TANG MOON KAU v. THE SECRETARY FOR THE ENVIRONMENT, TRANSPORT AND WORKS

LDRW 8/2005

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Railways Ordinance Application No. LDRW 8 of 2005

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JUDGMENT

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Background

1. This is an application made by the Applicant for determination of his claim for compensation under the Railways Ordinance, Cap. 519 (“the Ordinance”).  The Applicant is the sole registered owner of the land in D.D. 107 Lot No. 1793 (Portion), Ko Po Tsuen, Yuen Long, New Territories, Hong Kong (“the Land”).  The Land is held under a Block Government Lease, which was extended to 30 June 2047 by virtue of the New Territories Leases (Extension) Ordinance 1988.

2. By Government Notice No. 4961 dated 15 October 1998, right of temporary occupation of the Land was created from 1 May 1999 to 30 November 2004 in favour of the Government under section 20(1) of the Ordinance.  The period of occupation was subsequently reduced to 1 May 1999 to 31 December 2003 by Government Notice No. 8304 dated 20 November 2003.  The purpose of the occupation was to facilitate the construction of the West Rail (Phase I).  The Land has a total area of 0.41 acres and the area that was occupied pursuant to the said notices was 992.10 sq.m.

3. The Land is an agricultural land and was used as a fishpond.  It was zoned “Unspecified” in Kam Tin North Development Permission Area Plan No. DPA/YL-KTN/1 in 1991 (“the 1991 DPA”).  The zoning remained the same in DPA/YL-KTN/2.  Subsequently, the Land was zoned “Undetermined” in Kam Tin North Outline Zoning Plan No. S/YL-KTN/1 dated 17 June 1994 (“the 1994 OZP”).  The zoning was further changed to “OU” (Other specified uses) in Kam Tin North Outline Zoning Plan Nos. S/YL-KTN/2, S/YL-KTN/3 and S/YL-KTN/4 dated 6 August 1999, 22 February 2000 and 17 December 2004 respectively.

4. The liability of the Government to compensate the Applicant is not in dispute.  The only dispute is in the amount of compensation.  According to the Applicant’s expert, Mr. Wong Yung Shing, the amount of compensation should be in the sum of $3,614,000.00, whereas the Respondent’s expert, Mr. Robert Pendleton, opined that the compensation should be just $9,000.00.  This great discrepancy brought the parties to the Tribunal.

The issues

5. There are two main issues in this case, namely whether in assessing the open market rent of the Land, the Tribunal is permitted by law to consider “open storage” as the use of the Land, and if so, whether the Land has in fact the necessary physical attributes, such as physical access, making it suitable for such use.

The law

6. Sections 31 and 32(1) of the Ordinance stipulates that:-

“31.      No recovery of money except under this ordinance

Except to the extent of the rights to compensation under section 32, a person does not have any right against the Government or any other person to recover money –

(a)    for any use authorized under this Ordinance; or

(b)   for any works or anything else authorized under this Ordinance.

32.     Compensation

(1) The right to compensation referred to in section 31 is the right to recover from the Government for the matters set out in column 1 of Part II of the Schedule a sum assessed on the basis specified in column 2 and with regard to Part 1 of the Schedule, subject to -

(a)    the claim being served on the Secretary within the period specified in column 4 of Part II of the Schedule; and

(b)   the other provisions of this Ordinance.”

7. The relevant part of Part II of the Schedule to the Ordinance is paragraph 2(a)(ii) under column 2, which provides the basis for assessing compensation as follows:-

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

8. The Applicant claims for the open market rent for the portion of the Land that was occupied by the Government pursuant to the above provisions.  In addition, the Applicant also claims for a “disturbance payment” for the remaining portion of the Land that was not occupied by the Government pursuant to paragraph 2(b) of Part II of the Schedule to the Ordinance.

9. In relation to the open market rent, the Applicant argues that the Land should be put to its “best possible use”, i.e. open storage, and the 1991 DPA should be ignored.  The Applicant’s argument is based on the premises that the 1991 DPA has “blighted” the use of the Land and the common law principles such as the Pointe Gourde principle and the Melhado principle should apply.

10. The Respondent, on the other hand, argues that the Land should be valued on the basis of “fishpond” and there is no common law principle in temporary occupation cases that compensation would be payable for “blight” caused by town planning.

11. Having considered the arguments raised by both parties, we come to the conclusion that the Land should not in law be valued on the basis of “open storage”.  We accept the Respondent’s argument that the Pointe Gourde principle and the Melhado principle are not applicable in the present case.

12. First of all, section 31 of the Ordinance states clearly that the extent of the rights to compensation is governed by section 32 of the Ordinance, which in turn refers to Part II of the Schedule to the Ordinance.  The basis for assessing compensation for temporary occupation under Part II of the Schedule is different from the basis for assessing compensation in resumption cases.  Paragraph 1 of Part II of the Schedule stipulates that where land was resumed under the Ordinance, the compensation shall be assessed on the basis as if the claim were made under the Lands Resumption Ordinance (“the LRO”).  In such a case, all the provisions of the LRO, including section 12(aa), would come into play.  However, in the case of temporary occupation, there is no provision to say that the LRO can be invoked.  Thus, section 12(aa) of the LRO cannot be relied on in the case of temporary occupation.

13. Although Cheung JA in Ease Gold Development Limited v. Secretary for Transport, CACV 18/2003 expressed the view that section 12(aa) is merely an enactment of the common law, it does not mean that the common law principle codified in section 12(aa) is applicable to a temporary occupation case.  In making this observation, Cheung JA relied on the following judgment of Lord Russell of Killowen in Melwood Units Pty. Ltd. v. Commissioner of Main Roads [1979] A.C. 427:-

“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.”

14. The above judgment is written in the context of resumption cases and there is no express ruling that the common law principle applies to cases of temporary occupation.  On the contrary, Cheung JA in the Ease Gold expressly ruled that:-

“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 section 26,27 and Oart II of the Schedule of the Roads Ordinance).  This would mean that section 12(aa) of the LRO would be applicable as well.”

15. It is clear from this part of the judgment that Cheung JA agrees that section 12(aa) is not applicable for temporary occupation cases.  It is extremely illogical for the Applicant to suggest that when the intention of the legislation is to exclude the operation of section 12(aa) in temporary occupation cases, and yet the same principle can come into play in such cases under the pretext of the common law.

16. Moreover, the Respondent has referred us to the report of a Special Committee on Compensation and Betterment, which was set up under the chairmanship of Mr. J R Todd with Judge Cruden as vice-chairman and was published in March 1992 (“the Report”).  There is a very good summary of the common law position in Chapter One of the Report, which we would like to adopt, as follows:-

“There is no common law right to compensation or obligation to pay betterment.  Where a statute authorizes the compulsory acquisition of private land, it may provide for payment of compensation.  In modern times legislation has usually included an obligation to pay compensation to the private owner.  Where statutory law on the right to compensation is unclear, the common law provides certain principles to assist interpretation.  First, where an Act provides for taking of private land, the common law presumes that compensation is payable, unless there is a clear contrary intention.  In these cases title to private land is compulsorily conveyed from the owner to the State.  Secondly, where statutory law merely regulates the use of private land, the opposing common law principle is that compensation is not payable, unless there is clear statutory provision.  Regulatory powers may restrict or prohibit development but do not deprive the private owner of his title to the land.  These contrasting approaches are summed up in the phrase that if you take you must compensate; if you regulate you need not.”

          (emphasis added)

17. We agree with the Respondent that the 1991 DPA was an enactment to impose planning control rather than to “blight” the Land.  The notes to the 1991 DPA makes it clear that the plan was to encourage the continued use as fishponds or for recreational use if there was no adverse environment impact by such use, and any developments would require planning permission from the Town Planning Board unless it is an existing use or a use permitted under the plans.  This is clear to us that the requirement of seeking planning permission is merely to regulate the use of private land.  Based on the common law as summarized in the Report, no compensation should be payable in respect of the alleged “blight” caused by such town planning.

18. Chapter 3 of the Report defines “blight” to mean “the situation in which, although Government has no immediate plans to resume the land, as a result of restrictions imposed on development by an outline Zoning Plan an owner can no longer redevelop his land or put it to a reasonably beneficial use.”  The Applicant argues that before the 1991 DPA, the Land was capable of Melhado use and after the 1991 DPA, the Land was zoned “Unspecified” and a section 16 approval is required from the Town Planning Board.  The Government had no immediate plans to resume the Land and as a result of the restrictions imposed in the 1991 DPA, the Applicant could no longer put the Land to a reasonably beneficial use (including open storage).  The Applicant therefore submits that the 1991 DPA constituted a “blight” on the Land and should be ignored for assessment purpose. 

19. In this regard, the Applicant relies on Mr. Wong’s evidence that the planning of the West Rail must have commenced sometime back in 1987 or 1988, i.e. 10 years before the construction of the West Rail in 1998.  So the concept of railway construction had already been in the Government’s contemplation at the time of the 1991 DPA.  We do not accept this contention, as this is purely Mr. Wong’s own speculation.  Mr. Wong is not an expert on railway construction.  There is no documentary evidence in support of this contention.  On the contrary, the Respondent produced the paper prepared by the Advisory Council on the Environment (Exhibit “R7”) which shows that the “existing railway project planning process” typically took 8 to 9 years from “conception to opening”.  The West Rail commenced service in December 2003.  So the conception, in the normal course of event, should not be as early as 1987 or 1988, or even 1991.  We do not therefore accept that the 1991 DPA constituted a “blight”.

20. Thus, even if the Pointe Gourde principle applies, the 1991 DPA should not be ignored.  The 1994 OZP may have to be ignored because the change brought by it may be due to the intended construction of the West Rail.

21. The Applicant also misunderstands the legal position of the Melhado principle.  Section 8 of the Town Planning (Amendment) Ordinance 1991 has introduced a new section 20 to the Town Planning Ordinance, and all development is prohibited unless it was an “existing use” or it was a use permitted under the relevant DPA/OZP plan, or permission had been obtained pursuant to an application made under section 16 of the Town Planning Ordinance.  The Melhado principle clearly did not survive the 1991 enactment.

22. There is also no reason or justification to ignore the planning restrictions.  As submitted by the Respondent, if, for example, rights of temporary occupation had been created over two adjoining pieces of land which are similar in all respects except that one had been let out on the open market and was occupied by a tenant under the planning restrictions, whereas the other had been vacant at the time the rights of temporary occupation was created, it would not be right for the owner in the latter case to have more compensation than the first one by ignoring all the planning restrictions.  It would also not be right if the first owner were not compensated for the actual loss suffered by him by the dispossession of his tenant.

23. We should also point out that the Ease Gold case is different from our present case, as the land in that case was zoned “Open Storage” in the first DPA.  In the present case, the Land cannot simply be used as open storage, but section 16 approval must be obtained first.  There is no guarantee that such an approval can definitely be obtained.

24. In the premises, we do not agree that in law the open market rent of the Land should be assessed on the basis of “open storage”.

Physical attributes

25. Even if we were wrong in the above interpretation of the law, we do not find that the Land has the right physical attributes to be used for open storage.  First of all, the Land is basically a pond and if it were to be used for open storage, substantial cost would be incurred to fill up the pond.    There is also no vehicular access to the Land which would be required by open storage users.

26. In theory, one can solve the first problem by filling up the pond, but we have great doubt whether this is viable economically.  The second problem is the major one.  Although open storage is not restricted to vehicles parking or containers storage, other kinds of open storage, like plants, stone masonry, vehicle spare parts, building materials storage would also need vehicles to transport the goods to and fro the Land.  We do not agree with the Applicant that vehicular transport of these goods is unnecessary.  These goods are usually very bulky and heavy and open storage of this kind would also need vehicular access to the Land.  We also disagree that the lack of such vehicular access only goes to the adjustment of unit rate for Land.  It is clear that without vehicular access, the Land is not suitable for open storage purpose.

27. The Applicant seeks to argue that Chi Ho Road was partially built at the material time, but the aerial photos (exhibits “R9” and “R10”) show that as late as February 1999, Chi Ho Road had not been completely built.  While there was a vehicular track parallel to Chi Ho Road, this should have been used by construction workers for the purpose of constructing Chi Ho Road.  Mr. Wong gave evidence that he had access to such a road in a private car.  However, we accept the Respondent’s evidence that the Government would not normally permit public access on such roads or tracks.  Contractors or construction workers may sometimes permit villagers or visitors to pass through a construction site on a one-off basis, but it is unlikely that such access would be permitted on a regular basis.  Thus, the existence of such a road or track would not provide proper vehicular access to the Land.

28. Similarly, the track just outside the Land is presumably government land because there is no lot number attached to it.  It cannot be assumed that the Government would permit vehicular access on this track.  In fact the existence of a barrier at the entrance of the track indicates that vehicular access is not permitted.

29. There is also a big problem to gain access from the track to the Land.  There are two private lots separating the track from the Land.  No evidence is adduced that the owners of these neighbouring lots would be prepared to permit the Applicant to have right of way over these lots.  It is also extremely far-fetched to suggest that the Applicant would be able to build an iron bridge over the pond.  We accept the Respondent’s evidence that the Government is unlikely to approve any application to build such a bridge which would affect the quality of the water of the pond as well as the pond operator.

30. We are also of the view that it is extremely unlikely that a tenant would be prepared to go through the trouble in making the necessary applications and to bear the cost of filling up the pond and building the iron bridge so as to use the Land for open storage.  The assertion that the Land can be used for open storage is plainly unrealistic.

The basis of valuation adopted by this Tribunal

31. For reasons stated above, the basis of valuation of the open market rent for the Applicant’s interest in the Land occupied during the whole period of creation of rights of temporary occupation under the present application should be the market rent of the Land occupied for use as a fishpond.  Also, it would not be necessary for us to consider the market rent of the land occupied for open storage use as this value was obviously very different from and bear no relationship at all to the market rent of the land occupied for fishpond use. 

Valuation of the Applicant’s expert witness

32. Mr. Wong gave evidence that he had not carried out in his valuation report any valuation of the Land occupied on the basis of its then existing use as a fishpond.  This was so even though he was at the time of preparing his valuation report already fully aware of the legal and factual challenges that would arose from his adopted basis of valuation, i.e. assumed use of the Land occupied for open storage purpose.  During the hearing, Mr. Wong did not give any oral evidence on the market rent of the Land occupied as a fishpond.  On 6 February 2007, during cross examination by Mr. Miu, counsel for the Respondent, he was reminded that if the Tribunal should decide that it would be appropriate to use fishpond comparables, he would not have any comparable or valuation to assist the Tribunal in the deliberation of the matter.

33. Mr. Wong then opined that bearing in mind the long duration of the leases of the comparables used by Mr. Pendleton, Mr. Pendleton’s valuation was “a bit low”.  When Mr. Wong was reminded that the term of tenancy of Comparable C1 was only 3 years, he said that that was the term of the last tenancy period only.  Notwithstanding this comment, Mr. Wong answered that he did not consider the rent of the Comparable C1 to be low.   However, on being asked by Mr. Miu for his opinion of whether the comparables used by Mr. Pendleton could represent the market value of the subject land, Mr. Wong suggested that for Comparable C1, it might warrant an upward adjustment of 10% to account for the length of the lease and renewals.  As for Comparable C2, he suggested an upward adjustment of 5 to 7%.  Finally for Comparable C3, he said that he could not even identify the location of the comparable.  He also did not suggest any adjustment for that comparable.

Valuation of the Respondent’s expert witness

34. Mr. Pendleton set out in his valuation report, at pages 44 to 48 of the hearing bundle, Exhibit “AR-1”, his assessment of the valuation of the open market rent of the Land occupied during the period of creation of rights of temporary occupation on the subject lots.

35. He assembled 3 rental comparable lettings (Comparables C1, C2 and C3) that were let for fishpond use and 5 other rental comparable lettings (Items Nos. 1 to 5 summarized at Appendix III of his report, at page 53 of Exhibit “AR-1”) that were let for agricultural use.  The 3 fishpond Comparables (C1, C2 and C3) fetched unit annual market rental rates per sq. m. of $1.20, $1.70 and $1.20 respectively. 

36. He also attempted to analyze in the usual way these comparables and make adjustments under factors of time, size of site and location/accessibility based on his opinion of the differences between the comparables and the Land occupied in the subject Lots.  In the final analysis, he opined that the unit market rent for the Land occupied in the subject Lots should be no more than $2 per sq. m. per annum.   This unit rate, after applying to the area of the Land occupied, i.e. 992.10 sq. m. gave a market rent per annum of 1,984.2, which was rounded to $2,000.

37. According to the information adduced by Mr. Pendleton, which was not challenged by the Applicant, Comparable 1 was last renewed for a term of 3 years commencing from 1 September 1997 whilst Comparable 2 was let on a term of 5 years commencing from 1 January 1999, at an annual rent of $8,000 for the first 3 years and then at a revised annual rent of $10,000 for the last 2 years.  At the relevant date of valuation in the present case (i.e. 1 May 1999), the rents passing for Comparable 1 and 2 were $1,900 and $10,000 respectively, with the respective unit rates for Comparables 1 and 2 at $1.20 and $1.77 per sq.m. per annum.  We do not find the lengths of leases or renewal history of these 2 comparables to be unusual and to warrant any adjustment.  We therefore do not agree to adopt Mr. Wong’s suggested adjustments for length of the lease and renewals for Comparables 1 and 2 respectively.

38. As to the time adjustments considered by Mr. Pendleton, we agree with his view that no adjustment is warranted for Comparables 1 and 2 whilst his suggested adjustment of 11% for Comparable 3 is accepted.  Also, for the factors of size of site area and location, we agree with Mr. Pendleton that no adjustment is required.

39. Summing up, we agree to adopt Mr. Pendleton suggested adjustments to these comparables and his final valuation of market rent for the Land occupied in the sum of $2,000 per annum.

Capitalization of the assessed market rent for the land occupier

40. Mr. Pendleton opined that his estimated annual open market rent of $2,000 was capitalized for a rounding up period of 5 years at a rate of 5% the latter of which was based on “the prevailing interest rate for time deposits for capital of less than $100,000 for a fixed period of 12 months, as at May 1999” i.e. 5.59%, according to the Hong Kong Monthly Digest of Statistics.  Mr. Pendleton also opined that any argument that the capitalization rate of 5% should be adjusted upwards to take account of the risk of voids or collection difficulties would be balanced by the fact that the Government could be regarded as a secure tenant.  To conclude, his estimate of the compensation to the Applicant was as follows: -

Estimated Annual Open Market Rent	$2,000
Years Purchase for 5 years at 5%	4.3295
Estimated Open Market Rent Compensation	$8,659
Rounded to $9,000

41. On the other hand, although Mr. Wong did not give his opinion as to the appropriate capitalization rate for computation of market rent for fishpond use for the Land occupied for the statutory period of occupation, he suggested to use the “the best lending rate” as published by the Hong Kong Monetary Authority in his attempt to capitalize his estimated market rent for open storage use for all the land of the subject Lots owned by the Applicant during the period of temporary occupation (details in page 32 of Exhibit AR-1).  The best lending rates varied between 5% and 9% during the said period.

Tribunal’s assessment of the compensation

42. After having considered the evidence of Mr. Pendleton and Mr. Wong, we are definitely of the view that we prefer to adopt the opinion and valuation of Mr. Pendleton.  It was very clear that Mr. Pendleton had carried out his valuation on the basis of its being use as a fishpond, which was agreed by the Tribunal to be the proper approach of the use of the Land after careful consideration of the legal and factual issues behind the disputes between the parties. 

43. As discussed above, we firstly agree with Mr. Pendleton that the compensation payable to the Applicant should be computed as to be the open market rent of the Land occupied during the period of easement, which was the period of occupation as stated in the Government Notices Nos. 4961 and 8304 (i.e. from 1 May 1999 to 31 December 2003, or a period of 4 years and 8 months).

44. We also agree to adopt Mr. Pendleton suggested adjustments to these comparables and his final valuation of the market rent for the Land occupied in the sum of $2,000 per annum. 

45. Finally, because of the minute difference between Mr. Pendleton and Mr. Wong’s suggested capitalization rates and the figure suggested by Mr. Pendleton was actually in the Respondent’s favour, we agree to accept Mr. Pendleton’s capitalization rate and his final valuation figure of $9,000.00.

Unoccupied portion of the Land

46. Since we accept that the Land should be assessed as a fishpond, there will be no loss to the remaining unoccupied portion of the Land, and hence there will be no award for disturbance payment.

Conclusion

47. In the premises, we come to the conclusion that the amount of compensation payable by the Respondent to the Applicant is in the sum of $9,000.00, and the Respondent is hereby ordered to pay this sum to the Applicant.

48.  All the ancillary and consequential matters including professional fees, interest and costs are adjourned to a date to be fixed by the listing clerk.