LEUNG SUM TING v. CHINA LIGHT & POWER CO LTD

Property law - original claim of $3,913,270 successively reduced to $2,394,000 and then to $1,482,350 or more for compensation for diminution of value of land caused by registration of statutory electricity easement order - Respondent pleaded nil diminution - agricultural land - burden of proof on Applicant - before and after valuations necessary to establish if any diminution of value and if so whether attributable to registration of order - agreed before value of $5,354,000 - necessity to analyse comparables critically before arriving at an after value - Held:

IN THE LANDS TRIBUNAL OF HONG KONG

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JUDGMENT

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1. This is an application for compensation, pursuant to Section 10 of the Electricity Networks (Statutory Easements) Ordinance, Cap.357 ("the Ordinance") for diminution of the value of land owned by the Applicant and situate in the New Territories, Hong Kong. The land comprises Lots 3478, 3480, 3675RP, 3716 and 3717 in Demarcation District No.124 and Lots 1747 and 1788A in Demarcation District No.130. The Applicant is the Crown lessee of all these subject lots.

2. On 5th October 1993 the Respondent's Approved Scheme for the Black Point 400 KV Power Transmission System, was deposited in the Land Registry, in compliance with Section 3(2) of the Ordinance. The Governor in Council later on 8th March 1994, ordered that the provisions of the Ordinance, should apply in favour of the Respondent, to enable it to carry out works in accordance with the Approved Scheme. The Order was published on 18th March 1994 in No.11 Volume CXXXVI The Hong Hong Government Gazette under L.N. 171 of 1994 and registered in the Land Registry under the Land Registration Ordinance, Cap. 128 on 21st March 1994. The Respondent was thereby authorised to erect power lines above the ground, commonly known as oversails, for the Black Point Transmission Line.

3. An owner's right to compensation, contained in Section 10(1) of the Ordinance, is limited to "any diminution of the value of his estate or interest therein attributable to the registration of the order." In the majority of cases, it is first necessary for the Tribunal to find the market value of the subject property, immediately before registration and then determine the market value immediately after registration. Finally, where the after value is lower than the before value it will, in addition, be necessary to determine whether such diminution, or any part thereof, is attributable to registration of the order.

4. The Applicant, as Crown lessee, holds the subject property under a standard form New Territories Block Crown Lease for an original term of 75 years, which after a prior renewal is now, pursuant to Section 6 of the New Territories Leases (Extension) Ordinance, Cap., 150 extended to 30th June 2047. Both parties agreed that compensation was to be determined on the twofold basis that the subject property was agricultural land and no allowance was to be made for developmental potential.

5. We are prepared to determine compensation in terms of those agreed assumptions. We are therefore, because of the parties agreement, not concerned in this application with the often vexed issue of lawful user of a particular property under a Block Crown lease. However, we expressly reserve our position, on any disputed issue of lawful user which might arise, were other properties in the same Block Crown lease, to come before us.

Before Value

6. On the basis of those twofold agreed assumptions, we now proceed to determine the before value of the subject property. The Applicant's valuer, Mr. Vincent T.W. Sung, FRICS, AHKIS arrived at a before value of $5,340,510. Mr. R.Gareth Williams, FRICS, FSVA, FHKIS, for the Respondent first confirmed the valuation in his Supplementary Report, dated 19th April 1996 at page 428, of $5,256,000 which he had rounded down to $5,250,000. Later he had varied his valuation to $5,034,000 which he finally rounded down to $5,000,000.

7. The two valuers employed quite different methodology to reach these not widely dissimilar figures. Although the individual approach of both valuers is open to various criticisms, if the issue had remained in dispute, we would generally have preferred the approach of Mr. Williams. During his evidence Mr. Williams acknowledged that there was no substantial difference between the valuers in relation to the before value. He stated he would not dispute a before value of $5,354,000.

8. The before value issue was further simplified, when both Counsel in their submissions, informed the Tribunal that the parties had reached agreement on a before value of $5,354,000. We are content to adopt that agreement and proceed on the basis of a before value of $5,354,000.

After value

9. Mr. Sung expressed the opinion that oversails generally caused a basic diminution of 50%. This figure of 50%, he conceded, was arrived at on the basis of his professional experience, rather than being directly supported by an analysis of relevant comparables. After considering differences in access, he divided the subject property into three groups and made downward adjustments from his base figure of 50%, representing those access differences. In his two Reports, Mr. Sung's division of the subject property's lots, into three group, resulted in Lots 3675RP, 3716 and 3717 being given a diminution in value of 48%; Lots 3478 and 3480 44%; and Lots 1747 and 1788A 42%.

10. In his Second Rule 20 Report, Mr.Sung concluded that the subject property had suffered a diminution in value of $1,482,000. In percentage terms, against the agreed before value of $5,354,000, this represented a diminution of 27.7%. Counsel for the Applicant, in his closing submissions, pursued a claim for compensation in the sum of $1,482,350 or more, on the basis of Mr. Sung's Second Report, supplemented by his answers to the Respondent's request for further and better particulars.

11. Mr. Sung's final diminution of $1,482,000 may be contrasted with the original claim, quantified for the Applicant by Mr. Sung, of $3,913,270 and his subsequent First Rule 20 Report of $2,394,000. In arriving at his valuation of $2,394,000, Mr. Sung also took into account development potential. The diminution quantified in this First Rule 20 Report, represented 44.8%.

12. Mr. Williams, in both his First and Second Rule 20 Reports, considered that no compensation should be awarded. In his First Report he reached that conclusion because in his opinion, no diminution "can be established." In the Second Report the same conclusion is expressed in similar careful language when he observes, "... I have been unable to find any conclusive evidence or proof that the value of this land, used for agricultural purposes, is diminished in any way by the presence of the power lines."

13. During his oral evidence, Mr. Williams stated that when he commenced his valuation enquiries, he had anticipated that they would probably indicate some diminution in value. However, when they were completed, he considered the evidence to be indecisive. We remind ourselves that, as a matter of law, the burden of proving any diminution of value, rests on the Applicant as owner. In the words of Huggins VP., in China Light & Power Co Ltd v Chow Chi Keung [1983-85] CPR 661, "Nevertheless, it was for the respondent owner to prove the amount of any diminution in value, and that he has failed to do."

14. We also had the benefit of Mr. Williams opinion, as to the reaction of informed buyers and sellers in the market, on the sale and purchase of otherwise similar properties, some affected and others unaffected, by oversails. In those circumstances, Mr. Williams stated that if he were acting for a purchaser, he would advise him to purchase the non-oversailed land because of future potentialities. However, later in re-examination he took the opportunity to explain, that if his role were reversed and he was acting for the vendor of oversailed land, he would advise him not to lower his price. Mr. Williams stated he would advise the owner to wait, because he believed that other purchasers would, in time, be willing to pay a non-oversailed price.

15. The best evidence of the Section 10(6) statutory "open market value" criterion, is of actual transactions in the market. Although otherwise based expert opinion evidence may at times be helpful, by itself, it is generally less satisfactory. Fortunately, in this case we are not forced to determine the issue of compensation on the less satisfactory basis of experts bare opinion evidence. This is largely because Mr. Williams, in his unremitting search for decisive evidence, considered a large number of comparables. From those he selected twenty-nine transactions as more relevant. These were included in Appendix VI of his First Rule 20 Report.

16. Mr. Williams, grouped those twenty-nine comparables into eight sections. Each section included one transaction where the land was sold subject to an oversail, while all of the remaining comparables in that section were of non-oversailed land. A large part of the hearing, both in evidence and by way of submission, was devoted to an examination of these comparables. In the narrative of his Report, Mr. Williams, in very broad terms, summarised the oversail evidence of those sections, as follows:

17. Mr. Williams conclusion was that the diversity of the range in values, failed to provide any conclusive evidence that oversailed land is worth less in the open market, than land not under the path of oversails. Counsel for the Applicant submitted, that a closer analysis of the comparables, showed that those in Sections 1, 5 and 6 were the more relevant and each established that oversailed land had a lower market value.

18. We accept that all twenty-nine comparables are potentially relevant. The next step is to consider these comparables in more detail, as part of the fundamental valuation task, of deciding the comparative weight to be given to each. Each Section only included lots within the same Demarcation District. In addition, the transaction dates of all comparables, within each Section were similar. These various similarities considerably assist in the direct comparision of the comparables within each Section. The same does not necessarily apply, to the later task of comparing the various Sections, to the subject property. We confirm that the relevant date for the determination of compensation is 21st March 1994. We will now consider these Sections in turn.

19. The oversailed Lot 294C was sold on 29.7.94 at a unit rate of $135 psf. The non-oversailed lots were sold in June 1993 and September 1994 at unit rates of $594.97 psf and $219 psf. The two non-oversailed lots sold for much higher prices. We note that the highest unit rate of of $594.97 is more distant in time but the other higher $219 sale, is close to the relevant date.

20. The oversailed Lot 824 was sold on 5.2.83 at a unit rate of $28.95 psf. The non-overailed comparables were also sold during 1983, at units rates of $24.60, $18.37, $22.96 and $29.65. Counsel for the Applicant submitted that no weight should be given to these comparables because the transactions were 10 years before the relevant date. The large difference in time would normally render these comparables, for valuation purposes, of little relevance.

21. Counsel for the Applicant submitted that it was not merely the long interval of 10 years, which made these comparables unreliable but the change in market perceptions since 1983. In his submission, it was only after the delivery of the Tribunal's judgment in Chow Chi-keung v. China Light & Power Co. Ltd LT.MR 1/82 on 11th March 1983, that buyers and sellers in the New Territories became aware of the potential adverse affect of oversails, on property values.

22. We doubt whether buyers, still less indigenous village owners in the New Territories, spend all of their evenings, discussing the practical market consequences of Chow Chi-keung. However, we do infer that the cumulative effect of the construction of the first 400Kv New Territories network after its approval in 1981, followed by the more recent New Territories 400Kv networks commenced to be built under the 1990, 1991 and 1994 approved orders, has increased market awareness.

23. During our site visit on 5th June 1996, in addition to our inspection of the subject property and several comparables, we travelled from Tuen Mun to near Lok Mau Chau, passing under two of these major networks. The existence of the pylons and oversails, rising up from either side of the main road, were physically obvious and imposing.

24. The recent major increase in compensation claims, is also some evidence of greater owner concern. It may be inferred from that increase, that the erection of oversails, is liable to have an adverse impact on the market. For example, only one claim came before the Tribunal, after the original and then novel 1981 Order. However, since the 1990s orders, there has been a marked increase in the number of applications to the Tribunal. In 1995, in addition to the present Applicant, 115 other applicants joined in 16 applications, for compensation. We are satisfied that this increased public awareness, will have some impact on the overall market.

25. There is also at least one other factor, namely size, which would reduce any weight that might be given to these 1983 comparables. The oversailed property comprised 10,019 square feet. The much smaller size of the comparables were 871, 2,178, 3,049 and 5,227 square feet. When we take all these factors into account, we substantially accept the Applicant's submission and are unable to give the Section 2 comparables any material weight.

26. Mr. Williams described the evidence of the 3 transactions in this Section as indicating that the value of the oversailed land was generally lower. All the transactions occurred in 1985. This evidence, because of the time factor, can be given little weight.

27. There was only one comparable in this Section, with a unit rate of $16.16 psf. This was lower than the oversailed land unit rate of $21.81 psf. Apart from the undesirability of relying on only one comparable, both transactions were again relatively old occurring during 1986. We are unable to give material weight to the evidence in this Section.

28. The three transactions in this Section occurred in 1992 and 1993, so are close in time to the relevant date. The undersail unit rate value was $58.67 psf. The two lots of non-oversailed land had much higher unit rates of $100.03 psf. These adjoining comparables were purchased by the same buyer in July 1993. We find they are material evidence, which directly supports the proposition, that oversail land has a lower market value.

29. The three transactions in this Section range from February 1993 to September 1994, so are close to the relevant date. The unit rate for the oversailed land of $173.35 is below the non-oversailed unit rates of $549.97 and $219. On the face of these bare figures, this Section also supports a lower value for oversailed land.

30. The difficulty in giving full weight to these transactions, is that while the non-oversailed land is for agricultural use, the oversailed land includes both agricultural and building land. We do not know the proportions of these different uses. However, we accept that building land is likely to suffer a higher rate of diminution, than agricultural land. The extent to which the differences are affected by the unknown element of building land, makes any attempt at further analysis, speculative. At its highest, the evidence is not inconsistent with the Applicant's claim, that oversailed land is of lesser value. It certainly does not support the Respondent's submission to the contrary.

31. Although the transaction date of the oversailed land of 30th July 1990 and of the two comparables, is a little older than in four of the other Sections, it is still sufficently close to the relevant date, to deserve consideration. Unlike those four other Sections, the unit rate of $155 psf for the oversailed land is significantly higher than the non-oversailed rates of $94.72 and $85.19 psf.

32. Counsel for the Applicant urged us to give no weight to the evidence provided by this Section, on the ground that only 6 square feet of the total very large lot area of 12,173 square feet, is oversailed. We agree and find that it would be unsafe to give material weight to the varying unit rates, within Section 7.

33. The transactions in this Section range from March 1992 to March 1993 so are reasonably close to the relevant date of 21st March 1994. Mr. Williams was content to describe as "mixed" the valuation evidence from this Section. We appreciate that the evidence is less clear, than in most of the other Sections. However, it includes more transactions than in any other Section and deserves closer analysis.

34. The oversailed Lot 3723B1, sold in September 1992, was relatively large, comprising 56,629 square feet, of which 10,697 was directly oversailed. The overall unit rate was $60 psf. There were two other September 1992 transactions but of non-oversailed land, both with higher unit rates of $200 psf and $84.93 psf ranging in size from 60,984 to 1,307 square feet respectively. An earlier March 1992 sale of Lot 3991 of 1,742 square feet also produced a higher unit rate of $75.20 per square feet.

35. As against the three higher non-oversailed unit rates, there were two transactions with lower unit rates. These were Lot 3721C5ARP of 10,018 square feet sold in December 1992, with a unit rate of $40.03 psf and Lot 3721C5E of 15,246 square feet sold in March 1993 with a unit rate of $56.34 psf. There is no evidence to suggest that any of these 5 comparables, is unreliable.

Summary of findings for Sections 1,2,3,4,5,6,7 and 8:

36. On these findings, we are first obliged to eliminate Sections 2, 3, 4 and 7 from further consideration. Secondly, we have found that the 12 comparables in Sections 1, 5, and 8 are reliable. Our examination of those 12 comparables, has shown that in 10 of those transactions, the value of non-oversailed land, was higher than the value of the oversailed comparables. In only 2 of those 12 transactions, was the value of non-oversailed land lower.

37. When we consider the overall evidence of the 12 relevant comparables we find that, in percentage terms, 78% of those reliable non-oversailed comparables, clearly and directly support a diminution in value. Further, in the case of the three Section 6 transactions, the two non-oversailed lots, also had higher unit rates, than the oversailed lot. Although we give those rates, otherwise favourable to the Applicant, lesser weight because the oversailed land included an element of building land, they also tend to reinforce our findings.

38. We appreciate that our analysis of the evidence is necessarily subject to a number of qualifications. First, these include the fact that the property market is an imperfect market. One consequence is that no matter how sophisticated an analysis, it is rarely possible, still less desirable, to purport to adjust a wide range of comparables to a subject property, with mathematical precision. Where that exercise is slavishly attempted, it too often produces false accuracy. Secondly, in a market transaction, it is usually scientifically impossible, to isolate with complete accuracy, one market factor such as the existence of an oversail, from the matrix of other actual market factors.

39. After reminding ourselves of these difficulties, we have taken time to review all the evidence and given further consideration to both Counsels helpful final submissions. After doing so we are satisfied, on the balance of probabilities, that the evidence establishes that the open market value of the subject property has been diminished. We further find that the diminution is primarily attributable to the registration of the Order under which the oversails have lawfully been erected. On this crucial issue the evidence decisively favours the Applicant. We reject the Respondent's evidence to the contrary.

Compensation

40. Finally, it is necessary to quantify the amount of the diminution attributable to the Order. The diminution in value, supported by 10 of the reliable comparables, shows a range from -20% to -75% with a mean of about -45% and a mode in the region of -40%. The two remaining reliable comparables, conversely show an enhancement in value of +2% and +50%. In the light of the diminution percentages, we propose to adopt a base figure of -40%, in order to calculate the amount by which the value of the land, has been affected by the oversails.

41. On the evidence, two further deductions, require to be made, from the base figure of -40%. First, the -40% diminution should be tempered by the remaining 22% of the reliable non-oversailed comparables, which conversely supported an enhancement, rather than a diminution, in value. Secondly, broad recognition requires to be given to the fact, that other factors not so far expressly allowed may, if to a lesser extent, also have influenced the relevant market prices.

42. The fact that the comparables, with one exception, were of agricultural land, means that no user adjustment is necessary. Our elimination of the older 1983, 1985 and 1986 comparables, substantially reduces the need for time adjustments. However, other real if more minor and less readily quantifiable allowances, for differences such as location and quantum, should properly be made.

43. Adopting a broad approach, consistent with sound valuation practice, we find that for all these further factors, a total enhancement allowance in the region of +15% is both reasonable and justified. On this basis, we propose to reduce the base diminution percentage of -40% by our so found +15%, to arrive at a final after value diminution of -25%. Applying that diminution of -25%, to the agreed before value of $5,354,000, produces an after value of $4,015,500. Accordingly, quantified in dollar terms, the subject property as a consequence of the oversails being erected under the Order, has been diminished in value in the sum of $1,338,500.

44. We therefore award the Applicant compensation in the sum of $1,338,500. There will be an order nisi that the Respondent pay the Applicant's costs on the High Court Scale; to be taxed if not agreed. There will also be a certificate for Counsel. Liberty to apply is reserved for interest and any other consequential matters.

DATED this 30th day of September 1996.