Yin Shuen Enterprises Ltd. v. Director of Lands

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Lands Tribunal Application No. LDLR 5 of 2000

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J U D G M E N T

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(1) Background:

1. This application for compensation arose from the compulsory resumption by the Hong Kong Special Administrative Region Government a plot of land described as the Remaining Portion of Lot No. 1629 in Demarcation District No. 91 ("the land") by virtue of its power under the provisions in the Lands Resumption Ordinance Cap.124 Laws of Hong Kong. The land measured about 1,236.9 square meters was thus resumed for the development of public housing on 27th January, 1999. The Applicant, the owner of the land on the date of resumption, lodged a claim for a sum of HK$10,120,000 as compensation calculated at the price of HK$8,184 per square meter. The Respondent, the Director of Lands rejected the claim by letter dated 13th April, 2000. The reason as stated by the Respondent in his Notice of Opposition was that the amount so claimed was excessive.

(2) The Comparables Used by the Parties:

2. Each party produced a surveyor to give expert evidence. The two experts had compiled reports spelling out their valuation methodology and comparables used. In the case of the Applicant, its expert Mr. CHAN Cheong-kit had done three reports. However, Mr. Louis CHAN counsel for the Applicant expressed that the Applicant only relied on the third valuation report which appeared in pages 3 to 18 in the Applicant's bundle of documents. In that report dated 24th November 1999, the Applicant's expert had provided only two comparable transactions. He eventually relied on only one which fetched a unit rate of $8,184 per square meter. In the opinion of this expert, this comparable bore very close resemblance with the subject lot. Hence, no adjustment was made at all in respect of various features of the comparable. From this unit rate, the expert thus arrived at a figure of $10,120,000 being the amount claimed by the Applicant.

3. On the other hand, Mr. Michael Wong the expert for the Respondent, had compiled a report dated 21st October, 2000. In this report, he queried the comparable used by the Applicant's expert saying that the comparable so used carried a hope value in developing that piece of agricultural land into building land in future. It was because the purchaser of that land, a subsidiary company of a developer was in the process of amalgamating lands in the vicinity and had already submitted a rezoning request to the Town Planing Board to have its land rezoned as "Residential (B)". These steps were necessary in order to make possible a comprehensive residential development to be carried out on those lands. The expert for the Respondent thus took the view that this comparable should not be used in the present valuation process. In his report which could be seen from pages 153 to 212 in the Applicant's bundle, Mr. Michael Wong had found 7 comparable agricultural land sales effected from June 1998 up to July 1999. He referred to them as items 1 to 7 and he adopted only items 2, 3 and 5 as comparables in his valuation. We noted that the 3 chosen items were all either zoned "green belt" or "agricultural" on the relevant Outline Zoning Plans. He had disregarded item 4 for its poor accessibility and item 6 for its illegal structure component. He also disregarded items 1 and 7 because his investigation showed that the purchasers of those transactions had taken steps to develop the lands concerned. Therefore, they should be treated as a special buyer's deal which embodied a "hope value" in their transaction price.

(3) The Legal Issues:

4. The valuation approach adopted by the Applicant's expert was comparing the subject lot--- a piece of agricultural land within a "residential" zone---with another piece of agricultural land with similar zoning. Mr. Chan for the Applicant referred us to this tribunal's previous judgment in Suen Sun-yau v Director of Buildings and Lands [1991] HKDCLR 33. At page 41, His Honour Judge Cruden, after allowing the use of certain comparables with development potential to be used for valuation, had said:

"The market reality is that purchasers are prepared to buy agricultural land with non-agricultural potential and accept the risk of obtaining the necessary change of user. Mr. MacNaughton agreed that this commonly, occurred in the market. It was for this very reason that he rejected Mr. Chan's six comparables of agricultural land, because they included an element over and above their value for agricultural use because of the purchaser's hope that he could obtain a change of user. On the evidence I am satisfied that Lot 22, because of its size and location, was suitable that a purchaser, fully aware of those risks, would be willing to pay above bare agricultural land market value for the land with that potentiality. Where land is compulsorily resumed, the owner is entitled to the present value of the land, including the advantage of those potentialities. (underline added)

5. Mr. Chan also argued that if zoning of the subject property was to be disregarded because of section 12(c) of the Lands Resumption Ordinance, section 12(aa) which was added in 1973 would be rendered meaningless. It was because section 12(aa) - a provision which precluded the Tribunal from considering certain negative zoning under s.4 of the Town Planning Ordinance in the process of calculating compensation, had deliberately omitted mentioning section 4(b) of that ordinance. Section 4(b) provided for "zones or districts set apart for use for residential, commercial, industrial or other specified uses". Hence, by necessary implication, argued Mr. Chan, section 12(aa) of the Lands Resumption Ordinance required the Tribunal to consider those zoning when assessing compensation for a piece of resumed land so zoned.

6. The approach adopted by the Respondent's expert was that zoning of the subject lot should be disregarded altogether for the subject lot was held under Block Crown Lease with stipulations prohibiting its being developed into building land unless approval from the relevant authorities could be obtained. Mr. Miu counsel for the Respondent argued that section 12(c) of the Lands Resumption Ordinance excluded compensation to be awarded under such circumstance. Section 12 provided:

"12 Additional rules for determining compensation

In the determination of the compensation to be paid under this Ordinance-

(a) ......

(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 Planing Ordinance, (Cap. 131).........

(b) ................................................................

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

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

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

7. To support his contention on the correct interpretation of section 12(c), Mr. Miu relied on a Lands Tribunal's decision of Watford Construction Co Ltd v Secretary for the NT [1978] HKLTLR 253 and the Court of Appeal's decision in the Watford case reported in [1978] HKLTLR 267. Another case relied upon by Mr. Miu was the Winfat Enterprises (HK) Co. Ltd v A.G. decided in turn by the High Court, the Court of Appeal and the Privy Council respectively reported in [1983] HKLR 211, [1984] HKLR 32 and [1985] 1 A.C. 733. Also cited to us was the Hong Kong Hansard, Session 1922 containing the then Attorney General's speech delivered in the Legislative Council when he introduced the relevant provisions of the Crown Lands Resumption Ordinance-the predecessor of the Lands Resumption Ordinance before 1997.

8. The facts of the Watford case were not complicated. The Watford Construction Co. Ltd (Watford) purchased some 46,500 square feet of land situated in Fanling, New Territories held under block crown lease as agricultural land on 26th August, 1976. The unit price was $5.16 per sq. ft. The land was resumed by the government for the purpose of building a police cadet school on 25th January, 1977. Watford turned down an offer of compensation at the rate of $4 per sq. ft. and took the case to the Lands Tribunal arguing that the entry "Agricultural" under the column titled "Description of Lot" in the Block Crown Lease was descriptive rather than prescriptive. In other words, there was no covenant against using for building purposes generally as nowhere in the lease is the ground "expressed to be demised as agricultural or garden ground". Mr. Litton, the counsel for Watford contented that the correct approach that the Tribunal should adopt when assessing compensation under section 12 was that the Tribunal should first ascertain "the amount which the land if sold in the open market might be expected to realize" and that s.12(c) would only come into play if the element of expectancy or probability can be identified or quantified. If it cannot be identified then, the open market value, already arrived at, must be awarded as compensation.

9. President Power held that the Tribunal was not required by s.12(d) to first, without reference to s.12(c), ascertain the open market value of the land and to then look to see if it could identify and quantify the expectancy or probability element referred to by s.12(c) and to make the appropriate deduction, if any, from the market value. It was because subsection (d) was expressly worded as being subject to s.12(c). The Tribunal then rejected the comparable put forward by Watford on evidentiary grounds and adopted the evidence on market price put forward by the government and arrived at a rate of $2.2 sq. ft. as the basis for calculation of compensation for the land resumed.

10. When the case went to the Court of Appeal, it was held that the construction adopted by the Lands Tribunal over s.12 was proper. Pickering, JA., on dismissing the appeal, had said:

"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 facts of the Winfat Enterprises (HK) Co. Ltd. case could be seen from the Kempster, J's judgment at page 211 of the report:

"The plaintiff was the Crown lessee of certain parcels of agricultural land in the New Territories. It sought to develop the land for housing. Government permission to change the user of the land was sought and refused three times. Resumption of the land was subsequently ordered pursuant to the Crown Lands Resumption Ordinance. Cap. 124. Cash compensation of $15 million was offered on condition that the land be surrendered to the Crown free of all encumbrances forthwith. The plaintiff, having sublet the land, was unable to comply with the condition, and therefore unable to accept the compensation offered. The only alternative was compensation under the ordinance, the term of which exclude all claims for the potential development value of resumed land.

In these proceedings the plaintiff sought a series of declarations to enable it to escape the terms of the ordinance and related legislation. It relied on a provision in the Convention of Peking 1898, by which the New Territories were leased from China. The treaty provided that if land were required for public purposes it should be bought at a fair price."

12. It was against this background that the plaintiff sought 10 declarations the sixth of which was framed in the following terms:

"Further and in the alternative to (1) to (5) above, section 12(b) and 12 (c) of the Crown Lands Resumption Ordinance Cap. 124, Laws of Hong Kong are void as being repugnant to and or ultra vires of Her Majesty's Order-in-Council providing for the administration of the New Territories dated 20th October 1898 and/or the Letters Patent and/or the Royal Instructions."

13. After His Lordship had analyzed the various constitutional instruments, legislation and authorities, Kempster J refused granting most of the declarations including the 6th one and held that section 12(b) and 12(c) of the Crown Lands Resumption Ordinance was not repugnant to those quoted constitutional instruments.

14. Mr. Miu placed much reliance on the following two paragraphs in the judgment of Roberts, C.J. in the Court of Appeal (from page 35 to 36 of the judgment):

"The Crown having resumed under the Crown Lands Resumption Ordinance, the plaintiff was left with his remedy thereunder, which was to submit a claim for compensation for the resumed land. It is not disputed that the amount which can be obtained by a claimant under that ordinance is likely to be significantly less than the price which might be obtained for the sale of such land in the open market.

This is because a buyer in the open market would be prepared to pay a price which takes into account the possibility of obtaining a modification of the Crown Lease so as to permit building on the land, whereas s.2 of the Crown Lands Resumption Ordinance obliges the tribunal in its assessment of compensation, "to discount any evidence which shows that the land values have been enhanced by expectation of redevelopment or of a modification of lease conditions".(Underline added)

15. As for the Privy Council's judgment in the Winfat case, Mr. Miu initially sought to rely on a passage reported in the head note of the law report at page 735:

"(3) That the Crown Lands Resumption Ordinance having been made in accordance with the proper exercise of legislative powers was not ultra vires even though under section 12 the compensation payable by the government for the resumed land was less than its value on the open market, and that therefore, the resumption by the government was valid" (post, P. 746 B-D.)

16. However, Mr. Chan for the Applicant had pointed out that the summary was in fact a misquoted one because the passage of the main judgment appearing. p.746 B-D did not warrant the same. Mr. Miu conceded and expressed that it would be sufficient for him to rely on the above passages in the Court of Appeal's judgment.

17. Lastly, Mr. Miu sought to rely on the reasons put forward by the then Attorney General in 1922 when he proposed the relevant amendments to be made on the Crown Lands Resumption Ordinance to the Legislative Council:

"(1) The object of this Ordinance is to make it clear that in resumptions under the Crown Lands Resumptions Ordinance no compensation is to be awarded in respect of mere expectancies or probabilities. For example, the owner of agricultural land held under a Crown Lease which prohibits the erection of buildings except with the licence of the Crown is not to receive any compensation with respect to the possibility that such a licence might at some time have been obtained if the land had not been resumed. This principle is not new as it is in force under the Lands Clauses Consolidation Acts in England, and it seems only reasonable that the community should not have to pay for a mere possibility of this kind which the claimant could never have enforced.

(2) The reason for the amendments of Ordinance No. 14 of 1921 on this point is that that Ordinance laid down as a general rule that the basis of compensation should be the market value of the land, and it appears to be the case that speculators, in the case of agricultural land for instance, are often prepared to pay more than the value of land for agricultural purposes in the hope that they may be allowed to convert it into building land. The claimant in such a case would no doubt argue that the speculator's price formed or was evidence of a market price above the real value of the land as agricultural land. This position is all the more likely to arose in a district which is about to be developed by the Government for building purposes, and if the above argument were to prevail the result would be that the community would have to pay a very much increased price for the land, although this increased price was based solely on the mere possibility of conversion which the Government have absolute discretion to refuse. The effect would be to make development more expensive and to raise the rents on the developed property, and it might even have the effect of checking development altogether in a particular district.

(3) The intention of this bill, therefore, is to provide that the rule of taking the market price as the basis of compensation is to be subject to the further rule that no compensation is to be given in respect of such mere probabilities."

18. Mr. Miu had further quoted an example given by the then Attorney General in his bid to explain the bill:

"For example, the owner of land held under an agricultural lease which prohibits the erection of buildings is not to receive any compensation on resumption based on the argument that, at some time or other, the land might have been converted into building land (with the consent of the Government) if the resumption had not taken place...."

19. As for the Suen Sun-yau's case, Mr. Miu contended that the case was wrongly decided for both the Watford's case and the Winfat's case were not cited to the Lands Tribunal at the time. As the doctrine of stare decisis went, submitted Mr. Miu, the Suen Sun-yau's case was not binding on us while the decisions of the Court of Appeal and the Privy Council in Watford and Winfat were.

(4) Our Decision on the Applicability of the Authorities:

20. Firstly, we noted that both the Watford and the Winfat line of cases were not decisions on the inter-relationship between zoning and section 12 (c) of the Land Resumption Ordinance. It was common ground that the first Outline Zoning Plan for the Fanling and Sheung Shui area was not gazetted until 1987. The final decisions of those two lines of cases were reached well before that year.

21. Secondly, it was our view that the Watford case only decided that covenants restricting usage under the Block Crown Lease must be taken into account when a valuer for a piece of resumed land started looking for comparables. This view was up held by the Court of Appeal. We noted that the Lands Tribunal at first instance had said at page 260 of its judgment:

"It is further to be noted that s. 12(d) requires that the open market value shall be determined 'subject to the provisions of s.11 and to the provisions of paragraphs (aa), (b) and (c)' of s.12. Given the above the Tribunal cannot accede to the argument that the required approach to a valuation under s.12 is first to ascertain the open market value and to then identify, quantify and deduct the expectancy or probability factor. This may, in certain cases, be a proper and useful approach but the Tribunal can see nothing in s.12 that would prevent it from approaching the valuation of land restricted to agricultural use by using the sales of comparable land which is similarly restricted. Indeed, in the present case, the Tribunal is satisfied not only that this is a proper and permitted approach under s.12 but also that it is the approach to the problem of valuation most likely to result in a correct valuation." (Underline added)

22. In the instant case before us, the Applicant was simply using a comparable which shared the same attributes with the subject lot; namely zoned as "residential" and was restricted to be used as agricultural land under the Block Crown Leases. Therefore, we are not convinced that Watford was the authority for stopping the Applicant from doing what they did.

23. Thirdly, after we have gone into the Winfat line of cases in detail, it becomes apparent to us that the issues in Winfat was on constitutional law rather than on the interpretation of s.12 of the then Crown Lands Resumption Ordinance. When Roberts, C.J. said those words in the passage cited by Mr. Miu, he was simply reciting the common grounds of the parties instead of making a judicial finding on the issues in the case. In the first place, His Lordship made it clear in the first quoted paragraph the fact that the amount obtainable by the Applicant under the Ordinance would be less was not in dispute. His Lordship further quoted an interesting passage in the second quoted paragraph that "to discount any evidence which shows that the land values have been enhanced by expectation of redevelopment or of a modification of lease conditions". This quoted passage was used by His Lordship to explain the effect of s.2 (the predecessor of the exiting s.12) of the then Crown Land Resumption Ordinance. The section was recited in page 41 and 42 of the judgment but was in very different wordings with quoted passage. It then became clear to us that His Lordship was not quoting from the then ordinance but from some other documents probably the pleading document of the parties. In the end, we are satisfied that the two paragraphs quoted by Mr. Miu did not form part of the ratio of the judgment. They were just the Court of Appeal's recital of the common ground put forward by the parties concerned.

24. Finally, on the passages Mr. Miu quoted from the 1922 Hong Kong Hansard, we are of the view that such materials must be viewed with great care. As the learned authors of Cross: Statutory Interpretation (Second Edition) Butterworths Dr. John Bell and Sir George wrote from page 154 to page 156 in their book:

"Although the justifications offered for the rule are various and have been different at different epochs, it has been generally accepted for well over a century that Parliamentary debates are not admissible as an aid to interpreting a statute. The rule is that expressed by Lord Reid in Beswick v Beswick [1968] AC 58 at 74................................................................................................................
................................. The principal argument used to justify this rule is that for the vast majority of those who have to apply and interpret the Act, be they solicitors in practice, or magistrates, or judges in Crown Courts, Hansard is not easily accessible. To permit its use would violate Lord Diplock's principle that legal certainty requires that citizens should be able to ascertain what the Act requires by means of accessible information. Equally, as Lard reid stated, the sheer volume of material would excessively increase the work of lawyers and prolong litigation. As Lord diplock pointed out in Davis v Johnson [1979] AC at 329

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

Most of these practical arguments relate ultimately to the constitutional value of the rule of law. Arguments have been adduced equally from the constitutional value of the separation of powers. The first is that the interpretation of statutes is the constitutional function of the courts, and that this should not be ceded to another agency. Lord Wilberforce made this point in relation to committee reports, but it is equally applicable here. The second argument advanced by Lord Hailsham is less strong. He suggests that comity between the different branches of the state requires that they should not criticize erroneous interpretations of the Act made in Parliament, if Hansard were to be admissible."

25. The "exclusion" view was far from being conclusive. There were also arguments for allowing reference to be made to the relevant Hansard in order that the "legislative intent" of the legislature might be ascertained. Thus the learned authors wrote on at page 156 and onwards:

"On the other hand, there is the argument put succinctly by V Sacks:

"If the judicial role is to apply the intention of Parliament, it appears perverse that the judges refuse to seek the legislative intent in the very place where it might be found---that is, the back ground materials to the statute....'

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

There is force in the argument that the issue might be better resolved by giving due weight to Parliamentary debates as guides to interpretation coupled with the sanction of costs for unnecessary citation, rather than by a blanket prohibition. (underline added) "the learned aythors then went on "

It should be noted that strong arguments have been advanced in recent years in the United States for refusing to admit legislative debates as guides to interpretation. Although many of these arguments are transposable to the current position of English law, it is unlikely that English lawyers would accept the argument of some American authors that legislative debates may be consulted not for interpreting the meaning of statutory words, but to guide the creation of a legal rule where the statute provides none."

26. What then is the due weight, if any, we should give to the passages that Mr. Miu quoted from the 1922 Hong Kong Hansard when approaching the problem before us. In our judgment, the weight to be attached to the then Atterney General's speech in the Legislative Council in 1922 must be minimal. Much change had taken place in the Hong Kong society ever since 1922. What the Atterney General hoped to achieve by the bill in 1922 may be different from how the ordinance have been applied by the courts in the last 78 years. This is possible for the judiciary has its unique constitutional role to play when interpreting a piece of legislation. In our view, such role is best explained by Lord Diplock in Fothergill v Monarch Airlines Ltd. [1981] AC 251 at 279-80 and as quoted in page 152 in Cross: Statutory Interpretation.

"The constitutional function performed by courts of justice as interpreters of the written law laid down in Acts of Parliament is often described as ascertaining 'the intention of Parliament'; but what this metaphor, though convenient, omits to take into account is that the court, when acting in its interpretative role, ...is doing so as mediator between the state in the exercise of its legislative power and the private citizen for whom the law made by Parliament constitutes a rule binding upon him and enforceable by the executive power of the state. Elementary justice or, to use the concept often cited by the European Court, the need for legal certainty demands that the rules by which the citizen is to be bound should be ascertainable by him (or, more realistically, by a competent lawyer advising him) by reference to which Parliament must have intended the citizen to refer is the language of the Act itself. These are the words which Parliament has itself approved as accurately expressing its intentions. If the meaning of those words is clear and unambiguous and does not lead to a result that is manifestly absurd or unreasonable, it would be a confidence trick by Parliament and destructive of all legal certainty if the private citizen could not rely upon that meaning but was required to search through all that had happened before and in the course of the legislative process in order to see whether there was anything to be found from which it could be inferred that Parliament's real intention had not been accurately expressed by the actual words that Parliament had adopted to communicate it to those affected by the legislation."

27. We are therefore convinced that except in cases where the wordings of a piece of statute are unclear and ambiguous and lead to a result that is manifestly absurd or unreasonable, it would be undesirable or even impermissible to look for solution in the Hansard. As for our case here, we note that when s. 12 (c) of the Crown Lands Resumption Ordinance was first introduced in 1922, Outline Zoning Plan still formed no part of the mechanism in land administration in Hong Kong. The size of the Hong Kong population and the value of lands were very different from those nowadays. The general population's awareness of civil rights has also undergone much improvement ever since. Throughout these years, the relevant sections have been applied by the court time and again and the Suen Sun Yau's case in 1991 was clearly one of those instances. In these circumstances, we hold that the then Attorney General's speech in the 1922 Hansard is of no assistance to us in our determination of the proper meaning of s.12(c). Futhermore, we are convinced that both the Watford and Winfat lines of cases are not authorities for the interpretation of s.12 (c) of the Lands Resumption Ordinance. We respectfully agree with Judge Cruden's analysis expressed in page 41 of the Suen's case and we hold that "hope value" embedded in a comparable sale could not stop the same from being used as a valid comparable in the valuation process of this Tribunal. We are also convinced that the clear and deliberate omission of s.4(1)(b) of the Town Planning Ordinance in s.12 (aa) of the Land Resumption Ordinance must by necessary implication that when a piece of land is zoned as "residential", such zoning must be considered when the Tribunal is assessing compensation in the event of compulsory resumption of the same.

(5) The Pointe Gourde Principle:

28. Mr. Miu raised a fall back argument in that the Pointe Gourde Principle would stop the Tribunal from taking into account the R(A)(i.e. Residential (Group A)) zoning in assessing the compensation for the subject land. Mr. Miu argued that but for the government's intention to develop public housing in Area 36 in which the subject land was located, Area 36 would not have been rezoned from GI/C (Government, Institution or Community) to R(A). (See paragraph 2.8 of the Explanatory Statement issued by the Town Planning Board in the Applicant's Bundle at page 189) Hence, the resumption and the rezoning were both instrumental to the implementation of the government's developmental plan. As the rezoning was brought about by the scheme underlying the resumption, any increase in value as a result of such rezoning should be excluded as required by the Pointe Gourde Principle. Mr. CHAN for the Applicant did not take issue on the Pointe Gourde Pinciple but disputed that there was no evidence which showed that the Town Planing Board, when reaching a decision on rezoning, had considered only the government's public housing scheme. We believe that the Applicant could not dispute seriously that the R(A) rezoning of Area 36 was not brought about by the scheme underlying the resumption for even its own expert had conceded that but for the intended public housing scheme, the land would not be rezoned to allow residential development of such high density. However, assuming that the subject land had not been rezoned and had retained its previous zoning as GI/C, what should then be our approach in trying to find out the correct amount of compensation?

29. S.12(aa) of the Resumption Ordinance has required us not to devalue the subject land because of its GI/C zoning. Given the various attributes including the location and accessibility of the subject land, we are convinced that buyers in the open market given the risks as those mentioned the Suen Sun-yau's case, would be willing to offer a price for the subject land because of its potential for development. We shall go into this point further when we consider the actual valuation of the subject land in the latter part of this judgment. As at the stage, it suffice for us to say that we find the various attribute of the subject land would make it no less valuable than a piece of agricultural land zoned as "residential" for a lower density.

(6) The Basic Law Argument:

30. As a fall back argument, Mr. Chan for the Applicant had also raised an argument on involving the interpretation of the Basic Law. In brief, Mr. Chan submitted that should the AG's speech in the 1922 Hansard be accepted by us as the correct interpretation of s.12(c) of the Lands Resumption Ordinance, s.12(c) would be inconsistent with Article 105 of the Basic Law. Article 105 provides:

"The Hong Kong Special Administrative Region shall, in accordance with law, protect 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 p0roperty concerned at the time and shall be freely convertible and paid without undue delay."

31. Bearing in our mind that this is only a fall back argument of Mr. Chan for the Applicant and that the argument we have heard from the parties so far were very brief and insufficient, we have decided not to make a ruling on this point.

(7) The zoning assumption for the subject land :

32. In the third valuation report prepared by Mr. Chan Cheong Kit, the expert surveyor called by the Applicant, there were only two comparable transactions of land with residential ("R") zoning. On the other hand, in the Respondent's expert surveyor, Mr. Michael Wong's valuation report, he had identified seven land sales of agricultural land, all with zoning other than residential, in the vicinity of Fanling and Sheung Shui. Mr. Wong, in the light of his interpretation of the laws of compensation as they applied to the subject land, decided that his choice of comparables are preferred to Mr. Chan's comparables. Also, Mr. Wong had not set out any alternative valuation using other comparables, in the event that his interpretation of the laws of compensation is not accepted by this Tribunal.

33. The Tribunal first have to decide what the zoning of the subject land would be, in the absence of the scheme underlying the resumption.

34. The subject lot was originally zoned "Government, Institution or Community ("G/IC") in the draft Fanling/Sheung Shui Outline Zoning Plan No. S/FSS/6. According to the draft Fanling/Sheung Shui Outline Zoning Plan (Plan No. S/FSS/7), the subject land fell within an area zoned "Residential (Group A)" ("R(A)") in January 1998 and was subject to the uses set out in the Notes attached to the plan. The subject land also fell within an area zoned "RS" and scheduled for "proposed public rental estate and home ownership scheme" in the non-statutory Fanling/Sheung Shui Area 36- Layout Plan (Plan No. L/FSS36/1B) prepared by Sha Tin, Tai Po and North District Planning Office, Planning Department. This zoning in the Layout Plan apparently formed the basis of the statutory re-zoning in January 1998.

35. Both expert surveyors have considered the best alternative zoning for the subject land, on the basis that it had not been rezoned for "R(A)" uses. In this respect, even Mr. Chan agreed that if not for the public housing scheme underlying the resumption, the subject land might not have been zoned "R(A)". However, Mr. Chan argued that the subject land's former zoning of "G/IC" already provided evidence that it was suitable for building development prior to its rezoning into "R(A)" in January 1998. In his report, Mr. Chan made reference to the permitted maximum plot ratios of nearby residential developments, as follows: Eden Garden, Glamour Garden and Camellia Court were zoned "R(C)1" each with a maximum plot ratio of 0.8 whereas Vienna Garden, Cheerful Park and Greenpark Villa were zoned "R(B)" each with a maximum domestic plot ratio of 5.0, although the actual plot ratio achieved for each of the latter developments was only about 3.3. Mr. Chan concluded in his third valuation report (Bundle page 137) that in the light of the characteristics of the residential developments nearby the subject land, "it is therefore reasonable to assume a development intensity of at least 0.8 plot ratio for the subject area if the scheme (public housing scheme) is ignored." During cross examination, Mr. Chan confirmed that without the scheme, it would be logical to assume that the subject land was suitable for "R(B)" uses.

36. On the other hand, Mr. Wong emphasised that it was only because the Town Planning Board approved the change of use of the subject land and the adjoining land for "public housing development", as stated in paragraph 2.8 of the Explanatory Statement attached to the OZP No. S/FSS/7, that theses lands were re-zoned to "Residential (Group A)" ("R(A)") on 27 January 1998. Mr. Wong argued that under the "Pointe Gourde" principle, the effects of the existing "R(A)" zoning of the subject land and the intended use of the subject land for public housing development had to be disregarded.

37. In Mr. Wong's valuation report, he did not explicitly state what zoning, if any, should be assumed for the subject land when the effects of the existing "R(A)" zoning had to be disregarded. From what Mr. Wong elaborated in his report and in the cross examination, it was Mr. Wong's opinion that since Section 12(b) and (c) the Land Resumption Ordinance required him not to consider those comparables if they were purchased with an intention for building development, the latter of which included residential development. He therefore only identified and analysed comparable sales of agricultural land in the vicinity of Fanling and Sheung Shui, all but with zoning other than residential. We could conclude from Mr. Wong's choice of comparables that Mr. Wong's valuation had assumed that, in the absence of the public housing scheme underlying the resumption, the best alternative zoning for the subject land would be for lower order zoning other than residential, such as "G/IC", "GB" and "AGR" (These were the actual uses of Mr. Wong's comparables. See Bundle Page 193 for details).

38. Even ignoring the said actual re-zoning and assuming the former G/IC zoning for the subject land, the Tribunal would still have to decide its best alternative zoning because under Section 12(aa) of the Land Resumption Ordinance, Cap. 124, one has to ignore the "G/IC" zoning.

39. We determine that Mr. Wong's assumption of the best alternative zoning for the subject land, on the basis that the then current "R(A)" zoning is to be ignored, cannot be substantiated by factual evidence adduced by both parties. Mr. Wong's assumption is less convincing than Mr. Chan's. In the course of our determination, we have considered the location and accessibility of the subject land as well as the existing physical boundary and the direction of possible growth of Sheung Shui as a regional Town in this part of the New Territories in Hong Kong. We have had regard, in particular, to the subject land's actual location relative to the Sheung Shui Town Centre, the proximity of the subject land to the main road (Pak Wo Road) and the main highway (Tai Po Road- Fanling Section) in this part of the New Territories and the then actual current uses of the land nearby to the east and the north of the subject land. (The relevant plans are found in the Pages 141, 141A and 141B of the Bundle.) We find that the subject land is located so close to the fringe of several residential zones that it is very likely that as the Sheung Shui Town grows further, the area where the subject land is located will very likely be re-zoned for residential uses. Our opinion is further reinforced by the fact that the subject land was previously zoned "G/IC" which already indicated that the land was suitable for building development. Therefore, we agree with Mr. Chan that in the absence of the resumption and even ignoring the existing "R(A)" zoning, the possible alternative zoning for the subject land, for the purpose of determination of compensation, is for residential uses. We further concur with Mr. Chan that given his findings of the actual zoning and the permissible plot ratio of the residential land to the east of the subject land and his analysis, it is very likely that the subject land will be zoned for R(C)1 uses and subject to a maximum plot ratio of 0.8.

(8) Choice of the best comparables by the Tribunal

40. The Tribunal shall value the subject land by direct comparison method of valuation, which is the usual method of valuation for this type of property as well as the method adopted by both parties' experts. Following the above determination of the zoning assumption by the Tribunal, we further determine that it is of paramount importance that the Tribunal should compare the subject land with similarly zoned land. At the outset, we find it to be sheer common sense that in the property market in Hong Kong, to any vendor and purchaser of land demised for agricultural uses and held under the Block Crown Leases, the zoning of such land under the statutory town plan is of over-riding importance. Since the Tribunal shall value the subject land on the basis of direct market evidence, we cannot see why the Tribunal should place less importance on this zoning factor. The substantial differences that always exist between the values of residential zoned land and "GIC"/ "Green Belt"/ "Agriculture" zoned land will dictate that the latter cannot serve as good comparable for the subject land. These differently zoned land belong to different sub-markets. The Tribunal would not accept valuation that attempts to adjust for the differences in these zonings because any such adjustment will bound to be very arbitrary. Basically, 'players' in the property market, very seldom if ever at all, use transactions of differently zoned land as comparables of values when they negotiate for the sale or purchase of land.

41. We do not agree with the rationale behind Mr. Wong's valuation assumption that in valuing the subject land, the Tribunal should only consider those comparables that do not have a residential zoning but have one of lower order zoning, such as "G/IC", "GB" and "AGR". We will not repeat the legal arguments here but will only point out that Mr. Wong appeared to have come to his conclusion solely based on his interpretation of the law but not based on a realistic analysis of the geographical location of the subject land. This is apparent when one studies the obvious differences in the location of the subject land and the comparables identified by Mr. Wong (see location plan at Bundle Page 195).

42. Under these circumstances, we decide that the comparables identified and analysed by Mr. Chan in his third valuation report should be adopted by the Tribunal in the valuation of the subject land.

(9) Analysis and adjustments of the chosen comparables

43. Mr. Chan stated in his third valuation report that he could only identify two comparable transactions of "R(C)1 zoned land. The details of the comparables were summarized in Page 138 of the Bundle. Comparable 1 was Lot No. 689sE, 737 & 738sA in DD 51 Sheung Shui. It was transacted at a considertion of $14,240,000 on 4 January 1999 (agreement date). Comparable 2 was Lot No. 689sCss2 in DD 51, located close to Comparable 1. Comparable 1 fetched a sale price at a unit rate of 8,184/m2 while Comparable 2 fetched a much higher unit price of $16,552/m2. Mr. Chan opined that Comparable 2 had a higher unit price because of its smaller size. Mr. Chan at the end considered his Comparable 1 to be the best comparable whilst Comparable 2 sets the ceiling figure for the valuation of the subject land. After analysis and reflecting on the factors of time, accessibility and quantum, Mr. Chan decided that no adjustment for any of the said factors was warranted. Consequently, Mr. Chan directly applied the unit rate of his Comparable 1 to the agreed site area of the subject land. He arrived at a figure of $10,122,790 which he rounded to $10,120,000 as to be the open market value of the subject land for compensation purpose at the relevant valuation date.

44. Mr. Wong did not consider and analyse the Comparables identified by his counterpart. Nor did Mr. Wong comment on these Comparables and give opinion on their adjustments, if any, during the hearing. The Respondent has also not made any reference to these Comparables in their submission, other than the arguments that these are not relevant comparables, from the legal point of view. Therefore, the Tribunal has not had the benefit of hearing the opinion on the appropriate adjustments for these Comparables from the Respondent. This is very undesirable. However, the Tribunal has a statutory duty to determine the quantum of compensation for this application. The parties had had their opportunity of giving evidence and submission. The Tribunal is still bound to give a decision even though one party decides not to rely on certain comparables adduced by another party.

45. Following the decision we have reached on the law, we are of the view that the comparables adopted by Mr. Chan is preferred by this Tribunal mainly because they are the only comparables sales of agricultural land of similar leases and similar zoning to the subject land. These two comparables were both zoned "R(C)1, similar to the alternative zoning for the subject land as determined by the Tribunal, even on the basis of ignoring its existing zoning at the relevant valuation date. However, we note that the subject land has a site area of 1,236 m ², Comparable 1 a site area of 1,740 m² and Comparable 2, a comparatively very small area of 280m2. That is, the size of Comparable 2 is only about 23% of that of the subject land. By comparison, the size of Comparable 1 is about 71% of the subject land. Therefore, we concur with Mr. Chan that Comparable 2, being a fraction in size of the subject land, is not a good comparable for the subject land. That may also account for the big variance in the unit rates between the two comparables.

46. The Tribunal is left with only one good comparable, being Comparable 1 in Mr. Chan's third valuation report. This is not very desirable. Yet when we studied further the characteristics of this Comparable 1 and the subject land, we agree with Mr. Chan that they share many similarities. In the words of Mr. Chan, his two comparables, including Comparable 1, are relevant because-

1) they have "the same development density as Eden Garden, Glamour Garden and Camellia Court is permitted under this "R( C)1 zone, i.e. 0.8 plot ratio,

2) their physical environment are very similar to that of the subject property,

3) they are equally accessible from Sheung Shui town centre as is the subject property, and

4) like the subject property, they cannot be developed on their own and need to be amalgamated with adjoining lots for development."

47. Therefore, we decide that in the absence of other better comparables, we agree to firstly to consider this comparable in further details, to see if it requires any adjustment when comparing with the subject land and finally, to see if the adjusted unit rate of this Comparable can be reconciled with other comparables submitted by the Applicant.

(10) Adjustment for time

48. Mr. Wong in his report used the Government's gazetted ex-gratia compensation rates figures to justify that no time adjustment was required because the market for the period covering the reversion date of the subject land and the transaction date had been very stable. There have always been debates among valuation surveyors on the appropriateness of using price index of completed residential premises or Government's gazetted ex-gratia compensation rates for resumption of agricultural land at various points of time as a reference for adjusting agricultural land transactions for their time differences. This is because in Hong Kong, the transactions in agricultural land are so limited in number and fluctuated in frequency that there is no published index on their values over time. Hence, a handy index for valuers who wish to time index their analysed transactions is simply not available. The Tribunal decides that in the present case, the alternative reference, in the absence of a proper price index, is the price index of completed private domestic premises prepared by the Rating & Valuation Department. This is preferred to the Government's gazetted index of compensation rates because the latter is an artificial index drawn up by Government officials for administrative purposes only.

49. In the present case, the reversion date of the subject land was January 1999 whilst Comparable 1 was transacted in May 1999. During this period, the above said price index shows a minimal change. As a result, we agree with Mr. Chan that no time adjustment is required.

(11) Adjustment for differences in accessibility

50. Mr. Chan opined that no adjustment is this respect was required. We hold a different view. We find that the subject property is located very close to Pak Wo Road and Wai Hon Road, and to the Sheung Shui KCR Station. As a comparison, the accessibility of Comparable 1 is inferior. In our opinion, a slight downward adjustment of say 5% is considered to be appropriate.

(12) Adjustment for quantum

51. We agree with Mr. Chan that as the sizes of Comparable 1 and the subject land (1,740 m ² and 1,236.9m ² respectively) are considered to be within the same size range in terms of value, no quantum adjustment is necessary.

(13) Adjustment for shape of site

52. The subject land is very irregular in shape. Mr. Chan gave evidence that the shape of the subject land should not have any bearing on its price. In general, for sales of sites similar to the subject land, their unit sale prices would not be affected by the shapes of the sites because these sites were sold and purchased on the understanding that they would have to be amalgamated with adjoining land in the future, before development could take place. The Tribunal holds a different view. Although in reality, for sites comparable to the subject land, they were not yet ripe for development. However, to the purchasers, it would be usually easier for them to assemble a reasonably regular site if each of the sites they purchased were more regular in shape. So, other things being equal, the purchasers would be more willing to pay a higher price for more regularly shaped sites in the market. For this reason, the Tribunal decides to apply a downward adjustment figure of -10% to the reflect the irregular shape of Mr. Chan's Comparable 1.

(14) Adjustment for difference in stage of site amalgamation

53. During the cross examination, Mr. Chan conceded that the stage of amalgamation could affect the unit value of a particular site. We agree with him in principle. Mr. Chan further acknowledged that for Comparable 1, about more than half of the land (including Comparable 1 and the adjoining land) had been amalgamated by the purchaser. Therefore, we determine that a downward adjustment of -10% for the subject land in respect of this factor is warranted.

(15) Reconciliation of value

54. Hence, from the unit rate of Comparable 1 of $8,184/m2, an overall downward adjustment of 25% has to be made in order to arrive at the appropriate unit rate for the subject land:

$8,184/m2 x (1-25%) = $6,138/m ².

55. We have stated earlier that players in the property market, very seldom if ever at all, use transactions of differently zoned land as comparables of values when they negotiate for the sale or purchase of land. However, for the valuation of the subject land, so far as the zoning factor is concerned, we consider that the Respondent's comparables that are closest to the subject land, in terms of zoning, is his Comparable 1. This is Lot No. 3022sA in DD 51, Ng Uk Tsuen. The lot has a site area of 485.6 m ². It was zoned "G/IC" and sold for $2,754,734 at the date of transaction, 5 May 1999. The unadjusted unit price was therefore $5,673/m ². It was Mr. Wong's opinion that since the "the lot owner has endeavoured to acquire agricultural land in the vicinity to make way for a land exchange for development of an elderly home... the transaction price of this comparable will have included an element of hope value", the comparable should be disregarded. This argument has been disputed by the Applicant in the hearing. The Applicant's submission on this point is agreed by this Tribunal for reasons stated earlier on the issue of whether similar transactions, entailing possible elements of hope value, should be disregarded by the Tribunal in valuing agricultural land for compensation purposes.

56. On further analysis, we indeed find that there were much similarities between the subject land and Mr. Wong's Comparable 1 described above. According to Mr. Wong, they were located close to each other. This comparable had a transaction date of 5 January 1999 whilst the reversion date of the subject land was 27 January 1999. Also, this comparable was zoned "G/IC" at the date of sale and the subject land was zoned "G/IC" prior to its re-zoning into "R(A)". Therefore, there were many similarities between this comparable and the subject land. Neither expert has attempted to adjust this comparable with the subject land. Nevertheless, when we compare our adjusted unit rate of the Applicant's Comparable 1 to this comparable, we find that they are within a close range of value. We could actually argue that our adjusted unit rate of the Applicant's Comparable 1, at a figure of $6,138/m ² is supported by the unadjusted unit rate of this comparable.

57. Therefore, in the final analysis, we decide to adopt our adjusted unit rate of the Applicant's best comparable, Comparable 1 for the valuation of the subject land in this application. The market value of the subject land at the relevant valuation date is therefore estimated as follows:

1236.9m ² x $6,138/m ² =$7,592,092 rounded to $7,592,000.

(16) Orders

58. Accordingly, we order that the Respondent pay the Applicant compensation in the sum of $7,592,000.

59. Leave is reserved to apply for the rate of interest, if not agreed, to be determined under section 17(3A) of the Lands Resumption Ordinance, Cap. 124. There will also be an order nisi that the Respondent pay the Applicant's costs on the High Court party and party scale with certificate for counsel, to be taxed if not agreed, to be made absolute unless application is made by either party within 21 days for another order in place thereof. Liberty to apply is also reserved for ancillary and consequential matters.