EASE GOLD DEVELOPMENT LTD v. SECRETARY FOR TRANSPORT

CACV 18/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 18 OF 2003

(ON APPEAL FROM LDMR NO. 13 OF 1999)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1. This is an appeal from a judgment of that the Lands Tribunal given on 7 January 2003. The matter before the Lands Tribunal was an application for determination of the amount of compensation payable under the Roads (Works, Use and Compensation) Ordinance, Cap. 370 ("the Ordinance") due to the creation of rights of temporary occupation in respect of two lots in Yuen Long ("the land in question"). The Lands Tribunal ordered that the respondent to pay the applicant rent of $1,474,000 for the first year and $2,948,000 for the second and third years. The Secretary for Transport appealed that decision and sought an order that the rental should be assessed at $91,950.01 per annum. A number of points of law were raised in the notice of appeal but as it transpired only a short point was argued. At the conclusion of the hearing this appeal was dismissed with costs with reasons to be given in writing, which we now do.

Background

2. The land in question was a sizeable area. Prior to the occupation which is the subject of these proceedings it comprised two fishponds situated on the east side of Castle Peak Road and on the north side of Kam Tin Road in an area known as Au Tau in Yuen Long district. It was held originally under a block Crown lease. The block Crown lease was not shown to this court and this court did not consider its terms. Counsel confirmed that it was not disputed that there was no restriction in those terms that prevented the use of the land in question for open storage.

3. The land in question fell within the ambit of a statutory zoning plan issued on 12 July 1991. That plan was headed "Draft Kam Tin North Development Permission Area Plan No. DPA/YL.-KTN/1". Again, there is no dispute that open storage was permissible for the land in question under this development plan. However, on 17 June 1994 a further outline zoning plan was issued which encompassed the land in question. Under this outline zoning plan the land was classified as "Undetermined" and any use or development of it which would include open storage required permission of the Town Planning Board. The explanation for this change was to be found at paragraph 8.11. That read as follows:

"	8.11	Undetermined (U) (Total Area : 95.74 ha)
	8.11.1	An area to the northeast of Ko Po Tsuen is zoned 'U' as there is a possible railway proposal which would run through the area as recommended by the Railway Development Study. Also, both the proposed Route 3 alignment and the proposed Main Drainage Channels for Yuen Long and Kam Tin will run through the area. In view of the above, it is proposed that the area be zoned 'U' pending finalization of the above-mentioned study and projects and the preparation of layout plan to guide development/redevelopment in an orderly manner.
	8.11.2	Within the 'U' zone, any private developments or redevelopments are required to prepare master layout plans for approval of the Board to ensure that the environment would not be adversely affected and that infrastructure, G/IC, open spaces etc. are adequately provided. The master layout plans should also take into account the possible railway proposal as suggested by the Railway Development Study and the proposed Route 3 alignment. To realise any built-form which is compatible with the surroundings, the development intensity should take into account the rural characteristics of the area to its east."

4. Not long thereafter, an order was made under section 15(1) of the Ordinance directing a right of temporary occupation for a period of 36 months over the land in question. The notice to that effect was issued on 17 August 1995. Within the time prescribed the previous owners of the land in question submitted a written claim for the sum of HK$101,300. However the previous owners sold the land in question to the applicant and the assignment took place in September 1997. The amount which the previous owners had been prepared to accept was not acceptable to the applicant and hence the present proceedings. Initially the proceedings were defended on the basis that the applicant was not in a position to bring the proceedings. It is unnecessary to go into the history of that, suffice it to say that there is now no dispute as to that.

5. The basis upon which compensation is payable is set out in the Ordinance. The relevant sections are sections 26 and 27 of the Ordinance which together provide that the compensation is to be assessed on the basis of the Schedule and in particular Part II. For the purposes of this case there is no dispute that the relevant provision is contained in paragraph 2(a)(ii) which reads:

"In the case of the creation of a right of temporary occupation, the amount of an open market rent for claimant's interest in the land occupied during the period of the easement."

6. The Lands Tribunal arrived at its decision by taking into account comparables in respect of which the Tribunal was satisfied that the rent had been fixed on the basis that the land there in question would probably be used for open storage. The respondent however, considered that the proper comparables should have been those where the use was for fishponds. It was the respondent's argument that that was the only permitted use under the 1994 Plan. It was for that reason that this matter was brought on appeal to this court and the first question of law set out in the notice of appeal raised the question as to whether the comparables which the Tribunal had taken should have been rejected on the ground of illegal use and whether the Tribunal should have regard to actual use or only to what is stipulated in the tenancy agreements.

7. In contrast, in a respondent's notice the applicant raised the point that the restrictions imposed under the 1994 plan should be ignored. It was said that these constituted a blight arising out of the project for which the land in question had been made the subject of the temporary occupation. In this context reliance was placed on the Privy Council decision in the case of Melwood Units Pty. Ltd v Commissioner of Main Roads [1979] AC 426. In giving the advice of the Privy Council Lord Russell of Killowen said at page 434A:

"Their Lordships consider now various aspects of the Land Appeal Court decision in order to see whether they show an error in law. The Land Appeal Court purport to premise their assessment on the fact that the developer when it bought was aware that because of the Commissioner's road project there was no prospect of a drive-in shopping centre other than for the north land 25 acres. In so far as this indicates a view that, as a consequence, the value of the resumed land and the loss by severance of the south land is to be based on the hypothesis that they never had a potential as part of a 37 acre drive-in shopping centre, it discloses in their Lordship's opinion an error in law. Under the principle in Pointe Gourde Quarrying and Transport Co. Ltd. V. Sub-Intendent of Crown Lands [1947] A.C. 565 the landowner cannot claim compensation to the extent to which the value of his land is enhanced by the very scheme of which the resumption forms an integral part: that principle in their Lordships' opinion operates also in reverse. A resuming authority cannot by its project of resumption destroy the potential of the whole 37 acres the development as a drive-in shopping centre, and then resume and sever on the basis that that destroyed potential had never existed."

8. Mr Tang SC, who appeared on behalf of the respondent, in a concise and frank submission conceded that it was arguable that there had been a change of use in order to facilitate the proposed Route 3 alignment and for that reason it was a blight that should be disregarded for the purposes of compensation. He conceded in argument that should that be the correct view there was no easy escape from it and that in those circumstances any further arguments based on illegal user would fall away. Since paragraph 8.11 made it clear that the change of user was introduced in order to facilitate the Route 3 alignment, it was inevitable that this appeal fell to be dismissed.

9. I would add as a rider that this has been the only point considered on this appeal and it has not been necessary to go on to consider what the full effect of paragraph 2(a)(ii) of the Schedule of the Ordinance might be and as to whether a landowner would be entitled to compensation on the basis that his rights included a right to prevent a use to which he did not consent. Nor has there been argument on other matters, for example, other points raised in the respondent's notice as to the effect of section 12(aa) of the Lands Resumption Ordinance, Cap. 124, since Mr Mok, who appeared for the applicant, was not called upon other than to confirm that he was content that this court should deal with and decide the appeal on the basis of the point outlined in paragraph 8 above alone.

Hon Cheung JA:

Nature of the use

10. The applicant was the owner of a piece of land in the New Territories. The land was let to him as an agricultural land but it was agreed by the parties that under the lease conditions he could use it for open storage. This is in accordance with the decision of Attorney General v. Melhado Investment Ltd. [1983] HKLR 327. His position was not changed in 1991 when the Draft Kam Tim North Development Permission Area Plan ('the DPA' Plan) was published. Under this plan, open storage use of the land was expressly recognised.

11. The use of the land was changed in 1994 from open storage to 'undetermined' use with the publication of the Draft Kam Tin North Outline Zoning Plan ('the Outline Zoning Plan'). This change would require the approval of the Town Planning Board if the land was to be used for open storage.

12. The reason for the change was because a railway might run through the area. Further the area might be used for the proposed Route 3 highway alignment and proposed main drainage channels. The area had to be designated 'undetermined' pending the finalization of the proposal.

Section 12(aa) of the Lands Resumption Ordinance

13. In my view the change of the use of the land does not affect the basis of the compensation payable to the applicant as a result of the temporary occupation of his land by the government.

14. It is clear that the compensation for the occupation is not payable under the Lands Resumption Ordinance ('LRO') (Cap. 124) because the government did not resume the land under section 13 of the Roads (Works, Use and Compensation) Ordinance ('the Roads Ordinance') (Cap. 370). Had it done so, the compensation would be payable as if the land was resumed under the LRO (see sections 26, 27 and Part II of the Schedule of the Roads Ordinance). This would mean that section 12(aa) of the LRO would be applicable as well. This subsection provides that in determining the compensation, no account shall be taken of the fact that the land lies within any area reserved for 'undetermined use'. In other words in this case the compensation would have to be assessed on the basis of the land capable of being used (as it always have been) for open storage. See the decision of this Court (Le Pichon, Yeung JJA and Reyes J) in View Point Development Ltd. v. Secretary for Transport (CACV 439/2002 and CACV 64/2003).

Common Law : Blight on the use

15. In this case the government acquired the right to occupy the land pursuant to section 15 of the Roads Ordinance. Under section 27 and Part II of the Schedule of this Ordinance the compensation is to be assessed on the basis of 'open market rent'.

16. The fact that compensation is not payable in accordance with the LRO does not change the position at all because section 12(aa) is merely an enactment of the common law which had been affirmed in cases such as Melwood Units Pty. Ltd. v. Commissioner of Main Roads [1979] A.C. 427 where the Privy Council (per Lord Russell of Killowen) held that,

"Under the principle in Point Gourde Quarrying and Transport Co. Ltd. v. Sub-Intendent of Crown Lands [1947] A.C. 565 the landowner cannot claim compensation to the extent to which the value of his land is enhanced by the very scheme of which the resumption forms an integral part : that principle in their Lordships' opinion operates also in reverse. A resuming authority cannot by its project of resumption destroy the potential of the whole 37 acres for development as a drive-in shopping centre, and then resume and sever on the basis that that destroyed potential had never existed."

See also Cruden's Land Compensation and Valuation Law in Hong Kong, 2nd Ed, pages 80-91.

Correct use of comparables

17. In 1995 the land together with other pieces of land in the neighbourhood were either temporarily occupied or resumed by the government for the construction of the Route 3 highway. The change of the use of the land was clearly an integral part of the scheme leading to the temporary occupation by the government.

18. The Outline Zoning Plan had 'blighted' the original permitted use of the land. As such the restriction set out in this plan must be ignored for the purpose of assessing compensation. If the change of use is to be ignored, then there is no question of illegality if the land is to be used for the purpose permitted by the lease condition and also under the DPA plan. The Lands Tribunals was accordingly correct to use 'open storage' comparables in order to assess the 'open market rent'.

Hon Suffiad J:

19. I agree.