PENNY'S BAY INVESTMENT CO LTD v. DIRECTOR OF LANDS

cacv 3/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 3 of 2004

(on appeal from LDMR NO. 23 of 1999)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This is an appeal from a decision of HH Judge Chow, of 17 December 2003, sitting as presiding officer of the Lands Tribunal, whereby he refused an application by the applicant that there should be 4 preliminary points of law determined in accordance with rule 18(1) of the Lands Tribunal Rules.  At the conclusion of the hearing of this appeal this court allowed the appeal to the extent that it ordered that this matter should be remitted to the President of the Lands Tribunal to give further directions as to the framing of the issues including the filing of statements of contentions setting out the factual and legal basis of the parties’ cases.  This court also ordered that the order on this appeal should be without prejudice to the right of either party to renew an application under Rule 18 of the Lands Tribunal Rules when the pleadings are closed.

Background

2.  As long ago as 1970, the applicant acquired a very substantial parcel of land in Penny’s Bay, Lantau, which for convenience may be referred to as Lot 22.  By any standards Lot 22 was very sizeable: it was approximately 2,010,000 square feet.  It was, apparently, a land locked area and access by sea was permitted.  The land was used for the purposes of shipbuilding yards and had been let out to a well-known shipyard.  One of the Special Conditions attaching to the Lot was that not less than 285,000 square feet should be used for shipbuilding purposes only.

3.  All was well until 1995 when proposals were formulated for the construction of two container terminals at Penny’s Bay.  These were referred to as CT 10 and CT 11.  On 5 May 1995 GN 1574 was gazetted.  That was a notice of authorization under section 9 of the Foreshore and Sea-bed (Reclamations) Ordinance, Cap. 127 (“the Ordinance”).  That has been referred to as the 1995 Authorization.  In brief the effect of that was that an area comprising approximately 1260 hectares of foreshore and sea-bed situated at Penny’s Bay would be affected.  It would be needed for the purposes of the construction of the container terminals.  It is the applicant’s case that that effectively legally extinguished the marine access to Lot 22 and, as such, it was entitled to compensation under section 12(1) of the Ordinance.  Hence, pursuant to section 12(1) a claim was lodged with the Director of Lands for compensation in the sum of HK $2,539,000,000.  That included a claim for the loss of value in Lot 22 in the sum of $2,200,000,000.

4.  Things however did not stay the same.  The Government’s proposals for the construction of the container terminals were not pursued.  Instead, in October 1999 proposals were published for the reclamation of part of the foreshore and sea-bed of Penny’s Bay so that a theme park could be constructed.  Since by then the applicant’s claim for compensation had not been satisfied, on 2 November 1999 the applicant applied to the Lands Tribunal pursuant to section 13(3) of the Ordinance to determine its claim for compensation arising from the extinguishment of its marine access by the 1995 Authorization.  The claim was in the standard form of Form 12 of the Lands Tribunal Rules.  Attached to the Form 12 were various supporting documents.  It is clear that the applicant’s claim for compensation has always been upon the basis of total extinguishment of the right to marine access, which in effect, is said to have extinguished the value of the Lot and to have caused substantial financial damage.

5.  The notice of opposition was short and concise.  The grounds and particulars of the opposition read as follows:

“The Applicant’s claims are opposed on the grounds that the Applicant suffers no loss compensatable under section 12 of the Ordinance, or alternatively that the amount of compensation claimed is excessive.”

6.  That document was filed on 19 November 1999.  On 10 April 2000 there were 2 notices published in the Gazette.  The first GN 2230 was a withdrawal of the authorization of the reclamation under GN 1574.  The second notice was another authorization notice under section 9, which was designed to assist the construction of a theme park at Penny’s Bay.  It comprised the reclamation of an area which would otherwise have been part of the reclamation under the 1995 Authorization.

The attempt to crystallise the issues

7.  Immediately following the Government’s notice of opposition the applicant’s solicitors attempted to elicit the basis upon which the Government contended that the applicant was not entitled to compensation.  The first response to which we have been referred is that of 7 January 2000.  In the letter from the Department of Justice two points were taken.  In the first place it was said that the entire lot had been used for shipbuilding and ship repairing but that was a declining market.  The second and more substantial point that was sought to be made was that GN 1574 provided for the construction of infrastructure including roads which would have opened up Lot 22 for its full redevelopment potential.

8.  By 23 May 2000, which was of course after the publication of the later Gazette Notices, the Department of Justice was expressing the view that although the publication of GN 1574 resulted in the applicant’s rights in relation to the area of the foreshore and sea-bed affected by that authorization being extinguished and ceasing to exist, the compensation would have to be based on the fact that the extinguishment of the rights was for a limited period between the date of that authorization and its withdrawal.

9.  In April 2001 there was a deed of surrender of Lot 22 in accordance with which there was a very substantial ex gratia payment of $1,483,380,000 with a total payment of $1,506,090,750.

10.  In January of the following year the Department of Justice wrote again to the applicant stating that it had taken advice from two leading counsel in London, one concerned with the administrative law aspects and the other with the valuation aspects.  On this occasion it was said:

“As regards the consequences of the withdrawal of the 1995 Authorization, it is our view that it is a matter of interpretation of the order(s) concerned and should be a matter for the Lands Tribunal.  We are instructed that, having reconsidered the issues, contrary to our previous indication that such rights were revived by the withdrawal of the 1995 Authorization, Government is prepared for the purposes of assessing the claim to compensation by your clients to accept that all the rights, public or private, which were extinguished by the Gazettal of the 1995 Authorization under section 10 of the FSRO were permanently extinguished and that there was no revival of those rights, even on a momentary basis, upon the Gazettal of the withdrawal of the 1995 Authorization in March 2000 before the 2000 Authorization was Gazetted.”

11.  The applicant’s solicitors sought clarification of that by letter of 16 February 2002.  In particular they inquired as to whether it was the Government’s contention that the claim for compensation was in any way affected by the withdrawal and subsequent authorization in April 2000 and, if so, how.  Inquiries were also made as to whether it was still the Government’s position that the compensation payable as a result of the 1995 Authorization should be set off against any “betterment” referable to the infrastructural and other works authorized to be carried out.  That letter was met by a singularly unhelpful reply of 27 February 2002 in which it was said that the issues should be ventilated after the filing of expert evidence.  The letter then went on: “It would not be helpful for either party to have to commit themselves at this stage to any single valuation approach in the proceedings before the Lands Tribunal.”

12.  Pausing there, it must be stated that it would clearly be most undesirable that parties should be put in a position where they have to file unnecessary evidence because a case has to be prepared on the basis that the opposing party might put forward various alternative arguments one or other of which might be their ultimate case and might or might not find favour with the Tribunal.  Litigation, including claims for compensation, should be conducted on the basis that each party knows what the other party’s case is so that it can be fully prepared to meet it.  It is, in those circumstances, not surprising that the applicant put forward the proposal that there should be a trial of points of law as preliminary issues before the assessment of the compensation.  The points of law which requested were as follows:

“1.Upon the proper construction of sections 10(2), 11 and 12 of the Ordinance, whether the claim for compensation by PBIL is subject to any set-off, diminution or otherwise adversely affected by the 2000 Withdrawal and/or the 2000 Authorization, which were events occurring after the relevant rights of PBIL to the foreshore and sea-bed had been extinguished in 1995.

2.Upon the proper construction of sections 10(2), 11 and 12 of the Ordinance, whether the claim for compensation by PBIL is subject to any set-off or diminution by reason of any ‘betterment’ referable to the infra-structural and other works authorized under the 1995 Authorization, which had not been and would no longer be carried out.

3.Whether Question 1 or Question 2 are to be answered differently when sections 10(2), 11 and 12 of the Ordinance are construed in the light of Articles 6 and 105 of the Basic Law.

4.If the answer to Question 1 or Question 2 or to both is in the affirmative, whether sections 10(2), 11 and 12 of the Ordinance are invalid and to be struck down for being inconsistent with the constitutional provisions under Articles 6 and 105 of the Basic Law.”

13.  It would seem that the first question focuses on what affect if any withdrawal and authorization in 2000 would have upon the claim for compensation.  The second question raises the issue as to whether “betterment” can be taken into account.  The other questions relate to the effect if any of articles of the Basic Law.  Those seem to be dependent upon the determination of the first two issues. 

14.  It is noteworthy that prior to the hearing before the Lands Tribunal on the applicant’s application for the trial of these issues, the Department of Justice, whilst objecting to the determination of the preliminary points of law, reformulated the questions.  One matter which was sought to be introduced was that the assessment compensation should be “on the same general principles as a claim for damages in tort and in particular having regard to all facts and events known at the date of the determination of the claim …”.  Further aspects were also sought to be introduced, for example, the fact that access by sea was continued as a matter of fact until the date of surrender of the land in April 2001 and the fact that the 1995 Authorization was withdrawn and, finally, the fact that the land has been surrendered to the Government.  This was even further amplified in a letter of 26 July this year where the Department of Justice went on to say that the events relating to the withdrawal of the 1995 Authorization in 2000 and the new authorization in 2000 were part of the sequence of events which is relevant to both claims.

15.  The judge in giving his decision in the Lands Tribunal said in summary that the experts’ reports on behalf of the Government should be filed and then it could be seen what issues emerged.  I should state at the outset that this court is most reluctant to interfere in what are case management decisions.  Not only are these matters of discretion but it is, in most circumstances, highly undesirable that an appellate court should interfere in the manner in which a Tribunal should conduct its proceedings.  This is all the more so in the case of the Lands Tribunal where the procedure is more informal than that of court.

16.  In this instance the proceedings before the Tribunal are not of the ordinary nature.  Quite apart from the size of the claim, the facts and the issues which have been raised and dropped on the part of the Government take this claim out of the ordinary run of claims where the basis of compensation would not generally be in dispute.  A consideration of the varying attitude on the part of the Government demonstrates quite clearly that this is a case where special attention needs to be paid to the process of defining the issues.  It may be that when the different contentions of the parties as to the basis upon which the compensation should be assessed is known, there should be a preliminary trial of issues of law so that unnecessary expenses are not incurred in preparing evidence on alternative bases depending upon what might emerge. 

17.  Furthermore, it would be quite wrong for either of the parties to be taken by surprise by any arguments raised in the course of the claim on the basis that something might have been put into the evidence which had been omitted because the issues had not been clarified.  Even whilst this appeal was pending there was a letter from the District Lands Officer of 26 July 2004 in which it was said that the events relating to the withdrawal of the 1995 Authorization and the new authorization in 2000 are part of a sequence of events relevant to the applicant’s claim.  The vacillating approach coupled with the imprecise contentions put forward in the letters from Government leave no doubt that it is high time, nearly 10 years after the 1995 Authorization, that the position and contentions of the Government are properly spelt out. 

18.  Although the Lands Tribunal has a power under section 8A of the Ordinance to transfer proceedings to the Court of First Instance, and although consideration may be given to that course, that may not be necessary in this case particularly in view of the fact that the President of the Lands Tribunal is, of course, a Judge of the Court of First Instance.  Under section 10 of the Ordinance, the Tribunal is given the power to follow the practice and procedure of the Court of First Instance in the exercise of its civil jurisdiction.  It is for this reason that this court considered it imperative that the issues both of fact and law should be clarified in a form of pleadings which could then form the basis of the determination of the claim to compensation.  In that way it would be known whether there are indeed questions of law which arise and whether these can be usefully determined prior to the further conduct of the claim.  It was for this reason that this court made the order as set out above.

Hon Le Pichon JA:

19.  I agree.

Hon Cheung JA:

20.  I agree.