DELIGHT WORLD LTD v. THE SECRETARY FOR TRANSPORT

cacv 167/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 167 of 2004

(on appeal from LDMR NO. 2 of 2002)

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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 judgment on review of the Lands Tribunal given on 21 May 2004.  At the conclusion of the hearing of this appeal and cross appeal, judgment was reserved although it was indicated that the cross appeal would be dismissed in circumstances which will be explained below.

Background

2.  The applicant applied for compensation pursuant to section 29(7) of the Roads (Works, Use and Compensation) Ordinance, Cap. 370 in respect of the resumption of various lots in Demarcation District 109.  The resumption notice was dated 22 June 2000 and published in the Government Gazette on the following day.  The effective date of the resumption was 23 September 2000.  The remaining parts the applicant’s land after the resumption were left divided into 2 main sections and one small section.

3.  There is no dispute that the applicant was entitled to compensation but the question remained as to the quantum of that compensation.  In the Tribunal’s judgment dated 27 June 2003 (“the first judgment”) the Tribunal awarded the applicant a sum of $15,900,000.  Apart from a small portion thereof which was awarded in respect of the loss caused by the severance of one of the lots which remained in the ownership of the applicant, the award was arrived at by taking agricultural land as comparable land for the purpose of valuation. 

4.  The Tribunal took the view that the applicant would be entitled to compensation based on the value of the land if it were used for anything in respect of which it could be used legitimately under the terms of the lease upon which it was held.  This use was referred to as the “Melhado” use, which was a reference to the decision in the case of the Attorney General v Melhado Investment Ltd [1983] HKLR 327.  In that case it was held that the use that was listed in the schedule to the block Crown lease in relation to the land was descriptive only and did not restrict the use to which the land could be put.  There was, however, a restriction which prohibited the construction of buildings, but that was contained in the lease itself.  Hence the result was that the relevant land in that case could be used for purposes other than the erection of buildings.

5.  In the findings of the Tribunal in the first judgment, the Tribunal observed at paragraph 9 that in assessing the value of the lots for agricultural use, it should take into account the additional value, if any, due to the so-called “Melhado use”.  However, there was no evidence from the applicant’s expert witness regarding the additional value due to such extended use.  The witness had suggested that there should be an additional value of 15% over and above the pure agricultural value to arrive at the estimate of the value of such use but the Tribunal did not accept that suggestion.

6.  Interestingly for the purposes of this appeal, in paragraph 6.3 the Tribunal said:

“The Affected Lots fell in an area zoned for AGR purposes under the Kam Tin North outline Zoning Plan No. S/YL - KTN/3.  Section 4(1)(h) of the Town Planning Ordinance includes zones or districts set apart for agricultural use.  Section 12(aa) of the Lands Resumption Ordinance provides that the Lands Tribunal shall take this fact into account when determining the compensation to be paid.  In the premises the Lands Tribunal must ignore any zoning effect that may have on the Affected Lots, and for the same reason, sections 16 and 20 of the Town Planning Ordinance have no relevance in the determination of compensation.”

7.  There is an obvious typographical error in that the word “not” has been omitted in the third sentence.  The applicant was not content with its failure to obtain compensation on the basis of use to which the land could be put under the terms of the lease.  It then adduced further evidence to show that the value based upon use of the land for car parking and open storage.  The Tribunal accepted that further evidence and in the judgment on review held that not only should the resumed land be valued on the basis of the comparables then put forward but one of the remaining portions of the land was blighted because the only access to it was not sufficient to permit use of that portion of the land for open storage purposes.

8.  The Tribunal maintained the view that the compensation should be awarded on the basis of the use to which the land could be put under the terms of the lease under which it was held irrespective of the fact that there were in force planning restrictions which might prevent that.  At paragraph 13 of the judgment on review the Tribunal said:

“	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.’”

This appeal

9.  On this appeal, Mr Chan SC, who appeared on behalf of the Secretary for Transport, sought to argue that although section 12(aa) of the Lands Resumption Ordinance, Cap. 124 provided that in assessing the amount of compensation no account should be taken of any restriction under the Town Planning Ordinance, Cap. 131 other than one which restricted use of the land to residential, commercial, industrial or other specified uses, other provisions of the Town Planning Ordinance had to be taken into account and in particular section 20(7).  On that footing it was said that the valuation should only be on the basis of use to which it might legitimately be considered that planning permission could be obtained in respect of the land in question.  For convenience the relevant sections of the 2 Ordinances are set out.

“	Lands Resumption Ordinance, Cap. 124
	12.	In the determination of the compensation to be paid under this Ordinance-
		…
		(aa)	no account shall be taken of the fact that the land lies within or is affected by any area, zone or district reserved or set apart for the purposes specified in section 4(1)(a), (c), (d), (e), (f), (g), (h) or (i) of the Town Planning Ordinance (Cap 131)
			…
	Town Planning Ordinance, Cap. 131
	3	(1)	With a view to the promotion of the health, safety, convenience and general welfare of the community, the Board shall undertake the systematic preparation of-
			(a)	draft plans for the lay-out of such areas of Hong Kong as the Chief Executive may direct, as well as for the types of building suitable for erection therein; and
			(b)	draft development permission area plans of such areas of Hong Kong as the Chief Executive may direct.
				…
	4	(1)	The Board’s draft plans prepared under section 3(1)(a) for the lay-out of any such area may show or make provision for-
			(a)	streets, railways and other main communications;
			(b)	zones or districts set apart for use for residential, commercial, industrial or other specified uses;
			(c)	reserves for Government, institution or community purposes;
			(d)	parks, recreation grounds and similar open spaces;
			(e)	zones or districts set apart for undetermined uses;
			(f)	comprehensive development areas;
			(g)	country parks, coastal protection areas, sites of special scientific interest, green belts or other specified uses that promote conservation or protection of the environment;
			(h)	zones or districts set apart for use for village type development, agriculture or other specified rural uses;
			(i)	zones or districts set apart for use for open storage,
	and any matter whatsoever may be shown or provided for or specified in or in respect of the plans by means of such diagrams, illustrations, notes or descriptive matter as the Board thinks appropriate; and any such diagrams, illustrations, notes and descriptive matter shall be part of the plans.
		…
	20	(1)	In any draft plan prepared under section 3(1)(b), the Board shall designate any area of Hong Kong, as directed by the Chief Executive, as a development permission area.
			…
		(3)	A draft plan referred to in subsection (1) may as in section 4(1) show or make provision within the development permission area for any of the matters specified in section 4(1) in relation to a plan prepared under section 3(1)(a)
			…
		(7)	Where land that is within a plan referred to in subsection (1) is included in a plan prepared under section 3(1)(a), no person shall undertake or continue development on that land unless-
			(a)	the development was an existing use in relation to the plan prepared under this section;
			(b)	the development is permitted under the plan prepared under section 3(1)(a); or
			(c)	permission to do so has been granted under section 16 either before or after the land was included in the plan prepared under section 3(1)(a).
		(8)	A person who contravenes subsection (7) commits an offence and is liable, in the case of a first conviction, to a fine of $500000 and, in the case of a second or subsequent conviction, to a fine of $1000000.”

10.  It was said that the scheme of the Town Planning Ordinance, in the form that it is at present, was that there could not be any development of the land which was the subject of planning control unless the development fell within the three specified categories (a), (b) and (c) of section 20(7).  It was said that in the present case the Tribunal was in error in taking comparables in respect of car parks and open storage because in respect of subsection 20(7)(a) the existing use of the land was as vacant land and it had not been used either for car parking or open storage; in respect of subsection 20(7)(b) by virtue of section 12(aa) it must be deemed that the land was not zoned, and one could not refer to the approved plan or outline zoning permission as a basis for averring that the use was permitted under the plan and finally that as no permission had been granted under section 16 the final provision (c) of subsection 20(7) could not apply either.

11.  In my view it is no doubt correct that once the relevant land became subject to planning control, whether it be by reason of the interim provisions of a draft development permission area plan under section 3(1)(b) or a draft plan, commonly referred to as the outline zoning plan, under section 3(1)(a) of the Town Planning Ordinance, the owner of the land, namely the applicant, could not have used the land for car parks or any other type of open storage, unless one of the provisions in section 20(7) was satisfied.  That, however, seems to me to be quite a different point from whether the owner of the land, namely the applicant, would be entitled to compensation based upon the fact that it had an asset of value, albeit blighted by planning restrictions. 

12.  Our attention was drawn to extracts from Hong Kong Hansard in relation to the passage of the Crown Lands Resumption (Amendment) Bill 1973; that was when section 12(aa) was introduced into what is now the Lands Resumption Ordinance.  This court was referred to that material for the purpose of understanding the mischief which was sought to be remedied and not for the purpose of interpreting the section itself.  It is quite clear that the Bill was introduced following difficulties which had arisen because owners of flats in Yau Ma Tei and Wan Chai had been affected by outline zoning plans.  They were owners of flats in areas which had been zoned as future open space and they were thus likely to lose their flats because the land upon which their flats stood would no longer be used for buildings and would only be open spaces.  In most cases those flats would have represented a substantial portion of the owners’ lifetime savings.

13.  When one considers the wording of section 12(aa) of the Lands Resumption Ordinance it is clear that the effect of it is that the fact that areas have been designated for the various purposes set out in section 4(1)(a) and (c)-(i) of the Town Planning Ordinance should not be taken into account.  For the most part it might be observed that a restriction to those purposes may restrict the value of the land in question in comparison to, for example, residential or industrial use.  There was no requirement in this subsection, however, that the use to which the land could legitimately be put in accordance with the lease under which it was held, referred to as the “Melhado” use, had to have commenced.  That, it seems to me, is the crux of this case.  It is the applicant’s case that if the owner of land holds that land under terms of a lease under the terms of which it could legitimately be used for a particular purpose, the owner is entitled to compensation notwithstanding that it has not commenced such use.  Whereas, it is, in effect, the Secretary for Transport’s case that such use must have commenced otherwise the provisions of section 20(7) would prevent further uses. 

14.  In short, I consider that the applicant’s case on the construction of the statute must be correct.  An applicant must be entitled to the value of its land unaffected by subsequent planning restrictions which have come into effect subsequent to the creation of that land as an asset.

15.  Put in another way, the effect of section 12(aa) of the Lands Resumption Ordinance must be that in the circumstances where the relevant land lies within or is affected by a draft plan or a draft development permission area plan, that fact must be ignored for the purposes of valuation for compensation.  What is in reality ignored in those circumstances is the result or consequence of the relevant land being designated for one of the purposes in section 4(1)(a) and (c)-(i).  Neither the preparation nor the publication of a draft plan or a draft development permission area plan has any effect on its own if divorced from the further provisions of the Town Planning Ordinance.  Thus even if the Board were to make provision for the various matters contained in section 4, that would have no effect in preventing an owner of land from using his land were it not for the other provisions of the Ordinance.  Specifically, without the provisions of, for example, sections 20 and 21 the preparation of a plan under section 3 could almost be said to be something “writ in water”.

16.  Thus, quite apart from the fact that this court would be bound by its own decision in the previous case of View Point Development Limited v Secretary for Transport, CACV 439 of 2003, I consider that what was said in paragraph 46 of the judgment in that case was correct.  Neither do I consider that a suggested absurdity would result.  It was said that if agricultural land were to be zoned for residential purposes compensation could not be assessed on the basis of open storage or open car park use because section 12(aa) does not have any application to situations where zoning is in respect of residential use.  That seems to me to be beside the point because, generally speaking, residential or industrial use might be expected to be more valuable than open storage use, and compensation could be assessed on that basis.

The cross appeal

17.  The applicants sought to cross appeal on the ground that on a proper understanding of the decision of the Court of Final Appeal in Director of Lands v Yin Suen Enterprises Ltd and Another (2003) 6 HKCFAR 1, section 12(c) of the Lands Resumption Ordinance does not preclude taking into account the potentiality of the land being used for a more beneficial use in the unexpired period of the lease.  Mr Yu SC, who appeared on behalf of the applicant, informed the court that the effect of the decision in that case was to be argued in the Court of Final Appeal later this year and that in those circumstances he was content that the cross appeal should be dismissed on the basis that the point had been kept open for later argument.

Hon Le Pichon JA:

18.  I agree.

Hon A Cheung J:

19.  I agree.

Hon Rogers VP:

20.  The appeal and cross appeal will therefore be dismissed with an order nisi that the applicant should have the costs save in so far as they have been increased by the cross appeal.