TSUEN WING LAU MUTUAL AID COMMITTEE v. COMMISSIONER OF RATING & VALUATION

Rating - rateable value - proper basis of assessment under Rating Ordinance (Cap. 116), ss. 7(2) and 7A(2).

The hypothetical rent for the purposes of s. 7(2) of the Ordinance is to be calculated with reference both to the existing physical condition of the tenement and, by reason of s. 7A(2), to factors affecting the mode in which it is actually used.

Since the object of a rating assessment is not to establish the true value of the tenement, but rather its value in comparison with the respective values of other relevant tenements, all realistic alternative uses to which the premises could be put, as revealed by the evidence, are to be taken into account.

The terms of s. 7(2)(b) of the Ordinance necessarily require the Commissioner to act on the hypothesis that the Crown is not the immediate lessor, and so to ignore any actual lease where the Crown is the immediate lessor. It follows, as a matter of necessary inference, that where there is an intermediate landlord, the terms of the head lease from the Crown must also be ignored; the law on the point in Hong Kong being the same as the Law in England.

However, statutory restrictions which affect the use of the premises must be taken into account, as must possibilities of waiver by the Crown or of the willingness of potential occupiers to risk breaking the law.

The Lands Tribunal had therefore erred in taking into account the restrictions and conditions in the head Crown leases; the benefit derived by the landlord from the occupation of the premises; and the fact that intermittent use was made of the premises by the tenants.

Appeals allowed and the two matters ordered to be referred back to the Tribunal to be reconsidered in the light of the principles laid down by the Court of Appeal.

IN THE COURT OF APPEAL

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J UDGMENT

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Kempster, J.A. (delivering the judgment of the Court):

1. By Notice served on 30th May 1984 and pursuant to section 40(2) of the Rating Ordinance (Cap. 116) the Commissioner of Rating & Valuation informed the Lai Kit Lau Mutual Aid Committee, as occupiers of Flat 111, Lai Kit Lau, 38 Lai Tak Tsuen Road, Causeway Bay, Hong Kong, that he had confirmed his interim valuation of that flat at the figure of HK$19,200; being his estimate of "the annual rent at which it might reasonably be expected to be let". Against that decision the Committee successfully appealed to the Lands Tribunal pursuant to section 42 of the Ordinance. The figure of HK$19,200 was reduced to HK$4,560. The relevant Decision is to be read as corrected by a subsequent review. In turn the Commissioner, appealing on points of law, seeks an order from this Court that the Decision of the Lands Tribunal be set aside and that it rehear the matter.

2. By Notice served on 26th June 1984 the Commissioner informed the Tsuen Wing Lau Mutual Aid Committee, as occupiers of Unit 2432A, Tsuen Wing Lau, 16 Lai Tak Tsuen Road, Causeway Bay, Hong Kong, that he had confirmed his interim valuation of that unit at the figure of HK$21,600. This Committee also successfully appealed to the Lands Tribunal. The figure was reduced to HK$5,400. And the Commissioner seeks like relief from us as in relation to Flat 111, Lai Kit Lau.

3. By Order of this Court dated 19th February 1985 the two appeals, which involved the same points of law, were consolidated. The Committees are not represented before us though their respective Chairmen have been present in Court to render any assistance that might be required. We have, however, had the advantage of argument from Mr. Anthony Neoh as amicus curiae. These appeals, it should be emphasized, are brought because, in the submission of the Commissioner as advanced by Mr. Peter Feenstra, the Tribunal erred in principle in the findings impugned. The valuable work and commitment of the members of the two Committees has at no time been in question.

4. Section 7(2) of the Ordinance provides that "the rateable value of a tenement shall be an amount equal to the rent at which the tenement might reasonably be expected to let from year to year" - impliedly with vacant possession - "if -

It follows that a hypothetical rent is to be calculated with reference both to the existing physical condition of the tenement, since a continuation of the actual state of things is to be presumed even in Hong Kong, and to factors affecting the mode in which it is actually used. The later consideration derives from the provisions of section 7A(2) which fixes the time at which material factors are to be considered. The section reads:

Since the Commissioner is only required to have regard to "any relevant factors affecting the mode or character of occupation..." the Ordinance does not require him to presume that such mode or character of occupation is necessarily comprehensive as to the way in which the tenement may be enjoyed. All realistic alternative uses to which premises could be put, in the condition found at the material date, are to be taken into account. After all it is not the object of a rating assessment to establish the true value of any particular tenement but rather its value in comparison with the respective values of the rest. Out of various possible standards of comparison the Law has chosen the annual letting value. This is appropriate since the tax is charged annually. One therefore has to estimate the rent at which the tenement might reasonably be expected to let from year to year on the hypothesis stated in section 7(2) of the Ordinance. As was stated by Oliver, L.J. in Edmondson (Valuation Officer) v. Teesside Textiles Ltd. ⁽¹⁾ at p. 255:

"...you are to assume the actual hereditament...in its actual situation and with all such advantages and disadvantages as may be inherent in its actual structure and situation, but you are to ignore its actual use except as one of the potential uses to which a hypothetical tenant may wish to put it."

5. My Lord Fuad, J.A. brought to the attention of Mr. Feenstra and Mr. Neoh the decision of the Supreme Court of Victoria, Disney v. The Mayor of Williamstown⁽²⁾ where it was held by Higinbotham, C.J. at p. 65 that account may be taken in making a rating assessment of actual restrictions and limitations of beneficial occupation of all kinds whether imposed by law or by act of the occupiers' landlord, the owner. On consideration of the authorities on which the Chief Justice relied, however, it is apparent that they support only the proposition that restrictions on the occupation of premises imposed by Act of Parliament may be taken into account and not restrictions "of all kinds". Further, that decision has been overruled by the Privy Council in Gollan v. Randwick Municipal Council ⁽³⁾. At P. 101 Lord Redcliffe said:

"If the conditions or restrictions affecting any particular area of land bring it within one of those categories" - exempting it from rating - "then it is expressly exempt by virtue of the statute, but it seems directly contrary to the intent of the Act that, though not within one of the categories, land can yet be effectively withdrawn from rateability or, at least, find its rateable assessment substantially reduced by the operation of some grant or other tran-saction inter partes imposing restrictions on user."

There the Board was considering the rateable value of a racecourse held subject to restrictions as to the greater part in a deed of grant made to the occupiers' predecessors in title and as to the smaller in a direct grant from the Crown. The Board held that those restrictions did not call for consideration when assessing the rateable value of the racecourse. Although the Board was concerned with a different basis of valuation to that which obtains in Hong Kong some of the restrictions had been recited in a statute. But it was found that the source of the restrictions derived not from the Act but from the original Crown grant. It is interesting that in the course of argument it was apparently accepted, to quote again from the advice of the Board given by Lord Redcliffe at p. 94, that

"... a Crown grant ... is treated as being on the same footing as a grant of land inter partes made by one citizen to another."

6. In Hong Kong exemptions from liability to rates are provided by section 36 of the Ordinance.

7. The terms of section 7(2)(b) of the Ordinance necessarily require the Commissioner to act on the hypothesis that the Crown is not the immediate lessor and, accordingly, to ignore any actual lease where the Crown is or at the material time was the immediate lessor. In our view it follows as a matter of necessary inference that when there actually is or at the material time was an intermediate landlord the terms of the head lease from the Crown must also be ignored; thus demonstrating that the rating law of Hong Kong is substantially in accord with that of England where the terms of the lease under which the occupier for the time being holds, or of any superior lease, are irrelevant for rating purposes whether the lessor or any superior lessor be the Crown or not. Byrne v. Parker ⁽⁴⁾ at p. 50. That does not mean that the occupiers at the material time are to be excluded from consideration as possible tenants. The Queen v. School Board for London ^(5). As Scott, L.J. pointed out in a frequently quoted passage in Robinson Brothers (Brewers), Ltd. v. Assessment Committee for Houghton and Chester-Le-Street Area of the County of Durham⁽⁶⁾ at p. 470:

"The rent to be ascertained is the figure at which the hypothetical landlord and tenant would, in the opinion of the valuer or the tribunal, come to terms as a result of bargaining for that hereditament, in the light of competition or its absence in both demand and supply, as a result of 'the haggling of the market.' "

In carrying out this exercise statutory restrictions which affect the occu-pation of the premises must be taken into account as must possibilities of waiver by the Crown or of the willingness of potential occupiers to incur the risk of breaking the law. To quote from the speech of Lord Buckmaster in Port of London Authority v. Assessment Committee of Orsett Union and Others ⁽⁷⁾ at p. 305:

"The actual hereditament of which the hypothetical tenant is to be determined must be the particular hereditament as it stands with all its privileges, opportunities and disabilities created or imposed either by its nature position or by the artificial conditions of an Act of Parliament."

In considering the effect in England of the Town and Country Planning Act 1947 and plans made thereunder the test is whether or not such plans are such as to effect the rent which should reasonably be payable by a tenant from year to year. Lloyd (Valuation Officer) v. Rossleigh, Ltd. ⁽⁸⁾. But in relation to the English Rent Restriction Acts, following an interesting difference of judicial opinion, it has been held that it is irrelevant to introduce conditions which reduce the value of the hereditament to the land-lord when the enjoyment of the occupier, being the subject of assessment to rates, is not thereby rendered any the less beneficial. Poplar Metropolitan Borough Assessment Committee v. Roberts ⁽⁹⁾.

8. Accordingly where there is evidence of a demand for like premises to be put to some alternative use such evidence may be taken into account. This conclusion was reached by the English Lands Tribunal by reference to the similarly worded section 20 of the general Rate Act 1967 in Midland Bank Ltd. v. Lanham (Valuation Officer) ⁽¹⁰⁾ and S & P Jackson (Manchester) Ltd. v. Hill ⁽¹¹⁾. It is not suggested that any distinction is to be drawn between the use of the word "hereditament" in the English legislation and "tenement" in that of Hong Kong.

9. We are fortified in the conclusions just reached by two earlier decisions of the Hong Kong Lands Tribunal LEE King v. Commissioner of Rating and Valuation ⁽¹²⁾ and HO Tang-fat v. Commissioner of Rating and Valuation ⁽¹³⁾.

10. In the instant cases the Lands Tribunal concluded that the restrictions and conditions of the head Crown leases; the ability of the two Committees to pay rates; the benefit derived by the landlord from their occupation and the intermittent use made of the premises should all be taken into account. We were told that the Tribunal afforded the representa-tive of the Commissioner no opportunity of arguing these particular matters.

11. We have already expressed our opinion as to the proper approach in relation to user and from the Tribunal's errors in this regard further errors followed. Financial ability is neither here nor there unless the demand for particular premises is restricted to only one or to a very small number of hypothetical tenants. Benefit to a landlord can no more be a relevant consideration than detriment and as to the latter reference has already been made to Poplar Metropolitan Borough Assessment Committee v. Roberts ⁽⁹⁾. The fact of intermittent user at the material time again is neither here nor there. It is the hypothetical not the actual user which falls to be considered.

12. It was suggested to us by Mr. Neoh that even if it had not taken into account the considerations just canvassed the Tribunal would have arrived at the same figures. He may well be right but we do not consider ourselves in a position so to determine one way or the other. In our view the relief sought by the Commissioner is appropriate.  We allow the appeals and order that these two matters be referred back to the Tribunal to be reconsidered in the light of the principles which we have sought to outline.

(1) [1984] R.A. 247

(2) [1889] 15 V.L.R. 59

(3) [1961] A.C. 82

(4) [1980] R.A. 45 (CA)

(5) (1886) 17 Q.B.D. 738

(6) [1937] 2 K.B. 445

(7) [1920] A.C. 273

(8) (1962) 9 R.R.C. 175

(9) [1920] A.C. 93

(10) [1978] R.A. 1; 246 E.G. 1018 at p. 1120

(11) [1980] R.A. 195; 255 E.G. 629

(12) [1977] HKLTLR 271

(13) [1978] HKLTLR 287