YAU WAI KEUNG AND OTHERS v. YAU KAR SIU AND OTHERS

Dates of Hearing: 18 and 19 January 2006

Date of Decision: 26 January 2006

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D E C I S I O N

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1.  On 23 July 2004, I made a partition order in relation to the Remaining Portion of Section B of Lot No. 1497 in Demarcation District No.  76 (‘the land’).  The land is depicted on the Partition Plan (“the Partition Plan”), Appendix 2 , to the Valuation Report dated 22 September 2005, prepared by Mr Nikson Y T Ng (“Mr Ng”) of Sallmanns (Far East) Ltd.  The land is bisected by an Access Road, which is part of the land, into two parts.  One part which is made up of the yellow and green portions, have a total site area of about 5,922 square feet, and the other, the pink portion has an area of 6,666 square feet.

2.  The Access Road (green hatched black) has an area of about 745 square feet.

3.  This is what I said at para. 78 of my judgment dated 23 July 2004 (“the judgment”):

“78. So I would order a partition of the Lot so that the yellow and green areas as shown on the Plan be allotted to the 1^st and 2^nd plaintiffs.  The shaded green area as well as the pink area be allotted to the 3^rd defendant.  I do so on the understanding that the 1^st and 2^nd plaintiffs are prepared to pay equalization money which may be substantial.  Other wise I would order a sale which is what the 3^rd defendant prefers.  I will hear the parties on equalization money as well as on the implementation and wording of my order …”

4.  I am now concerned with the equalization money.  This concerns only the plaintiffs and the 3^rd defendant.

5.  In relation to the pink area, I should mention that during the hearing I have referred to part of this pink area as “Pink 1”, this is bounded by the lines AG to AH and AK to AJ in the Partition Plan, and the remainder as “Pink 2”.

6.  Pink 1 has an approximate area of 1,811 square feet.  It is, roughly speaking, rectangular in shape.  It measures roughly 7 metres in depth. It is about three times as long as it is deep.

7.  The land is covered by an earlier zoning plan which is identical to the Ping Che and Ta Kwu Ling Outline Zoning Plan No. S/NE-TKL/10 dated 29 April 2005 (“the Plan”).  The parties have used the Plan instead of the earlier one.

8.  It is common ground that the yellow and green portions have been zoned “V” for Village Type Development and that Pink 2 has been zoned “A” for “Agricultural” uses.

9.  There is dispute over the zoning of Pink 1.

10.  According to the plaintiffs, it is zoned V.  According to the defendants, it is A.

11.  It is also common ground that the land is held upon a Block Government Lease where the land is described as padi with a 0.04 acre house lot.  It is not now possible to tell exactly whether the house lot was located.

12.  However, as the judgment shows, there have been on the yellow portion, two 2-storey buildings, which together occupied 871 square feet since 1970’s.

13.  For convenience’s sake, the status of the land as house lot has been treated by counsel as the right to build.  They seemed to be of the view that it is up to the court to annex such building right to any part of the land.  But counsel have also confirmed that it is open to me to decide on the available evidence, if I feel able to do so, the location of the house lot.

14.  I have to say on the evidence available to me, it is more probable than not, that the house lot was located in the yellow and/ or green areas.  I so find.

15.  That is because as I said there have been two houses on the yellow portion since 1970’s.  Also, the yellow and green areas are contiguous to the Sha Tau Kok Road.

16.  But the parties have proceeded on the basis that I could annex the building right to any part of the land I deem right.  Having regard to my finding in para. 14, this is academic.  But having regard to the submissions made to me, I would state my conclusions.

17.  I would not annex the building right or any part of it, to Pink 1 because first, having regard to its shape, I do not believe that would be the optimal use of the building right.  Any building on Pink 1 would be long and narrow, whereas houses of regular shape could be built on the yellow or green area.

18.  Moreover, the possibility to build any building on Pink 1 would depend on its zoning.  Unless it has a V-zoning, where the Column 1 user includes New Territories Exempted Houses, the house lot status would be wasted.

19.  I am not satisfied on the evidence before me that Pink 1 has been zoned V.

20.  The plaintiffs’ evidence to that effect came from Mr Leung Shou Chun, an Authorized Land Surveyor.  According to him, if one were to superimpose the zoning plan, after enlarging it to a scale of 1 : 1,000, although it was originally prepared to the scale of 1 : 7,500, over what he has called a plan showing details one could see that Pink 1 has been zoned V.  To support that, he has produced as exhibited LSC2 to his affirmation dated 17 January 2006, a correlated V-zone plan.  Mr John Henry Barrett, an Authorized Land Surveyor, called on behalf of the 3^rd defendant disagreed with Mr Leung.  The zone boundary according to him is as shown in Annex B annexed to his supplementary report dated 14 January 2006.  He said that by measuring the distance between the grid lines to the east and to the south of the eastern-most house in the 天而亮山莊, he was of the view that the boundary as shown by him in his plan is correct.

21.  Moreover, Mr Barrett commented on the AK to AJ boundary shown on the Partition Plan and said that the V-zone boundary as shown in the Plan runs along the Sha Tau Kok Road and turns northeast off the road, it then continues northeast and then turns further east, after that it resumes its course northeast again.  In other words the zone boundary line generally goes in the north-easterly direction.  But AK to AJ as shown on the Partition Plan goes northwest and that cannot be right.

22.  I have to say that Mr Leung has not satisfied me, on a balance of probabilities, that Pink 1 falls within the V-zoning.  Mr Leung has explained, having regard to the scale of the zoning plan, that the thickness of the zoning boundary line itself would measure approximately 3.5 metres on the ground.  So much of Pink 1 in Mr Leung’s plan was covered by the zoning boundary line.  Mr Barratt said, and I agree, that whenever one enlarges a plan, especially one drawn to a scale of 1 : 7,500, one enlarges the error.  In all the circumstances, I believe that Mr Barrett’s conclusion is more likely to be correct. 

23.  Nor would it have made sense for the planners to have included Pink 1 within the V-zone, since having regard to its shape and location, it was highly unlikely that it could have been used for village type development.

24.  I believed it is much more likely that the planner intended that the boundary of the zone should run along the Access Road, and then continues along the path which continues from the Access Road.

25.  In any event, having regard to the shape of Pink 1, I would not have annexed the building right to Pink 1.

26.  Since nobody has suggested, quite rightly so, that the building right should be annexed to Pink 2.  It follows that all 0.04 acre of the building right must go to the plaintiffs’ portion.  Realistically, I am only concerned with 0.02 acre since the existing houses on the yellow area already covered 0.02 acre.  Proceeding on that basis, I would annex the building right, namely, the right to build up to 0.04 acre to the yellow and/ or green areas.

27.  I then turn to valuation.

28.  The parties are agreed that the relevant date for valuation is the date of the judgment.  I am willing to proceed on that basis.

29.  According to Mr Ng, as at the relevant date, the value of the building land is $670 per square foot.  That is based on his view that the building once built could be sold at a price of $1,000 per square foot.  For that, he relied on the Comparables on the Group 3 Comparables in Appendix 7 of his report.

30.  On the other hand, the plaintiffs’ expert, Mr Tsang Ka Kau (“Mr Tsang”) of Thomas Tsang Surveyors Ltd, used as the basis of his calculation, the sales price per square foot of developed space of $1,725.  That is the average of sale price of $1,500 per square foot for the domestic portion, $1,950 per square foot for the ground floor shops.

31.  I have to say that on the evidence, I am not satisfied that the ground floor could be sold as shops.  In support of the sale price of $1,500 for domestic flats, Mr Tsang referred to the Comparables in Appendix 13 of his report.  These show the sale of three 700-square-feet-flats in Leng Tsai and Kan Tau Tsuen.  After making adjustments for time, view and location, he arrived at an average of $1,475.  So far as the Group 3 Comparables used by Mr Ng are concerned, I do not know the age of these buildings.  However, in relation to two of these Comparables, which involved flats in Victory Garden which is close to the Land, from the evidence at the trial, it is probable that that development was completed in 1997 or 1998.  In all the circumstances, I see no reason why I should not also have regard to the Comparables relied on by Mr Tsang.  I would use a sale price of $1,400 as the basis for calculation.  However, so far as the calculation of the building costs, interests, developer’s profits, etc. are concerned, I prefer the evidence of Mr Ng.  That being the case, I would calculate the land value adopting the same approach as Mr Ng as shown in page 21 of his report, where the assumptions were based on 0.02 acre only, except I would use a projected sale price of $1,400 per square foot instead of $1,000.  On that basis, the land value per square foot so far as the house lot of 0.04 acre is concerned is, say $1,256.  The value attributable to the house lot is therefore $2,187,952, being 1,742 square feet x $1,256.

32.  I turn to consider the value of the land zoned V.  Here Mr Ng relied on the Comparables in Appendix 9 to his report and arrived at $151 per square foot.  He then discounted it has 20% to give effect to the 10 metre prohibited area guidelines.  This is an internal guideline, the details of which, he has obtained in confidence.  This is what he said in his report at 11.4:

“11.4      According to my understanding, the Lands Department has a set of internal guidelines about prohibited areas in relation to the Small House Grant (a “small house” is basically a single NTEH granted to an “indigenous villager” under the Government’s “New Territories Small House Policy”).  Under these guidelines, Small House Grant will not be approved within certain specified “Prohibited Areas” which include areas within a distance of 10 metres from certain classes of road.  I believe that the section of Sha Tau Kok Road abutting the subject lot would fall within these classes of road.  These guidelines should be strictly followed by the Land Administration save exceptional cases.”

33.  I am satisfied that there is indeed such a policy and that it can be implemented in the making or withholding of a “Small House Grant” but not in respect of exempted houses.  Also that having regard to the size and location of the yellow and green portions, it is appropriate to discount the value by 20%.

34.  However, I am not satisfied that the value of $151 per square foot is correct.

35.  Mr Tsang has suggested a much higher value of $300 per square foot.  That is based on the comparables in his Appendix 11, which show an adjusted unit price of about $295.

36.  Amongst the comparables relied on by Mr Ng are three lots of land in Hung Leng, where the land is situated, two of these transactions happened on the same day, 23 June 2005 and the third on 9 March 2005.  The prices per square foot were $290.7, $293.5 and $366.7 respectively.  Two of the comparables relied on by Mr Tsang were also in respect of land in Hung Leng.  Mr Barlow for the plaintiffs has suggested that one or both of these sales were not at arm’s length.  I see no evidence of that.

37.  Now Mr Tsang used for the purpose of time adjustment, the published government compensation rate on resumption.  On the other hand, Mr Ng used the quarterly price index published by the Rating and Valuation Department.  This index based on urban or urban type developments.  I am here concerned with agricultural land.  Mr Barlow has referred me to Dragon House Investment Ltd v The Secretary For Transport, a decision of the Lands Tribunal (Application No. LDMR 31/2000, date of judgment 25 May 2001, unreported), where reliance was placed on the index following earlier decisions of the Lands Tribunal.

38.  I do not know how close is the correlation of the index to prices actually achieved in relation to agricultural land (whatever the zoning or in respect of land zoned V).

39.  On the limited evidence and submission made to me, I prefer Mr Tsang’s approach, namely, making adjustments based on the published compensation rates.

40.  Incidentally, I should mention that Mr Barlow has objected to any reference to two documents produced by Mr Tsang in the course of his evidence which show the actual published compensation rates.  It is unnecessary for me to refer to or rely on the actual rates.

41.  I am satisfied on the evidence of Mr Tsang that the time adjustment performed by him was done in accordance with such rates.  It is unnecessary for me to go into the actual details.  Moreover, as Mr K M Chong, counsel for the 3^rd defendant has submitted, the rates have been gazetted and can be regarded as public knowledge.

42.  I regard as most helpful comparables, the sales in Hung Leng.  However, the evidence is unclear and unsatisfactory, regarding the appropriate discount for time or location in respect of Mr Ng’s comparables.  But doing the best I can, I would use a rate $290 per square foot.  After discounting by 20% for the 10 metre policy, the unit rate is $232.  The total value of the V zoned land is the yellow and green portions is $232 x (5922-1742)=$969,760.

43.  So far as the pink area is concerned, the total area is 6,666 square foot.  The 3^rd defendant suggested $60 per square foot, which is higher than the plaintiff’s suggested figure of $56.  I would adopt the 3^rd defendant’s figure.  The value is $60 x 6,666=$399,960.

44.  So far as the green hatched black, the Access Road, is concerned, Mr Chong submitted, that it should be given a nominal value of $1.  On the other hand, Mr Barlow submitted that a value equivalent to 10% of land in its appropriate zoning should be adopted.  Since I am of the view that the zoning is A, it would be $6.  This is not an easy decision, however, I am persuaded that I should adopt a value of $6 per square foot.  The total value is $6 x 745=$4,470.

45.  It follows from the above that the value of the land apportioned to the plaintiffs has a value of $2,187,952+$969,760=$3,157,712, whereas the portion apportioned to the 3^rd defendant has a value of $399,960+$4,470=$404,430.  The equalization money payable is ($3,157,712+$404,430)/2-$404,430=$1,376,641.

46.  I order payment of $1,376,641 by way of equalization from the plaintiffs to the 3^rd defendant accordingly.

47.  Mr Barlow submitted that if the “building rights” are allotted to or annexed to the plaintiffs’ land, that should be made explicit in any document or order to be drawn up.  As I have said, I believe the house lot of 0.04 acre is situated in the yellow and/ or green portions.

48.  I would further order that as between the plaintiffs and the 3^rd defendant, the plaintiffs must be regarded to be the owner of all the rights and interests in and deriving from the house lot of 0.04 acre being situated in or annexed to the yellow and/ or green portions.  Any order to be drawn up should reflect that.

49.  I turn to consider costs and interests.

50.  Mr Barlow has submitted that the plaintiffs should have the costs because the separate hearing on equalization money was only necessary because the 3^rd defendant was not ready with its evidence at the trial.

51.  But as I have made clear in the judgment, I was not prepared to proceed on the basis of the plaintiffs’ evidence at the trial.

52.  Moreover, the two days taken for the assessment would have prolonged the trial by two days, so no extra time was incurred.

53.  Having regard to the result of the assessment, I am of the view that the 3^rd defendant has succeeded substantially, especially on the location of the “building rights” and the zoning of Pink 1.

54.  It could also be regarded as having done better on the amount of equalization money payable.  So I would give the 3^rd defendant costs of the assessment and the hearing before me.

55.  As for interest, I find that a more difficult problem.  In the end I am persuaded by Mr Barlow that no interest should be awarded.  I think he is right it is unreal to say that the plaintiffs have had the benefit of the partition order from the date of the judgment.

56.  Mr Chong submitted that since the assessment is to be made as at the date of the judgment, the 3^rd defendant should be given interest because the value of land has gone up since the judgment.  It is true it has gone up, but it could have come down.

57.  I would not order any interest for the period between the judgment and the date of this decision.