DELIGHT WORLD LTD v. THE SECRETARY FOR TRANSPORT

LDMR 2 of 2002

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS REFERENCE APPLICATION NO. 2 OF 2002

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JUDGMENT ON REVIEW

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1. This is an application by the Applicant for review of the judgment made by this Tribunal on 27th June, 2003 ("the Judgment"), whereby we ordered the Respondent to pay the Applicant compensation in respect of the resumption of Lot Nos. 260 (Portion), 261 RP (Portion), 264 (A-D) (Portion), 264 (E-H) (RP) (Portion), 266 (A) RP, 266 (B) (RP) (Portion) and 268 (C) (Portion) in Demarcation District No. 109 ("the Affected Lots"), and compensation for the severance of Northern Portion of DD Lot 109 Lot 260 ("the Northern Portion"), in the total sum of HK$15,900,000.

2. The Applicant invited the Tribunal to review and reverse its decision that the Affected Lots were not building land because of the following reasons: -

(1) it was based on a misreading of the judgment of the Lands Tribunal in Wong Wai Tsak Tong & Anor. v Secretary for Transport [1996] 4 HKC 301 ("Wong Wai Tsak Tong") and the judgment of the Court of Appeal in Attorney General v Melhado Investment Ltd. [1983] HKLR 327 ("Melhado"), and the evidence and the submissions;

(2) it was based on a misdirection as to the burden of proof; and

(3) it ignored the contra proferentem principle.

3. Misreading of the judgment of Wong Wai Tsak Tong

The Applicant submitted that H. H. Judge Cruden's remarks and in particular, his remarks that class 1 land includes house land and other major building land and class 2 land includes minor buildings, were clearly meant to apply to all Block Government leases.

4. We have already dealt with this point in paragraph 5.5 of the Judgment. We reject this argument.

5. Class H land

The Applicant referred to paragraphs 5.6 and 5.7 of the Judgment and submitted that the fact that H. H. Judge Cruden did not refer to the difference between a lot having a prefix "H" and another lot without this prefix is a further indication that his remarks in Wong Wai Tsak Tong and in particular, his remarks that class 1 land includes house land and other major building land and class 2 land includes minor buildings, were meant to apply to all Block Government leases. We do not know the reason why Judge Cruden did not refer to such a difference. Therefore, it is illogical to say that this is an indication that his remarks were meant to apply to all Block Government leases.

6. The Applicants' own expert, Mr. Ng, expressly conceded that land described as "first class" could mean first class agricultural land. Page 125 of the transcript contains a record of the proceedings in respect of the cross-examination of Mr. Ng in this respect: -

"	Q.	Therefore, when you see land described as "first class", this could mean first class agricultural land. Do you agree?
	A.	Yes."

Mr. Ng's evidence contradicts the Applicant's submission that "class 1 land includes house land and other major building land."

7. Express user covenant

The Applicant drew a distinction between an "express user covenant" and a "restrictive covenant". Such a distinction is of no real significance. This Tribunal has set out this user covenant in paragraphs 5.9 and 5.10 of the Judgment. Whatever the term used, what is important is the nature and effect of the user covenant.

8. Factual mistake

In paragraphs 5.12 and 5.13 of the Judgment, the Tribunal referred to the factual mistake made by Judge Cruden, and said that the factual mistake would cast doubt on the correctness of his judgment. The Applicant submitted that the factual mistake does not affect the correctness of the judgment because even if Lot 10 was correctly described as "Waste" the judgment would be the same because as H. H. Judge Cruden held, based on Melhado, "non-agricultural or building land, are words appropriate to include land demise as ..... 'waste' ..... otherwise unrelated to agricultural use"; and "waste" "would be more consistent with a demise for non-agricultural than for agricultural use". We do not know the circumstances under which Judge Cruden made the factual mistake. In the Block Government Lease Lot 10 was described as "Waste". We would not speculate what Judge Cruden would have said in his judgment if he had made a correct reference to the description of Lot 10. What surprised us is that Lot 10 was described as "Waste", but he read it as "house".

9. Wong Wai Tsak Tong should be followed

The Applicant submitted that Wong Wai Tsak Tong should be followed because it has not been shown to be "clearly wrong", and it is not wrong simply because this Tribunal has a different opinion. We are not bound by this judgment as it is only a decision of the Lands Tribunal. We found it difficult to accept the classification of the user of land because Judge Cruden did not give any reason thereof.

10. Misreading of Melhado

The Applicant submitted that in Melhado the Court of Appeal only assumed or observed that, where the restrictive covenant in the Block Government lease refers to ground "hereby expressed to be demised as agricultural or garden ground", those words are appropriate to include land demised as "padi" and "dry cultivation". The Court of Appeal did not decide that describing land as "padi" and "dry cultivation" is the equivalent of expressing it to be "demised as agricultural or garden ground" but decided that the words "demised as agricultural or garden ground" meant that the land was described as agricultural or garden ground and not that the land was demised on terms which prohibited its use for anything but agricultural or gardening use. The Respondent submitted that the judgment of Pickering JA in Watford Construction Co. v Sec for NT [1978] HKLR 410, 413, was quoted out of context. The relevant part of the judgment reads: -

"No doubt a demise simpliciter of land which happened at the time of the demise to be agricultural land would leave the lessee free to change the user and character of the land but a demise of such land which contains a covenant by the lessee not to use the land for building purposes without the consent of the lessor endows the land, in the absence of any such consent, with the permanent character of agricultural land. The effect of the covenant is to effect not merely a demise of agricultural land but also a demise (pending the lessor's permission to build which has not been granted) as agricultural land."

11. The observation of the Court of Appeal in Melhado is a correct one, and the judgment of Pickering JA in Watford Construction Co. v Sec for New Territories is binding on us.

12. We do not accept the submissions that there is a misdirection as to proof and that the contra proferentem principle was ignored. We therefore dismiss the Applicant's submission that the Affected Lots were building land.

13. Approach to be adopted for assessment of compensation when the Affected Lots were zoned "AGR" ("Agriculture")

We note and follow in this review the following relevant passage on the issue of "Melhado" use set out in the Court of Appeal's Judgment dated 24 December 2003 in View Point Development Limited v Secretary for Transport (unreported, CACA439/2003): -

"46.

We agree with Ms. Eu. Section 12(aa) of the Ordinance excludes the taking account of any planning requirements arising from land not being zoned residential, commercial, industrial or other specified use. In this case, the applicant's land is zoned "Undetermined" or "U". Any need for planning permission for a particular Melhado use, such as open storage, which arises in consequence of the "U" zoning the applicant's land must be excluded from consideration in the assessment of compensation upon Government resumption. If by section 12(aa) one must ignore any requirement to obtain permission to use land for a particular purpose imposed by zoning considerations, it cannot be said that the putative use of the land for such purpose would be illegal. It would only be illegal if one took into account the requirement for permission due to the "U" zoning of the applicant's land."

14. Estimation of the market values of the Affected Lots and the losses due to severance of remaining land (i.e. Site A, Site B and the Northern Portion of DD109 Lot 260)

In this review, following our decisions on the various points of law in the foregoing sections, we will have to estimate the market values of the Affected Lots on the basis of its being put to open car parking use or open storage use. The higher of the two estimated market values will be the compensation for the Affected Lots. Similarly, we will have to re-consider and re-estimate the losses, if any, to the Applicant due to the severance of Site A, Site B and the Northern Portion of DD109 Lot 260 ("Northern Land") as a result of the resumption of the Affected Lots.

15. The two experts, Mr. James Ng for the Applicant and Mr. Patrick Lai for the Respondent who gave evidence in the past produced additional expert reports and also gave oral evidence during the review hearing. We summarize below their estimated market values and losses for various lands in this resumption case, as follows: -

Portion of land	Mr. James Ng	Mr. Patrick Lai
Affected Lots-	$32,330,458	$13,130,000
Loss due to severance of Site A-	$6,050,560	Nil
Loss due to severance of Site B-	$34,937,854	Nil
Loss due to severance of Northern Land-	$1,503,504	$67,840
Total-	$74,822,376	$13,169,840

We will consider the compensation amounts for various portions of land in the order of the above sequence.

16. Estimation of the market value of the Affected Lots on the basis of the land being used for open storage and open car parking

In assessing the market value of the Affected Lots, Mr. Ng for the Applicant used the investment method of valuation, following the approach adopted by the Lands Tribunal in Yuen Long Fish Merchant's Association Limited v. Secretary for Transport (unreported case, referenced LDMR 44 of 2000, Judgment dated 3 April 2001) when there were no suitable comparable land sales for the adoption of the more generally accepted direct comparison method of valuation.

17. Mr. Ng assessed the market rental values of the Affected Lots on the basis of open storage use and open car parking use, using comparables he assembled and making adjustments to their rents. His detailed valuation was set out in his valuation report in Exhibit A11. He estimated the market rental value of the Affected Lots for open storage use to be $392.2 per sq. m. while that for open car parking use to be $395.7 per sq. m. He based on these estimated values to arrive at an average unit rent of $394.0 per sq. m. as the market rental value for the Affected Lots. Thereafter, he adopted a yield of 10%, the yield between Grade B offices and that of flatted factories, as the appropriate yield for the capitalization of the estimated market rental value of $394.0 per sq. m. Thus, he arrived at the estimated market value of the Affected Lots in the sum of $3,900 per sq. m. Applying this to the site area of the Affected Lots, he estimated the compensation at $32,330,458.

18. Mr. Lai for the Respondent objected in principle the valuation approach of Mr. Ng. He said that "since the comparable lands submitted in my Rule 20 report dated 10 September 2002 have characteristics which are similar to the Property" (i.e. the Affected Lots), he considered that "they also possess a potential of obtaining permission for converting to Melhado uses as the Property". Therefore, Mr. Lai opined that his original valuation in his Rule 20 report, which used comparable agricultural lands (with potential for conversion to "Melhado" uses) for direct comparison with the Affected Lots, should be preferred to the valuation of Mr. Ng summarized above. Mr. Lai estimated the value for the Affected Lots at $1,600 per sq. m., or $13,130,000 as a whole.

19. Moreover, Mr. Lai opined that all the comparables employed by Mr. Ng were not suitable comparables. Instead, he suggested that a certain tenancy he obtained in respect of various pieces of land, registered as Lot Nos. 478, 479, 482, 483B, 486B and 487 and Portion of Lot 488 in DD103 was the best comparable for the purpose of estimating the open market rental value of the Affected Lots. Therefore, based on the reported rent of the said tenancy, at a unit rate of $1 per sq. ft. and after taking time adjustment of 11% to reflect the property price difference for the period from early 1999 to September 2000, he estimated the open market rental value of the Affected Lots at $114.95 per sq. m. per annum. Using this estimated market rental rate and his estimated market value of the Affected Lots at $1,600 per sq. m., he found that they show a rate of yearly return of about 7.18%. He concluded that since this return was within his estimated margin of reasonable return for the Affected Lots to be used for "Melhado" uses, his earlier assessment of the market value for the Affected Lots, at $1,600 per sq. m. was "fair and reasonable." Therefore, he submitted that based on this analysis, there would be no need to change his previous assessment of $1,600 per sq. m.

20. Nevertheless, Mr. Lai opined that even if Mr. Ng's comparables were considered to be suitable comparables, the adjustments made by Mr. Ng were grossly inappropriate.

21. Choice of the method of valuation and comparables

After consideration of the evidence given by the two experts, we disagree with Mr. Lai that we should accept his comparables listed out in his original Rule 20 report as the best comparables. It was shown at the original hearing of this case that out of Mr. Lai's 4 comparables, only the common Comparable A2/R4 had vehicular access. As for his Comparable R1, it was served by a narrow motor track, and there were over-hanging water pipes across the track, which would effectively restrict access for smaller cars only. His Comparables R2 and R3 were only accessible through footpaths. We also do not agree that the agricultural uses actually permitted for his comparables and the assumed permitted uses for the Affected Lots in the context of valuation for compensation under the Lands Resumption Ordinance are the same. Therefore, his comparables are not appropriate comparables.

22. We also disagree with Mr. Lai that for the valuation of the Affected Lots for the "Melhado" uses, his single tenancy comparable of various lots in DD 103 should be preferred while all the other comparables identified and assembled by Mr. Ng were unsuitable. As rightly pointed out by the Respondent, the source of this tenancy was in suspect. It is not recorded as a public document and we do not have other information of this tenancy, other than that given by Mr. Lai. Although the renewed tenancy commenced from 1 April 1999 and the initial date of agreement was shown as 1 April 1997, the expiry date was not clear. It was shown on the copy of agreement produced that various amendments to the tenancy were made but all such amendments were made by hand, all without counter signatories. Also, Mr. Ng gave evidence that various portions of land next to the tenancy area were resumed under several projects over the year from 1995 onwards. As a result, Mr. Ng opined that it was likely that the rent passing might reflect this uncertainty, and therefore, the rent of the tenancy could not be said to represent market rental level. To conclude, we agree with the Respondent and do not accept this tenancy to be an appropriate comparable at all.

23. We next consider the two lists of comparables assembled by Mr. Ng, one for open storage use and the other for open car parking use. We do not understand the rationale used by Mr. Lai in discarding all the open car park tenancies as to be unsuitable simply because they all contained the so-called "the right to build" user clauses. As rightly pointed by Mr. Ng, all these clauses were standard clauses in the tender of short-term tenancies by the Lands Department, which were to tailor for the erection of watchmen's office and quarters. While these are quite common for open car parking lots, we do not agree with Mr. Lai and the Respondent that these are essential for the management of the land. For example, we agree with the Applicant that instead of erecting watchmen's office and quarters, the tenant could place a removable fibreglass made shelter which could serve the same purposes as the structure permitted to be erected. In addition, we certainly disagree with Mr. Lai that in the event that we use these open car park tenancy comparables, "a discount of 50% should be applied to allow for the enhancement in value arising from the right to build in the comparable lands." This was without any basis, as was demonstrated by the Respondent in cross examination in which Mr. Lai was asked to comment on the resulting extremely high unit rate of the watchmen's office and quarters if this 50% value was reflected in its built- over area.

24. Summing up, we agree in principle with Mr. Ng in his valuation approach, in the absence of suitable direct sales comparables of land having the same characteristics and permitted uses as to what we were required to assume, for the Affected Lots, which were the subject matter of the resumption, and those of other land due to the severance of those land caused by the resumption of the Affected Lots.

25. Before going through the process of analysis and adjustments of comparables, in the manner as set out by Mr. Ng in his valuation report in Exhibit A11, we will first cover in the following sections the few issues affecting the valuation that arose during the course of the review hearing.

26. The existence or otherwise of any proper right of way for vehicles to Site A

Mr. Lai gave evidence that the Applicant could not claim any compensation at all for the Affected Lots or loss for severance of Site A, Site B and the Northern Land on the basis of open car parking use or open storage use because the subject site did not have any proper right of way to any public road at the date of resumption. Although the subject site was located very close to Kam Tin Road, there was a strip of land in between the boundary of the subject site and the said road. On re-examination, Mr. Lai said that it could not be assumed that Government would allow the use of the strip of Government land for the purpose of accessing the subject site by vehicles. And the Lands Department would enforce any authorized use of such strip of Government land. The Respondent therefore submitted that use of the subject site for open storage and open car parking purposes would not be feasible as there was no proper entrance/exit for the heavy lorry or container tractor/trailer other than passing over Government Land.

27. Mr. Ng disputed the evidence of Mr. Lai. Mr. Ng further pointed out that the Applicant could also make use of the vehicular access via land at the southeast corner of the subject site, which was also owned by the Applicant but being used by Ming Yeung School. To counter this claim, Mr. Lai said that an unauthorized structure was found standing at the position of the proposed vehicular access points, thus leaving insufficient space for the passing and re-passing of vehicles to the subject site. The unauthorized structure was known to be standing at that position for a long time and there was no known program to clear the structure by the Government at the date of reversion of the Affected Lots. Mr. Lai also added that it could not be assumed that the Applicant could by its own action clear the structure.

28. The Applicant re-called Mr. Ng who, after taking some measurements on site, gave evidence again towards the end of the review hearing. Mr. Ng confirmed that there would be sufficient space (measuring about 3.5 metres) for the passage of vehicles (including container vehicles with a width of about 2.5 metres) even after taking into account the position of the said structure. There was no contradictory evidence from Mr. Lai on the latest evidence of Mr. Ng. In light of this, we agree with Mr. Ng that there would be vehicular access points for the subject site, including the Affected Lots and other land of the subject site. However, having regard to the large size of the Affected Lots and other land of the subject site, we find that the position as well as the width of the access points suggested by Mr. Ng would be inferior to those commonly found, for instance, on sites earmarked by Government for open car parking and open storage uses, such as the comparables identified by Mr. Ng in his valuations. We have, as stated before in the earlier sections of this Judgment on the analysis of these comparables, made allowances to reflect this point.

29. Whether the Applicant's case on "Melhado" value should be rejected for lack of evidence?

We stated in the original Judgment that in assessing the agricultural use value of the Affected Lots, we have to take into account the additional value, if any, due to the so-called "Melhado" use value, as termed by Mr. Ng. However, we found at that time that there was no evidence from Mr. Ng regarding the additional value due to the "Melhado" use. Although we knew that he had adopted an additional value of 15% over and above the pure agricultural value to arrive at his estimate of the "Melhado" use value, we do not understand the basis of his adopting the said 15% and we therefore did not accept the said evidence of Mr. Ng.

30. In this review, the Respondent submitted that none of the 9 new comparables submitted by Mr. Ng were suitable comparables. Therefore, whether or not the Tribunal considers the comparable produced by Mr. Lai to be acceptable or admissible, the Applicant's case on "Melhado" value must fail because the Applicant had again failed to produce suitable comparables to substantiate the claim that the subject site enjoyed a higher value due to its "Melhado" potential. This submission is sound only if the Tribunal concurs with the Respondent that all the 9 new comparables are all not suitable comparables. However, after consideration, we find and decide that Mr. Ng's new comparables are suitable comparables, with the exception of 2 open car parking site comparables, which are discarded because there are very substantial differences between their location and that of the subject site. Therefore, we do not agree with the Respondent's submission on this point of adequacy of the comparables.

31. Whether a discounting in value is required in assessing the market value of the Affected Lots

The Respondent further submitted that in assessing the open market value of the Affected Lots on the basis of open car parking use, a discount for a period of at least 2 years into the future should be applied. This was because according to the evidence of Mr. Lai, there was at the date of resumption no demand for the use of the site for open car parking use. We do not agree with this view and hence, the Respondent's submission as well.

32. In the following sections, we will consider the suitability of each comparable in the two lists prepared by Mr. Ng. Next, we summarize our adjustments for Mr. Ng's comparables after taking into consideration the comments and adjustments given by both Mr. Ng and Mr. Lai.

33. Analysis and adjustments of comparables for open storage use

Mr. Ng compiled a list of 2 comparables of open storage sites in the Tuen Mun District as he had been unable to find any open storage comparables in the Yuen Long District at the date of resumption of 22 September 2000. This was marked as Appendix I in his report, Exhibit A11. Mr. Ng considered both comparables as suitable comparables. He made adjustments to the comparables for the factors of location/catchment area, user flexibility, time and size to arrive at an appropriate unit rate for the Affected Lots.

34. On the other hand, Mr. Lai considered that both comparables are not suitable for comparison purpose and should be discarded. Both tenancies contain the so-called "the right to build" (watchmen office and quarters) and they therefore could not be compared to the subject site. Moreover, Mr. Lai opined that by reason of the additional user permitted by Comparable 2, it had a character very different from that of the subject site. In addition, Mr. Lai also suggested that even if the Tribunal did not agree with him, very substantial adjustments, in the direction very different from Mr. Ng, should be applied to these 2 comparables.

35. After considering all the evidence on these 2 comparables, we form our own opinion of their suitability as comparables and the appropriate adjustments to be applied. We find that they are suitable comparables for the purpose of assessing the "Melhado" use value, on the basis of open storage use. Our adjustments are detailed below: -

36. Entrance to the site

Mr. Ng did not account for the difference between the vehicular access points to the Affected Lots and those of the comparables. However, having regard to the narrow width of the vehicular access points and their inconvenient position, being at the junction of the village road and Kam Tin Road, we opine that a downward adjustment to reflect this factor is warranted. This we estimate to be 10%. This applies to both comparables.

37. Location

Our adjustments are closer to those of Mr. Ng as we find his reasons to be more reasonable than Mr. Lai's.

38. User flexibility

We agree with the direction of adjustments proposed by Mr. Ng for both comparables but we opine to adopt a lesser adjustment for Comparable 1.

39. Time

We adopt the adjustments proposed by Mr. Ng.

40. Size

Although we also agree with the direction of adjustments proposed by Mr. Ng, we adopt different percentages of adjustments for both comparables.

41. In summary, we set out in the table below our adjustments to the 2 comparables for open storage use: -

Ref. No.	Entrance	Location	User Flexibility	Time	Size	Total Adjustment
1	-10%	0%	+5%	-9.2%	-10%	-24.2%
2	-10%	+5%	+3%	-0.2%	+5%	+2.8%

42. Applying the above estimated total adjustments to the unit rates of the comparables, we estimate the adjusted unit rates of the comparables in the table below: -

Ref. No.	Unit rate (per sq. m. p.a.)	Total estimated adjustment	Adjusted unit rate (per sq. m. p.a.)
1	$390.7	-24.2%	$296.2
2	$329.4	+2.8%	$338.6

Average: $317.4

43. Estimation of the market value of the Affected Lots on the basis of open storage use

We find from the above analysis that the average adjusted unit rate of the 2 comparables is $317.4 per sq. m., which is adopted as the unit market rental value of the Affected Lots, on the basis of open storage use.

44. We agree with the opinion of Mr. Ng that in the absence of any information on the market yield of open storage land, it is reasonable to use a yield of 10%, which falls between the yields for Class B offices and flatted factories at the relevant valuation date, based on statistics compiled by the Rating & Valuation Department.

45. Using the above estimated unit market rental value of $317.4 per sq. m. and the adopted yield of 10%, we calculate the estimated market value of the Affected Lots at $3,174 per sq. m. We apply this unit rate to the total site area of the Affected Lots of 8,205.7 sq. m. and arrive at the sum of $26,044,892 as being the open market value of the Affected Lots on the basis of open storage use.

46. Analysis and adjustments of comparables for open car parking use

Mr. Ng compiled a list of 7 comparables of fee-paying public car parking sites, which were the result of public tenders of short-term tenancies of such sites. This was marked as Appendix IV in his report, Exhibit A11. Mr. Ng considered all comparables to be suitable comparables. He adjusted them under the factors of location, user flexibility, layout/configuration, time, and size.

Mr. Lai also gave various comments on these comparables including the various subjective adjustments made by Mr. Ng. Instead, Mr. Ng provided his subjective opinion of the more appropriate adjustments

47. After considering the two experts' opinion on these comparables, we form our own view of the suitability of the comparables and the appropriate adjustments to the comparables, as follows:

48. Entrance to the site

Mr. Ng did not account for the difference between the entrance of the Affected Lots and the comparables. On the other hand, Mr. Lai opined that a downward adjustment of 30% to Mr. Ng's comparables should be made in order to allow for the inferior car park entrance of the Affected Lots and the subject site, as against those available to the comparables. Mr. Lai further added that a downward adjustment of 10% to allow for the relocation of the school building, which would be needed in order that a proper vehicular entrance/exit is provided within what was the property boundary of the school. We do not agree to this latter point. However, we agree with Mr. Lai that a certain downward adjustment is warranted to account for the difference in the relative position and sufficiency of the vehicular access points of the Affected Lots and the subject site as a whole. For this reason, we opine that a more reasonable downward adjustment should be 10%. This will be applied to all the comparables used by Mr. Ng.

49. Location

Mr. Ng allowed a 5% adjustment for all his comparables, with the exception of Comparables 4 and 5, which he gave adjustments of -20% and -30% respectively, and Comparable 6, for which he gave an upward adjustment of 20%.

50. However, we agree with Mr. Lai that Comparables 4 and 5 should be discarded. They were situated within the town of Yuen Long with an entirely different environment and were supposedly catered for quite a different type of sub-market, as against those for the other comparables, which were more akin to that for the Affected Lots. Mr. Ng argued that although these comparables were located in Yuen Long town, there was indeed very keen competition for the supply of car parks in the town. He also supported his argument by showing the locations of various car parks including the car parking facilities provided within residential and commercial developments. However, we maintain the view that in valuation, it is essential to consider the location of the comparables vis-à-vis the subject property. In this case, we have no doubt that these 2 comparables are not suitable comparables for the Affected Lots in view of their locations. We also notice that the overall total adjustments adopted by Mr. Ng for these 2 comparables, at -38.4% and -45.4% show that very substantial differences existed between these comparables and the Affected Lots, in the opinion of Mr. Ng. For the above reasons, we decide to discard these 2 comparables in the analysis below. We find that there are still 5 suitable comparables remaining.

51. As for the adjustments for location for the remaining comparables, we follow that of Mr. Ng, with the exception of Comparable 6. For this comparable, we agree with Mr. Lai that the upward adjustment by Mr. Ng is not justified. We apply the same adjustment as for the other comparables.

52. User flexibility

We agree with the reasoning of Mr. Ng so far as this factor is concerned. However, we hold the view that lesser percentages of adjustments than those put forward by Mr. Ng are warranted.

53. Layout/configuration

We also follow the reasoning and adjustments of Mr. Ng for this factor.

54. Time

Again, we follow the adjustments of Mr. Ng. We note that Mr. Lai did not provide any alternative adjustment figures for this factor.

55. Size

We follow the adjustments of Mr. Ng for all the comparables, with the exception of Comparable 6 for which we estimated a higher percentage of -20% to account for the relatively small size of that comparable.

56. In summary, we set out our adjustments to the 5 adopted comparables in the table below: -

Ref. No.	Entrance	Location	User Flexibility	Layout/ Configuration	Time	Size	Total Adjustment
1	-10%	+5%	+10%	+35%	-11.0%	0%	29%
2	-10%	+5%	+2.5%	-1%	-7.7%	-10%	-21.2%
3	-10%	+5%	+2.5%	0%	-5.6%	-5%	-13.1%
6	-10%	+5%	+5%	-6%	-2.6%	-20%	-28.6%
7	-10%	+5%	0%	+1%	-2.7%	0%	-6.7%

57. Applying the above estimated total adjustments to the unit rates of the comparables, we estimated the adjusted unit rates of the comparables in the table below: -

Ref. No.	Unit rate (per sq. m. p.a.)	Total estimated Adjustment	Adjusted unit rate (per sq. m. p.a.)
1	$146.4	+29%	$188.9
2	$449.9	-21.2%	$354.5
3	$370.3	-13.1%	$321.8
6	$229.3	-28.6%	$163.7
7	$357.4	-6.7%	$333.5

Average: $272.5

58. Estimation of the market value of the Affected Lots on the basis of open car parking use

We find from the above analysis that the average adjusted unit rate of the 5 comparables is $272.5 per sq. m., which is adopted as the unit market rental value of the Affected Lots on the basis of open car parking use.

59. We agree with the opinion of Mr. Ng that in the absence of any information on the market yield of open car parking land, it is reasonable to use a yield of 10% which falls between the yields for Class B offices and flatted factories in the relevant date, based on statistics compiled by the Rating & Valuation Department.

60. Therefore, using the above estimated unit market rental value of $272.5 per sq. m. and the adopted yield of 10%, we calculate the estimated market value of the Affected Lots at $2,725 per sq. m. We apply this unit rate to the total site area of the Affected Lots of 8,205.70 sq. m. and arrive at the sum of $22,360,533 as being the open market value of the Affected Lots on the basis of open car parking use.

61. Compensation for the resumption of the Affected Lots on "Melhado" uses, i.e. on the basis of open storage or open car parking use

Summing up, we find the open market values of the Affected Lots on the basis of open storage use and open car parking use to be $26,044,892 and $22,360,533. We do not agree that we should take the average of these 2 figures as the compensation for the resumption of the Affected Lots. Instead, we decide that the compensation payable to the Applicant should be the higher of the two estimated figures, i.e. $26,044,892. This is because obviously, the definition of the open market value of any land must be the higher of the two different values assuming both values are based on uses that are permitted under the statutory assumptions in the case of resumption.

62. Compensation for the resumption of the Affected Lots

In our original Judgment, we estimated the open market value of the Affected Lots at the relevant valuation date, on the basis of agricultural use, at $15,812,383. Since this estimate is lower than the figure estimated in the above paragraph, on the basis of open storage or open car parking uses, we find that the said estimated figure of $26,044,892 should be the compensation sum payable to the Applicant for the resumption of the Affected Lots.

63. Compensation due to the loss in value of Site A caused by the severance

In our original Judgment, the Tribunal dismissed the Applicant's claim for compensation due to the severance of Site A. In this review, the Tribunal is invited to review, and reverse, this decision and to award compensation on the basis of the open market value of Site A as building land, or alternatively, as "Melhado" land. Since we have decided earlier in this Judgment that the Affected Lots and Site A should not be compensated on the basis of Site A as building land, we will restrict ourselves in this review only to the estimate of compensation on the basis of Site A as "Melhado" land.

64. Mr. Lai maintained in the review his opinion that as there would be no loss in value of Site B, the Tribunal should reject the Applicant's claim. On the other hand, Mr. Ng stated in his report at Exhibit A11 that "as a result of the resumption of the Affected Lots, Site A has an awkward layout/configuration and is less efficient for car parking uses, especially for container parking purposes, because of its size." Based on the hypothetical car park layouts prepared by the Applicant's traffic consultant and the resulting changes in the ratios and the numbers of various types of car parking spaces that could be accommodated in various portions of the subject site (including the Affected Lots, Site A, Site B and the Northern Land), Mr. Ng estimated a loss in efficiency of about 26.5% resulting in the loss in rental income and in turn the loss in market value of the same extent. In the supplementary report (Exhibit A12) produced, Mr. Ng further amended his estimate that this loss percentage was 29.5%, instead of 26.5%. On this assumption and based on his estimated unit value of the Affected Lots, Mr. Ng estimated the loss in value of Site A, on open car parking use basis, to be $3,940 per sq. m. x 29.5% x 5,795 sq. m. (area of Site A), or $6,735,529. However, we find upon review of our record of the review hearing that Mr. Ng had not given any opinion as to the estimated loss in value of in Site A, on open storage use basis. We think that this was the case since Mr. Ng had estimated the value of the Affected Lots, and therefore, that of the other land of the subject site including Site A, to be roughly the same on both bases, he considered that there was no need to consider the scenario of the loss in value of Site A on the basis of open storage use.

65. However, we have estimated above that the value of the Affected Lots, and therefore, that of the other land of the subject site including Site A, on the basis of open storage use was higher than that of the value on the basis of open car parking use. Therefore, we have to estimate what loss, if any, there will be for Site A on the basis of open storage use, as a result of the resumption of the Affected Lots.

66. We have estimated earlier the unit value of the Affected Lots, and therefore, that of the other land of the subject site including Site A, on open storage use basis, to be $3,174 per sq. m. We agree that after the resumption of the Affected Lots, the shape of Site A would be of irregular shape. However, for open storage use, we do not think that the market value will be reduced by as much as 29.5%, as suggested by Mr. Ng in the case of open car parking use. We think that a reduction in value of about 10% appears to be more likely. On this adopted percentage, we estimate the loss in unit value of Site A, on open storage use basis, to be about $3,174 per sq. m. x 10%, or $317.4 per sq. m. Applying this figure to the site area of Site A, 5,795 sq. m., we estimate the loss in value of Site A as $1,839,330.

67. Hence, after resumption, the value of Site A on the basis of open storage use is estimated to be 5,795 sq. m. times $3,174 per sq. m. times 90%, or in the sum of $16,553,997. On the other hand, on the basis of open car parking use, the value of Site A after resumption will be 5,795 sq. m. times $2,725 per sq. m. times (1-29.5%), or in the sum of $11,132,919. This was arrived at using our estimated market value of the Affected Lot and assuming we also use Mr. Ng's estimate of the percentage reduction in value of Site A on the basis of his estimated change in carpark layout efficiency of Site A.

68. In summary, we set out the above estimates below: -

	Value of Site A (on open storage use)	Value of Site A (on open car parking use)
Area of Site A	5,795 sq. m.	5,795 sq. m.
Before unit value	$3,174 per sq. m.	$2,725 per sq. m.
After unit value	$2,856.6 per sq. m.(i)	$1,921.125 per sq. m.(ii)
Before resumption-	$18,393,330	$15,791,375
After resumption-	$16,553,997	$11,132,919
Loss in value	$1,839,333	$4,658,456

Note:

(i) The After unit value is assumed to be 90% (our estimate) of the Before unit value

(ii) The After unit value is assumed to be 1-29.5%, or 70.5% of the Before unit value (adopting the estimated percentage of Mr. Ng)

69. Therefore, although the loss in value will be higher in the case of open car parking use, this should not be the amount to be compensated to the Applicant for the severance of Site A caused by the resumption of Site A. This is because after the resumption of Affected Lots, we estimate that the After value of Site A will be higher on the basis of open storage use. Hence, the loss on the basis of open storage use should be adopted as the loss to the Applicant caused the resumption. This we estimate at $1,839,333.

70. Compensation due to the loss in value of Site B caused by the severance

Mr. Lai also maintained his opinion that there would be no loss in value to Site B caused by the severance of the land following resumption of the Affected Lots.

71. On the other hand, the Applicant adduced new evidence during the review. These include whether permission would be given by the relevant department, Transport Department, in the use of the access road, Kam Tai Road, to and from Site B. To this end,. The Applicant produced the following documents exchanged between his traffic consultants and the Transport Department. On 26 September 2003, MVA Transportation Consultants wrote a letter to Transport Department, which reads,

"Our client, the owner of the subject site, intends to use the subject site (containing a site area of about 15,033 m2) for open storage and/or open vehicle parking purposes. The location and layout of the intended open vehicle park are coloured yellow in the attached Location Plan and Layout Plan).

The subject site abuts Kam Tai Road to the north. At present, there are fixed iron railings and planting separating the subject site and Kam Tai Road along the entire frontage.

We are instructed by our client to make enquiry as to whether or not you are prepared to permit direct vehicular access to and egress from the subject site onto Kam Tai Road at any point agreeable to the Transport Department..."

72. In response to this enquiry, the Transport department replied on 7 October 2003, as follows: -

"...Kam Tai Road and Chi Ho Road is a 3.5 m maintenance access road. They are designed to accommodate the rare use of DSD's maintenance vehicles and the villagers in the vicinity. The proposed open car park or open storage site with the provision of some 570 parking spaces would likely induce substantial traffic impacts on these two maintenance access roads. Taking into account the current layout and design capacity of these roads, I regret that I would not agree to the proposed development."

73. There was no other evidence from the Respondent supplementing the above new evidence produced by the Applicant during the review hearing. The Respondent however submitted that the said letter from the Transport Department was not evidence "that no access will be provided to Site B after resumption. It is only evidence that there will be no vehicular access for Site B to be used for open car park purpose with the provision of some 570 parking spaces." The Respondent further added that the said letter "would seem to refute many assertions put forward by the Applicant, e.g. that the presence of the galvanized iron railings mean that no access will be provided, and Kam Tai Road was for exclusive use of DSD, etc."

74. Notwithstanding the Respondent's submission, after reviewing the matter, we agree with Mr. Ng that following resumption of the Affected Lots, Site B would be severed from Site A and would be denied the original vehicular access points fronting to the junction of the village road and Kam Tin Road, which was originally accessible to Site B via the Affected Lots and Site A. In addition, we agree with Mr. Ng that following resumption of the Affected Lots, Site B would be denied vehicular access from Kam Tai Road, the new local access road to its north.

75. Therefore, we agree with Mr. Ng that the proper basis for estimating the loss to Site B as a consequence of the resumption of the Affected Lots would be, firstly, to calculate the difference in the unit rate of the land of Site B and secondly, to apply this unit rate difference to the site area of Site B, 15,033.5 sq. m. We find that it is appropriate to use the estimated unit rate for the Affected Lot on the higher of the two bases of open storage use or open car parking use, i.e. $3,174 per sq. m., as the estimated unit rate of the land of Site B before the resumption. For the estimated unit rate of the land of Site B after the resumption, we agree with Mr. Ng that we could use the Respondent's comparables R1, R2 and R3 (see our original Judgment) as they are agricultural land without proper vehicular access. According to our adjustments of these comparables as stated in paragraph 23 of our original Judgment, we accept Mr. Ng's computation of the average adjusted unit rates for these 3 comparables, at $1,616 per sq. m. Therefore, the loss to Site B as a result of the severance, i.e. the loss of access following the resumption of the Affected Lots equals to 15,033.5 sq. m. x ($3,174 per sq. m. - $1,616 per sq. m.), or $23,422,193.

76. Loss in value of the Northern Portion of DD 109 Lot 260 due to the severance

In the review hearing, Mr. Ng confirmed that there was no access, both for vehicles and for pedestrian for the Northern Portion of DD 109 Lot 260. In his report at Exhibit A11, he also included enlarged versions of the survey sheets showing the said land. The Respondent conceded that any vehicular access was lost though there remained access by footpath to the said land after severance.

77. In light of the new evidence given by Mr. Ng in the review and on balance of all the evidence available to us, we decide to change our finding in that there was no vehicular and pedestrian access to the said land after severance due to the resumption of the Affected Lots. In the circumstances, we further agree with Mr. Ng that in view of the lack of access and the small size of the said land (being only about 424 sq. m.), farming operation on the said land is not economically feasible. Therefore, we also agree with Mr. Ng that the remaining value of the said land would only be nominal. Hence, we agree with his estimate that the loss in value to the said land would be as much as 90% of its original market value of $3,174 per sq. m. (as assessed for the Affected Lots). The amount of loss in value for the Northern Portion of DD 109 Lot 260 therefore equals to 424 sq. m. x $3,174 x 90%, or $1,211,198.

78. Determination of compensation by the Tribunal

We estimate the total compensation payable to the Applicant in respect of its interests in the Subject Site to be as follows: -

(1)	Compensation for the Affected Lots	=	$26,044,892
(2)	Compensation for severance of the following lots
	(i) Site A	=	$1,839,333
	(ii) Site B	=	$23,422,193
	(iii) Northern Portion of DD 109 Lot 260	=	$1,211,198
	Total	=	$52,517,616
	Rounded to		$52,518,000

79. Orders

(1) Accordingly, we order that the Orders in our original Judgment dated 27 June 2003 be set aside;

(2) The Respondent do pay the Applicant compensation for the Affected Lots, including compensation for the severance of Site A, Site B and Northern Portion of DD 109 Lot 260, in the sum of $52,518,000; and

(3) Costs reserved.