CHAN SAU YING v. THE DIRECTOR OF LANDS

Property law - Crown lands resumption - agricultural land - affect of being private land within a country park - irrelevance of Crown's zonal rates - valuation is made with benefit of hindsight so comparable transactions after the date of resumption admissible - where several non-contiguous lots resumed even though in same ownership each must be separately valued Held: $41,000 compensation awarded - Sections 6, 10, 12 Crown Lands Resumption Ordinance, Cap. 124; Sections 10, 16, 19 Country Parks Ordinance, Cap. 208.

IN THE LANDS TRIBUNAL OF HONG KONG

Crown Lands Reference No. 11 of 1983

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JUDGMENT

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1. This was an application for compensation, pursuant to Section 6 of the Crown Lands Resumption Ordinance, Cap. 124, upon the compulsory resumption by the Crown of Lots 952, 965, 970, 991 and 996 in Demarcation District 326, Lantau Island. The applicant is the Crown lessee of these 5 separate Lots.

2. On the 31st day of May 1983 the Governor-in-Council decided under Section 3 to resume these and other lots in the came locality for a public purpose, namely for the Lantau Training Camp. Notice of the resumption was published on the 17th day of June 1983 in No. 24 Volume CXXV 'The Hong Kong Government Gazette' 2962 as Government Notice No. 1871. On the 21st day of June 1983 copies of the notice in English and Chinese were affixed to the land in compliance with Section 4(2). The notices declared that the lots would be resumed and the land would revert to the Crown on the expiration of 3 months from the date of affixing the notice to the land. The subject property therefore reverted to the Crown on the 21st day of September 1983.

3. The subject property, together with 48 of the other Lots being resumed, form part of an undulating to hilly area surrounded on three sides by steeper slopes. Access to the locality is by a pedestrian path about 1½ kilometres from Mile Store 8 at Shui Hau, on the South Lantau Road. The fourth side of the locality faces and descends about 1½ kilometre towards the beach at Lo Kei Wan.

4. The 53 resumed lots at this location comprise uncultivated land which is generally stony, covered with grass, scrub and a few trees. No buildings are erected on any of the Lots and on our inspection there was no evidence that the land has ever been occupied or cultivated. The applicant had not visited the subject property for more than 10 years and has never used the property for agricultural or any other purpose.

5. However, the subject property and the other lots resumed, form part of an agricultural Block Lease which variously describes the use of the subject property when the original survey was carried out, as padi and dry cultivation.

6. There is no established access to the sea at Lo Kei Wan. The subject property is within about 20 minutes walking distance along the pedestrian path to Mile Stone 8, South Lantau Road at Shui Hau. The pedestrian path is over largely unoccupied undulating to hilly agricultural land. Shui Hau in turn is about 25 minutes by car to Mui Wo which is 1 hour by scheduled ferry to Hong Kong.

7. None of the 5 subject property's Lots are adjoining. They are scattered among the other 48 Lots with at least one other Lot separating the Lots owned by the applicant. The areas of these 5 non-contiguous Lots are:-

8. The Block Lease permits the Crown lessee to use the subject property for agricultural purposes. There is the usual restriction on converting the land for building purposes other than for the proper occupation of the land as agricultural ground.

9. The subject property is privately owned land within the boundaries of the Lantau South Country Park which was designated a Country Park under the Country Parks (Designation) Order, Cap. 208. The Lantau South Country Park is therefore subject to the provisions of the Country Parks Ordinance, Cap. 208. The Crown submitted that in determining the value of the subject property for compensation the restrictions imposed by the Ordinance must be taken into account.

10. The Country Parks Ordinance empowers the Director of Agriculture and Fisheries to refuse, under Section 10, approval of any new development and under Section 16, to require an owner to discontinue or modify an existing use of the land or cease to proceed with or modify a proposed use. Depending on the nature of the property being resumed, these restrictions under the Country Parks Ordinance may have a material affect on value. We accept that as a matter of law these restrictions must be taken into account. However, if any restrictions under the Ordinance were to reduce the value of the land the applicant, subject to complying with time limitations, would have a right to claim compensation under Section 19 for that reduction in value and other loss or damage.

11. In this application for compensation we are not concerned with any application for compensation under the Country Parks Ordinance. What we are satisfied is that no restrictions have been imposed on the subject property under Sections 10 or 16 of the Country Parks Ordinance. We are further satisfied that the Ordinance has not materially affected the value of the subject property.

12. We now turn to consider the compensation payable, which requires us to determine the value of the subject property as at the 21st day of September 1983, in accordance with the criterion set out in Section 12(d) of the Crown Lands Resumption Ordinance, as recently amended by Section 6 of the Crown Lands Resumption (Amendment) Ordinance No. 5/84. The Section now provides:

13. The Amendment inserted the words "by a willing seller". We do not think this changes the customary basis of assessment of compensation in Hong Kong. For hitherto the ascertainment of the open market value has generally been carried out on the basis of a willing and not reluctant seller. All the Amendment seems to make clear, is to recognise current practice that in valuing the resumed applicant's interest in land, no solatium or additional payment is to be made on account of the fact that the applicant, whose land is being compulsorily resumed, may not be a willing seller. It may be noted that payment of additional compensation, where applicable, for severance or disturbance, remains unaffected, for the enlarged Section 10 continues to provide statutory authority for payment of compensation under those different heads.

14. The applicant informed the Tribunal that she purchased the subject property about 20 years ago for $3,000. She was only vaguely aware of any other recent land transactions on Lantau Island and was unable to give us any prices or dates.

15. The Crown called Mr. P.A. Sliper, an Associate of the New Zealand Institute of Valuers, who is the Acting Senior Estate Surveyor, District Land Office, Islands, of the Lands Department by whom he has been employed for the past 7 years. Mr. Sliper was of the opinion that the open market value of the subject property was $25 per square metre. This produced a total valuation of $31,000 made up as fellows:

16. Mr. Sliper stated that he arrived at a unit rate of $25 per square metre by comparing the subject lots with what he asserted were 7 comparable transactions. We will consider these comparables in detail shortly.

17. In addition, there was evidence before, the Tribunal relating to the Crown's zonal rates for agricultural land in Hong Kong. The applicant herself alluded to these rates in her evidence. She pointed out that the Crown offer of $102,630.40 equalled $7.60 per square foot. She sought compensation based on a rate of $338 per square foot. A copy of the 'Wah Kiu Yat Po' newspaper of the 11th day of October 1983 was produced by the applicant, which reported that compensation for agricultural land in the New Territories was $38 per square foot and for residential land $65 per square foot.

18. Mr. Sliper explained that the $38 per square foot is a basic rate for New Territories agricultural land used when the Crown is negotiating the purchase of land. The New Territories, for such purpose, were divided into 6 zones with 5 differential rates. The subject property was in Zone G and the zonal rate for this zone was 20% of the basic rate of $38. This produces a zonal rate of $7.60 per square foot for Zone G. The Crown offer of $102,630.40 was calculated on the basis of that zonal rate.

19. We note from the 'Wah Kiu Yat Po' and other newspapers produced by the applicant, that the reports therein referring to current rates for resumption of agricultural land by the Crown, merely quote the basic rate of $38 per square foot and the higher basic rates which were applicable before the 21st day of September 1983. In none of those reports is there any explanation that the published agricultural rate is only the basic rate. The reports do not go on to state that in addition there are zonal rates which in some zones may only be a percentage of the basic rate. In particular, none of the reports disclose that the appropriate zonal rate for agricultural land in the locality of the subject property is only 20% of the basic rate. The applicant's approach was clearly affected by these newspaper reports. We accept that she believed, if mistakenly, that the proper rate for her property was $38 per square foot and not the $7.60 per square foot offered. On the evidence before us the appropriate rate, in accordance with the Crown's administrative procedures, was $7.60 per square foot.

20. We strongly emphasise that these zonal rates are only of background interest. They merely assist in explaining the attitude of the parties during the negotiations before the reference to this Tribunal and also the applicant's stance at the hearing. However, they are not relevant to the determination of compensation under the Crown Lands Resumption Ordinance. For as we have already indicated the basis of compensation under the Ordinance is the amount which the land, if sold by a willing seller is the open market, might be expected to realise.

21. Similarly, whether in practice agricultural land for the purposes of the Estate Duty Ordinance, Cap. 111 is assessed on the basis of a flat rate higher than $7.60 par square foot is not directly relevant. We note in any event that the value of property under that Ordinance is its open market value - Section 13(5). The only indirect relevance of zonal or other administrative rates would be if their existence and widespread application had an affect upon the open market. In that event there is still no need for them to be separately considered by the Lands Tribunal. For if they have any such indirect affect it will be reflected in those open market transactions which will have to be considered before the value of the subject property can properly be determined.

22. The first step in determining that open market value is to consider the 7 comparables on which the Crown's assessment totalling $31,000 for the five resumed lots was based. Comparisons were made on the analysed rates per square metre reflected in the sales of these other Lantau Island agricultural lots. For various reasons the Crown considered all the comparables were superior to the lots resumed.

23. All of the comparable transactions, with one exception, took place some 7 months to 1 year prior to the reversion date of the 21st day of September 1983. The Crown did not appear to consider that any sales after the reversion date would be relevant. We were also informed that as information concerning sales takes about 2 or 3 months to become generally known it would be unlikely that any such information would have been available prior to the preparation of the Crown's Rule 18 documents.

24. We take this opportunity to remind parties that, as a matter of principle, when valuing to a particular date, sales before or after the date are relevant. It is not necessary to restrict the valuation exercise to reflect what the hypothetical willing vender and purchaser would agree, based only on information available to them at the time of their negotiations. The statutory valuation is an assessment of what might have been expected to have been agreed by the parties on that relevant date. A valuer is entitled to use any information available at the date of assessment, even though not available at the notional date of negotiations, which may assist in making that valuation. In other words the valuer may have the benefit of hindsight.

25. Both as a matter of law and practice there is no reason why a valuer in determining a value should not project backwards in respect of comparable sales as well as forwards, provided proper weight is given to the available sales information. This approach corresponds with what is known as the Bwllfa principle - Bwllfa and Merthys Dare Stream Collieries (1891) Ltd. v. Pontypridd Waterworks Co. (1903) A.C. 426. The same principle has been applied in Australia - McCathie & Ors. v. The Federal Commissioner of Taxation (1944) 69 C.L.R. 15 which refers to Daandine Pastoral Co. v. Commissioner of Land Tax of the Commonwealth of Australia (unreported).

26. We have on a number of occasions emphasised, in accordance with the Bwllfa principle, that comparables both before and after the relevant date are admissible and where appropriate should be used - Fook Hing Enterprises Co. Ltd. v Commissioner of Rating and Valuation Rating Appeals Nos. 14-73/83; Chan Kwai Sim v. Commissioner of Rating and Valuation Rating Appeal No. 1/83. Those particular cases concerned rating valuations but the principle is of general application and applies to valuations for other purpose including resumptions.

27. The comparable nearest in time to the reversion date is Comparable 6, being the sale of a lot located at Pui 0, which adjoins village houses alongside the main road. This sale took place at the end of August 1983. On our inspection it was disclosed that the lot had been purchased by the owner of the house adjoining. There may therefore have been special circumstances regarding this sale and we consider it preferable not to put too much weight on this comparable.

28. When Rule 18 documents are being prepared, if it is then known that special circumstances may affect the weight that might be given to a comparable, it would be helpful if those circumstances were disclosed by the valuer in his Report. In every case where comparables are listed it is desirable that the names of the vendor and purchases are included. In addition, if it is known to the valuer that the parties are related, or are otherwise not at arms length or that the transaction represents a sale to an adjoining owner, those circumstances should also be disclosed in the valuer's report. If any of these circumstances only become known after the Rule 18 documents have been filed, the valuer can always disclose them when giving oral evidence at the hearing.

29. Apart from Comparable 6, the comparables closest to the relevant date are the three transactions involving lots at Tung Chung on the northern side of Lantau Island being Comparables 2, 3 and 4. These sales, which were for a total of 20 lots, appeared to be separately purchased by three members of the same family. The sales all took place at approximately the same time. One was dated the 10th day of February 1983 and the other two on the 8th day of February 1983. Each of these three comparables is roughly the same area of about 2,000 square metres and each was sold for the same price of $70,000. Based on the exact areas of each comparable the analysed rates range between $29 and $35 per square metro. The comparables are not contiguous. For the purposes of sale the land for each comparable was apportioned, presumably with the view to making each comparable roughly the same area.

30. Mr. Sliper did not place any particular significance on the comparables not being contiguous; his analysed rate being on the total area of each comparable. We recognise that being sales to the same family and as the lots were in the same locality, the fact that some of them separated, may not have affected the price. However, it is usual for smaller lots to attract a higher rate per unit area than larger lots or contiguous lots forming a larger area. This principle may not always apply. The attainableplot ratio for building lots may in certain circumstances increase, with an increase in area. However, these lots are not building lots.

31. The comparables appear to support the principle that smaller lots generally attract a higher rate per unit area. Comparable No. 1 is for an area of 121.4 square metres and attracted a price of $6,000 which analyses at $49 per square metre; while Comparable 7 which is for a larger area of 1,254.53 square metres sold at about the same time at a sum of $47,000. This shows an analyses rate of $37 per square metre. Comparable 7 appears to be better located and being more level is better suited to cultivation than Comparable 1.

32. Comparables 2, 3 and 4 are effectively one sale to one family. They comprise 3 separate pieces of land. For apart from the corners of two of these pieces of land being joined at the common boundaries of Lots 15 and 17, the rest of the land is separated by Lot 32. Lot 32 was not included in the sale.

33. The area of each separate piece of land is

The total area is 6,555.85 square metres and the total Price is $210,000 or $32 per square metre. That total price may be broken down for each of these separate pieces of land as follows:

34. The rate of $50 per square metre was adopted in view of the area being similar to that of Comparable 1 while the other rates are merely interpolated for what might be expected to the breakdown of the prices for the other pieces of land. This exercise does illustrate a relationship between the rates analysed and the size of the land sold. The analysed ratio of $29 per square metre listed for the lots in Comparable 4 having an area of 2,387.6 square metres may be well be less than the rate actually reflected by the sale for contiguous lots of the same area.

35. Comparables 1, 5 and 7 were for sales which took place in November 1982. Mr. Sliper suggested that there would have been a slight fall in the market between this date and the resumption date of September 1983. No evidence was led to show any change in the market over this period. Comparable 5 was a sale of an area of 768.87 square metres of sloping land situated close to the main road and an established village. Although these are agricultural lots on which no building is permitted under the lease conditions there were some vacant village houses on the site. So these lots were not comparable bare agricultural land. Further, the houses may have had some effect on the sale price. For they had red Housing Department numbers recorded on their exteriors for record purposes in connection with a Housing Department survey. This indicates that they may have been tolerated by that Department. The important fact is that this comparable is not of bare land. We can therefore place little weight on its analysed unit rate of $51 per square metre.

36. Comparable 7 is for a larger area of level land situated close to the main road and beach near Shui Hau. The analysed rate is $37 per square metre for an area of 1,254.53 square metres. The sale took place in November 1982.

37. In making a comparison of the subject property with the comparables, we recognise that a seller of contiguous lots has the option to sell each separate lot individually and thereby maximise his return. However, while Comparables 2, 3 and 4 are contiguous lots when regarded as one sale, the overall price indicates that a bulk discount has been given in respect of each of the three separate pieces of land. The analysed rate of $29 per square metre for Comparable 4 is therefore unrealistic compared to the overall price or to the $33 per square metre analysed rate for the lesser area of Comparable 2. Comparables 2, 3 and 4, regarded as one sale, support Comparables 1 and 7. Comparables 1 and 7 are for single agricultural lots and must be the best on which to base any valuation.

38. We find that the resumed land is inferior to any of the lots listed as comparables. The resumed lots are not contiguous, so that the size of each should affect the unit rate to be applied. The sizes of the lots range between 404.7 per square metre for Lot 952 to 121.4 per square metre for Lot 996.

39. The comparables suggest that, in relation to the subject property, at the relevant date, a superior lot of about 120 square metres situated close to transport and an established village, could be expected to realize about $50 per square metre and a larger area of about 2,000 square metres, similarly situated, might be expected to realize about $35 per square metre. Allowing for the resumed lots not being contiguous and varying in size, as well as taking account of their inferior location and terrain, we arrive at the following values based on the undermentioned unit rates:

40. We therefore determine compensation for the applicant's interest in the resumed subject property at $41,000. On the evidence this was clearly not a case where any additional amount for disturbance is payable. The $41,000 awarded is higher than the Crown's valuation of $31,000 but we appreciate that the compensation is appreciably less than the sum of $102,630.40 offered by the Crown.

41. However, that offer was made administratively and not in accordance with the statutory principles applicable under the Crown Lands Resumption Ordinance. From earlier resumptions we are aware that because such offers usually include sums for elements additional to market value, they frequently exceed a resumed property's open market value. We confirm we have no power to include any such additional elements in our determination of compensation. Because of our limited powers it, of course, continues to remain open to the Crown to proceed with payment of the higher sum. For our present judicial determination does not affect or restrict the Crown's administrative powers to make such higher payment as in the circumstances it may consider proper.

42. Interest is payable from the date of resumption to the date of payment at the rate of 10 per centum per annum. Liberty to apply is reserved.

DATED this 3rd day of March, 1984.