage, but it seems to me that the issue may be of some substantial significance.

178.  Prima facie the result of the Surrender was that the Applicant’s lease has - by agreement - been shortened to 2001.  As such, the Applicant may only be entitled to claim compensation for the difference in the value of the Lot with and without access to the sea for the shortened period from the 1995 Authorization to the 2001 Surrender, instead of for the original remaining period of the lease (with the extension provided under the New Territories (Lease Extension) Ordinance Cap. 150).

179.  Besides there is the more important question of the “ex gratia” component of the consideration for the Surrender.  It is well-known that the term “ex gratia” payment is used for certain types of payment for land acquisition in Hong Kong: see Land Compensation and Valuation Law in Hong Kong, Cruden, 2^nd ed. Chapter 21.  There are also passages in the pleadings setting out the basis of the “ex gratia” component in this case.  The Tribunal has not made any determinations as to what the parties agreed in this particular case, so I will say no more but it seems to me that the Tribunal may have to consider this issue: if the land was sold as building land, i.e. not land that may only be used for shipbuilding or repairing, then the impact of the loss of its right to access the sea may be reduced (and depending on the effect of the de facto user up to the surrender, the Applicant may even have suffered no loss). 

180.  In my view the Tribunal should consider the effect of these subsequent events which occurred before assessment, but there is a further complication, in what the parties meant when they agreed that “the surrender was made without prejudice to the Applicant’s claim for compensation under the FSRO”.  It is now Government’s contention that “it was never agreed by Government that when it comes to the basis of such a claim [for compensation under the FSRO] or the amount of the compensation, the surrender and its terms could not be relevant to those matters” (para. 36H Amended Points of Defence). 

181.  It is for the Tribunal to consider whether the entire episode of the Surrender is to be ignored for the purpose of assessing compensation under the FSRO.  If so, then even though it might otherwise have been relevant, the Tribunal may be precluded from doing so by agreement of the parties.  

Order

182.  As in my view the Applicant’s argument on “notional contract” or “notional purchase” has failed in respect of the extinguishment of access to the sea, I would order that the Applicant’s appeal for the order set out in para. (1) of its Notice of Appeal be dismissed. 

183.  As for the Applicant’s appeal for the order set out in para. (3) of the Notice of Appeal, when the real value has not been quantified, any argument based on Article 105 (entitlement to compensation on real value: Director of Lands v Yin Shuen Enterprises Ltd [2003] 2 HKLRD 399, 420) would be premature.  Accordingly I do not think any order needs to be made at this stage.

Hon Rogers VP:

184.  The appeal will therefore be allowed and the parties should attempt to agree a draft Order and, failing agreement on or before 30 January 2009, the matter should be listed for hearing at the earliest convenient date.