WONG PING YEE v. DIRECTOR OF LANDS

IN THE COURT OF APPEAL

1996, No. 27
(Civil)

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J U D G M E N T

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Mayo, J.A.:

1. This is an appeal against the judgment of the Lands Tribunal Presiding Officer Judge Li and Mr Poon, a member of the Tribunal dated 12 December 1995.

2. The Tribunal was entertaining an application for compensation which had been made by the appellant.

3. The appellant was the registered owner of premises on the ground floor of 46 Pak Tai Street, Kowloon. These premises had been resumed by the Crown pursuant to a notice of resumption issued by virtue of the Crown Land Resumption Ordinance. The Resumption formed part of a major scheme which was designated as a comprehensive redevelopment area.

4. The tribunal ordered that compensation of $4,750,000.00 be payable to the appellant together with interest thereon to be agreed if possible and an order nisi was made for the appellant's costs.

5. The appellant considers that this compensation is inadequate and appeals against the order. In her view the compensation should amount to $6,470,000.00.

6. Her grounds of appeal are as follows:

"1. The learned Presiding Officer and the Lands Tribunal member erred in failing or otherwise refusing to consider adequately or at all either or any of the approach and/or the basis of the respective professional evaluation of the compensation herein, the subject matter of the proceedings, upon which the respective expert surveyors of the parties have formulated and/or established their expert evidence, before coming to any conclusion of such compensation which is insufficient and unsatisfactory in all the circumstances.

2. The learned Presiding Officer and the Lands Tribunal member erred in seeking to assess the compensation by forming their own approach or basis of evaluation by narrowing down the comparables and/or selecting their own comparables only of the same street but without giving any regards or taking into account other comparables which are indisputably closer to the subject premises within the same location and are also of similar size and having closer transaction date which totally or otherwise substantially departed from the expert evidence submitted by either and both the expert surveyors of the parties.

3. The learned Presiding Officer and the Lands Tribunal member erred in failing to consider or otherwise take into account the uncontroversial facts and factors that the tenant concerned had already agreed to and so they did vacate the subject premises without compensation interests and costs or any claim against the applicant upon resumption thereby rendering the subject premises a vacant property on the Crown's resumption and erred in determining or finding that the tenancy concerned still had an unexpired term of about 7 months in the circumstances, such determination and findings are unreasonable and unsatisfactory, and irrelevant and should not have been taken to affect the amount of compensation.

4. The learned Presiding Officer and the Land Tribunal member in any event erred in calculating or concluding the amount of compensation against the uncontroversial evidence submitted before them in the proceedings."

7. An important matter which has to be borne in mind is that the scope of this appeal is severely circumscribed by virtue of Section 11(2) of the Lands Tribunal Ordinance, Cap. 17 which provides that appeals against determinations of the tribunal are limited to appeals on points of law.

8. Mr Chan for the appellant submitted that notwithstanding this limitation he was able to establish that the present appeal could be maintained. He accepted that to succeed in the context of this appeal he had to demonstrate either that the tribunal's findings were wholly unsupported by the evidence or that in some other way the tribunal was not entitled to reach the decision it had on the basis of the material before it. It had to be manifest that the decision was a flawed one.

9. He argued that the decision to place reliance upon only two comparables when the expert representing the appellant had referred to 28 and the expert for the respondent 10 was manifestly wrong. The reason for the tribunal adopting this approach was given in para 4 of their judgment. At the conclusion of this paragraph they state that they were able to narrow down their search for the best comparables to those along Pak Tai Street.

10. It is evident from a perusal of the transcript of the proceedings that the solicitor who represented the appellant before the tribunal agreed that in an endeavour to shorten the matter reliance should be placed upon comparables (1) to (3) all of which were in Pak Tai Street. In these circumstances it is not open to the appellant to now contend that the tribunal was manifestly wrong to limit itself to comparables in Pak Tai Street.

11. As it transpired the tribunal referred to the appellant's expert's comparable 3 and the respondent's expert's comparable 8.

12. The value of the premises in comparable 8 was $63,000 per square metre and for comparable 3 was $73,000 per square metre after adjustment of all relevant factors. The tribunal based the calculation of compensation in the present case on $68,000 per square metre.

13. The next point made by Mr Chan was that the reason given by the tribunal for rejecting their experts' comparable 2 was manifestly inadequate. The tribunal had rejected the comparable simply on the basis that the area of the premises was larger than the suit premises. The area of the comparable being 76.17 square metres plus rear yard of 36.25 square metres and the area of the suit premises 70.8 square metres plus 8.4 square metres. He drew attention to the fact that the respondent's own expert had referred to comparables where a similar disparity obtained. Mr Chan argued that it was a simple matter to build into the calculation of the value a suitable discount which would take account of this factor.

14. The simple answer to this criticism is that even if the tribunal had taken cognisance of this comparable it would not have assisted the appellant.

15. Mr Chan accepted there was evidence to the effect that the saleable area of those premises was 80.7 square metres and that as a consequence of this the adjusted value ignoring size was $71,272.90 per square metre which figure was less than the higher comparable upon which the tribunal relied.

16. This may not be a complete answer to Mr Chan's criticism that the tribunal should not have rejected comparable 2 entirely on the basis of the disparity in size as seems to have been indicated as being the reason in the judgment.

17. It must however be borne in mind that what the tribunal appear to have been attempting to do was to find the most suitable comparable for the basis of assessing the value of the property. It seems likely that if there had not been another property available for comparison the tribunal would not have rejected this one for the reason which was given. In any event the rejection of this comparable would certainly not invalidate the integrity of the determination as a whole and would not meet the criteria required to allow this decision to come within the definition of being an error of law.

18. The next criticism made by Mr Chan was that the tribunal did not make sufficient allowance for the existence of the tenancy agreement which the premises adopted as being comparable 8 was subject to. Mr Chan was particularly critical of the fact that the tenancy agreement in question contained a unilateral option enabling the tenant to renew the tenancy for a further term of 2 years at an increased rental of $36,400 per month. Mr Chan submitted that the existence of such an option which was undoubtedly favourable to the tenant must have a detrimental effect upon the value of the premises which should in fairness be reflected in the valuation.

19. Mr Chow for the respondent dealt with this criticism by advancing the contention that the only realistic way of considering individual terms or conditions in a lease or tenancy agreement would be to consider the document as a whole. In exchange for the option there would probably be a modification either of the consideration or some of the other covenants or conditions contained in the lease. What was necessary was to consider the whole arrangement as a package.

20. I see considerable merit in this contention. I also accept the validity of the submission made by Mr Chow that it was at least arguable that the tribunal were right not to discount the value of comparable 3 simply on the basis that it was subject to a tenancy. Once the tribunal was satisfied that the rent of the premises was not less than the market value they were entitled to treat the property as an investment property and it was then not necessary to make a deduction in respect of the tenancy.

21. Mr Chan argued that it was particularly important that the valuation of comparable 3 should be properly arrived at and fully reflect the value of the premises as this comparable was the one adopted for the higher value of the premises. I do not think that Mr Chan has been able to demonstrate that the tribunal was clearly wrong in arriving at the value they did in respect of comparable 3.

22. The final matter raised by Mr Chan was to criticise the formula adopted by the tribunal in dealing with the deduction for the tenancy the premises were subject to which had 7 months to run on the date when the property was resumed. Details of the formula are contained on p.7 of the judgment. Mr Chan argued that it was illogical to only allow the owner the actual rent received of $12,000 per month for the said period. This illogicality was accentuated by reducing the amount to reflect the fact that notionally all of the rent was treated as being payable on the date of the transfer.

23. The tribunal then went on to adjust the amount of the award so as to allow the government 9% of the value of the premises for the said period. He argued that presumably the existence of a tenancy at a rent significantly less than the market value had already been factored into the valuation of the premises. I would observe that there is nothing in the judgment to indicate that this is in fact the case.

24. Mr Chow informed us that this formula was a standard one adopted by the tribunal to deal with a situation such as the one which arose in the present case. There was no justification in tying the interest rate to an anticipated rate of return on commercial premises. It was just as realistic to base the calculation on the use which could be had of the money in a commercial manner and 9% was a fair rate of interest.

25. I do not think the adoption of this formula has led to any injustice in the present case. However this may well not be the correct approach in other cases. What the tribunal is doing is assessing the value of the premises according to the relevant section in the Ordinance. This is a factor which should be taken into account in the overall valuation.

26. Having regard to all of the matters referred to I do not think that the appellant has been able to satisfy us that the tribunal has erred in law and in my view this appeal should be dismissed.

Mortimer, J.A.:

27. I agree that this appeal must be dismissed for the reasons given by my brother Mayo. I also would echo some concern about the arithmetical adjustment to the figure adopted by the Tribunal to achieve its final award. I am not able to say that this approach achieved a wrong valuation but the Tribunal should re-visit this method with the aim to assess the compensation under s.10 of the Crown Lands Resumption Ordinance, Cap 124 subsection (2) of which reads:

"(2) The Tribunal shall determine the compensation (if any) payable under subsection (1) on the basis of -

(a) the value of the land resumed and any buildings erected thereon at the date of resumption;"

Here, therefore, the Tribunal had to value these premises at the time of the resumption when it was subject to a lease with 7 months to run at $12,000 per month. In my judgment the value should be assessed simply by taking all the relevant factors into account at the time of the resumption.

Ching, J.A.:

28. I agree that the appeal should be dismissed and I have nothing further to add.