YIELD-THE-BEST LTD v. SECRETARY FOR TRANSPORT AND HOUSING

LDMR 1/2021

[2023] HKLdT 44

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS REFERENCE APPLICATION NO 1 OF 2021

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J U D G M E N T

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Background

1.  This is an application for determination of the amount of compensation payable for the resumption of land under the Roads (Works, Use and Compensation) Ordinance, Cap 370 (“the Ordinance”).

2.  On 31 December 2015, pursuant to section 13 of the Ordinance, the Government announced that the Remaining Portion of Lot No 2835 (portion), the Remaining Portion of Lot No 2848 (portion), Lot No 2858 (portion) and the Remaining Portion of Lot No 2859 (portion) all in Demarcation District 51 (“DD 51”) which are collectively referred to as the “Resumed Land” shall be resumed and reverted to the Government to facilitate the building of the Fanling Bypass (“the Bypass Construction”).

3.  The applicant was then the registered owner of the original lots, i.e. the Remaining Portion of Lot No 2835 (“Lot 2835 RP”), the Remaining Portion of Lot No 2848 (“Lot 2848 RP”), Lot No 2858 (“Lot 2858”) and the Remaining Portion of Lot No 2859 (“Lot 2859 RP”) hereinafter collectively referred to as the “Subject Lots”.

4.  By Government Gazette Notice No 5965 (“GN 5965”) dated 26 September 2019, the Government ordered the resumption of 1,779.8 sq m of the Subject Lots.

5.  On 27 December 2019 (“the Date of Reversion”), ownership of the Resumed Land reverted to the Government.

6.  On 14 July 2021, the applicant filed its Notice of Application seeking compensation for, inter alia:

(1)  the Resumed Land, and

(2)  severance loss suffered by it due to reduction in value of the adjoining, un-resumed parts of the Subject Lots (the “Residual Land”).

7.  By virtue of item 1 of Part II of the Schedule to the Ordinance, where land is resumed under section 13 of the Ordinance, the basis on which compensation is to be assessed is “as if the claim were made under the Lands Resumption Ordinance, Cap 124 (“LRO”) for land resumed under that Ordinance”.

8.  Therefore the compensation for the resumption of the Resumed Land is to be assessed under section 10(2)(a) of the LRO which provides that it should be made on the basis of “the value of the land resumed and any buildings erected thereon at the date of resumption”.

9.  Determination of the compensation under LRO is also subject to the following additional rules under section 12 thereof:

“(a) no allowance shall be made on account of the resumption being compulsory;

(aa) no account shall be taken of the fact that the land lies within or is affected by any area, zone or district reserved or set apart for the purposes specified in section 4(1)(a), (c), (d), (e), (f), (g), (h) or (i) of the Town Planning Ordinance (Cap. 131);

(b) no compensation shall be given in respect of any use of the land which is not in accordance with the terms of the Government lease under which the land is held;

(c) no compensation shall be given in respect of any expectancy or probability of the grant or renewal or continuance, by the Government or by any person, of any licence, permission, lease or permit whatsoever:

Provided that this paragraph shall not apply to any case in which the grant or renewal or continuance of any licence, permission, lease or permit could have been enforced as of right if the land in question had not been resumed; and

(d) subject to the provisions of section 11 and to the provisions of paragraphs (aa), (b) and (c) of this section, the value of the land resumed shall be taken to be the amount which the land if sold by a willing seller in the open market might be expected to realize (underline and bold added)”

Expert and factual evidence

10.  On the amount of compensation, the applicant relied on the valuation evidence of its expert, Ms Serena S W Lau (“Ms Lau”) of RHL Surveyors Limited who had prepared the following:

(1)  Expert Report dated 11 October 2021;

(2)  Supplementary Expert Report dated 31 March 2022;

(3)  2^nd Supplementary Expert Report dated 21 September 2022; and

(4)  3^rd Supplementary Expert Report dated 8 March 2023.

11.  The respondent, on the other hand, relied on the valuation evidence of Ms Ng Hung Mui (“Ms Ng”) of LCH (Asia-Pacific) Surveyors Limited who had prepared the following:

(1)  Expert Report dated 8 February 2022;

(2)  Supplementary Expert Report dated 22 November 2022; and

(3)  2^nd Supplementary Expert Report dated 9 March 2023.

12.  Ms Lau and Ms Ng had also prepared the following Joint Expert Statements:

(1)  Joint Expert Statement dated 10 June 2022; and

(2)  2^nd Joint Expert Statement dated 12 December 2022.

13.  As submitted by the applicant, while both valuation experts agreed to value the Resumed Land as at the Date of Reversion, the difference in the respective experts’ valuation was huge. Ms Lau’s valuation was roughly between $71.8 million and $127.1 million whereas Ms Ng’s valuation was roughly $11.6 million.

14.  As shall be elaborated below, the huge difference in valuation arose, we find, largely owing to whether or not the Resumed Land should be valued with temporary structures erected thereon, on which issue the parties and their experts differ from one another.

15.  The applicant also relied on the evidence of three factual witnesses, Mr Chik Poon Ho (“Mr Chik”), Mr Chan Hoi Yuen Peter (“Mr Chan”) and Mr Lui Yue Yun Gary (“Mr Lui”), whose witness statements are, as agreed by the parties, admitted into evidence without cross-examination by the respondent.

16.  At trial, Mr Victor Dawes SC (“Mr Dawes”), leading Ms Anna Chow and Mr Adrian Kwan, represented the applicant. Ms Ebony Ling (“Ms Ling”) acted for the respondent.

The Subject Lots Before and After Resumption

17.  The Subject Lots are located to the east of Ma Wat River and Wong Kong Shan, to the west of Tong Hang, an existing village in Fanling, and to the north of Fanling Highways in the Fanling district in the New Territories.

18.  They are situated on the urban-rural fringe which is just at the entrance of Tong Hang. To the immediate east is a cluster of village houses including the Cyber Domaine and Wing’s Villa, while to the immediate north across the unnamed access road is a brownfield site.

19.  To the west of the Subject Lots is the Fanling Town with On Lok Tsuen Industrial Area just across the Ma Wat River. Further to the west is the Fanling Station with residential developments and commercial facilities in the surroundings.

20.  The Subject Lots comprise altogether a large piece of “L-shape” land with an agreed land area of 4,601.1 sq m of which 1,779.8 sq m had been resumed, leaving 2,821.3 sq m[1]:

Subject Lots	Registered Area (m2)	Resumed Land (m2)	Residual Land (m2)
Lot 2835 RP	2,231.60	833.80	1,397.80
Lot 2848 RP	1,033.41	398.00	635.41
Lot 2858	647.49	326.90	320.59
Lot 2859 RP	688.60	221.10	467.5
	4,601.1	1,779.8	2,821.3

21.  We accept from Mr Lui, the Director of the applicant, that the applicant is a limited company incorporated in Hong Kong in June 1989. The applicant was owned by him and Koon Wah Metal Company Limited (“Koon Wah”) in equal shares[2]. It acquired the Subject Lots on or about 11 October 1989 for the operational needs of Pacific Marble & Granite (Hong Kong) Limited (“Pacific Marble”) which was then also jointly owned by him and Koon Wah in equal shares[3]. The core business of Pacific Marble is the supply and installation of marble and granite imported for commercial and domestic projects in Hong Kong and the People’s Republic of China (“PRC”).

22.  According to Mr Lui, whose evidence in this paragraph we accept, immediately prior to the acquisition by the applicant, the Subject Lots were then used by the predecessor in title for his animal feed production and storage business. There was some one-storey temporary structures already erected thereon covering more than 1,100 sq m. Electricity and water supply were already in place. There was in fact also a fully functional office area, equipped with air-conditioners, of about 2,000 sq ft in size for about 20 staffs.

23.  After the acquisition of the Subject Lots by the applicant, Mr Lui had, we also accept from him, reinforced the boundary fence and also paved the entirety of the Subject Lots with concrete to facilitate the entry and exit of trucks transporting marble and other building materials. Pacific Marble’s staffs, including Mr Lui himself, also used the office area for its daily business operation.

24.  Insofar as the Subject Lots are held from the Government on Block Crown Lease (“the Government Lease”) which restricted user to agricultural or garden ground without any building[4], looking at his witness statement, Mr Lui admittedly understood from the predecessor in title that there was a waiver from the Government to use the temporary structures thereon (“Pre-Existing Structures”) for the manufacturing of animal feeds.

25.  Shortly after the applicant’s acquisition of the Subject Lots, Mr Lui alleged in his statement that he had applied for a change of user in the waiver letter from animal feeds to marble cutting operation. But owing to the objection of local villagers, such application was, he said, not approved.

26.  Notwithstanding rejection of his alleged application, Mr Lui further alleged that an officer of the Lands Department had told him that the applicant may continue its marble cutting operation in those structures and that no enforcement action would be undertaken unless there is a complaint[5]. Having regard to the unambiguous contrary contents of the 1991 Termination Notice below and of DLO’s rejection letter to the 2001 Amended Waiver Application below, we decide to give no weight to this bare allegation of Mr Lui. In any event, Mr Lui was never advised that there would be no enforcement action at all in the future.

27.  Then in or about October 1995, because of a change in modus operandi when Pacific Marble was sold off to an investor[6]. Pacific Marble acquired its own office premises in Lockhart Centre in Wan Chai and its storage and marble cutting operation were relocated to PRC. The applicant then decided to lease out the Subject Lots on “as is” basis to earn regular rental income, with Koon Wah handling the leasing matters relating to the Subject Lots[7] (Koon Wah ceased to be a shareholder of the applicant since 2010[8]).

28.  Ever since the Subject Lots were let out by the applicant after 1995, they had been notionally divided into Portion A and Portion B, each having two major vehicular access points for trucks and containers. Mr Lui estimated in his witness statement that the 1,100 sq m odd of the temporary structures were located on Portion A only and that Portion B was basically bare land save about 102 sq m of the original structure thereon.

29.  From December 2015 and 2013, the applicant, we accept, had continuously let out Portion A and Portion B to the same 2 tenants i.e. Man Young Industrial Limited (“Man Young”) and Hong Kong Ocean Logistics Limited (“Hong Kong Ocean”) respectively.

30.  The latest tenancy agreements the applicant had entered with the aforesaid 2 tenant companies and their particulars are as follows[9]:

	Portion A (the West Portion)	Portion B (the East Portion)
Concerned Lots	Lot 2848 RP, Lot 2858, Lot 2835 RP (portion) and Lot 2859 RP (portion)	Lot 2835 RP and Lot 2859 RP
Land Area[10]	2,089.88 sq m	2,502.67 sq m
Size of Temporary Structures originally provided by the applicant	1,025.6 sq m	102.0 sq m
Size of Temporary Structures before resumption[11]	1,136.31 sq m (of which 51.75 sq m was the area under the 2016 Warning Letters below)	1,212.87 sq m (of which 999.38 sq m was the area under the 2016 Warning Letters below)
Tenant	Man Young	Hong Kong Ocean
Business of Tenant	rental of gondolas for building construction purpose	storage and logistic
Tenancies	From 1/12/2015: $192,000 per month From 1/12/2017: $215,040 per month From 1/12/2019*: $250,000 per month	From 1/2/2012: $68,000 per month From 1/2/2013: $95,000 per month From 1/2/2014: $120,000 per month From 1/2/2015: $138,000 per month From 1/2/2016: $148,000 per month From 1/2/2017: $160,000 per month From 1/2/2018: $180,000 per month From 1/5/2019: $180,000 per month From 1/2/2020*: $190,000 per month
Expiry of Tenancy	30 November 2021	31 January 2021
Latest Monthly Rent (inclusive of Rates and Government Rent)	$250,000	$190,000
Unit Rental	$117.43 per sq m	$74.94 per sq m

* These tenancy agreements were entered into close to the Date of Reversion on 27 December 2019.

31.  As the proposed Fanling By-pass pursuant to which the Resumed Land was resumed will run from north to south directly bisecting the Subject Lots, the area of the Residual Land becomes as follows:

	Portion A (the West Portion)	Portion B (the East Portion)
Land Area[12]	956.0 sq m	1,865.3 sq m
Size of Temporary Structures Left[13]	644.91 sq m[14]	626.13 sq m (of which 414.88 sq m was the area under the 2016 Warning Letters below)

32.  Mr Chan, the majority shareholder and director of Man Young, alleged that, owing to the resumption, the area occupied by Man Young i.e. Portion A would be substantially reduced and could not meet his operational needs as a rental area of gondolas. Man Young therefore, he claimed, moved out from Portion A in or about the end of October 2020 to No 50, Yim Tso Ha, Sha Tau Kok, New Territories[15].

33.  As for Portion B, upon the expiry of its tenancy agreement over the same in January 2021, Hong Kong Ocean agreed to use the land on a month-to-month basis at a reduced monthly rental of $150,000.

34.  While Mr Chik, the majority shareholder and director of Hong Kong Ocean, complained in his statement that Hong Kong Ocean had to continue the storage business on a much smaller site and lost the use of the main entrance[16], we found otherwise during our joint inspection on 28 March 2023 that Portion B still retains a wide entrance and was readily accessible, for instance, by a 90-tonne truck going inside the premises.

35.  We further agree with Ms Ng’s observation as stated at §17.2 of her Expert Report dated 8 February 2022 that:

“… each of the two remaining portions (East Portion and West Portion) were accessible by container truck through access points directly from the adjoining unnamed access road. The two remaining portions were under operation by the same tenants and with the similar business nature as before, with no apparent material change of use after the resumption.”

Government Lease and Zoning pertaining to the Subject Lots

36.  There is no dispute between the parties that the Government Lease which governs all land granted in DD 51 including the Subject Lots contains the following terms:

(1)  “the Lessee or any other person or persons shall not, nor will, during the continuance of this demise, … convert any ground hereby expressed to be demised as agricultural or garden ground into use for building purposes other than for the proper occupation of the same ground as agricultural or garden ground with the previous Licence of His said Majesty, His Heirs, Successors or Assigns …” (“User Covenant”); and

(2)  “AND FURTHER that the Lessee or any other person or persons shall not nor will at any time during the said term erect or construct any building or structure or any description on the said demised premises or any part thereof whether demised as agricultural or garden ground or otherwise without first having obtained the approval thereto of the Surveyors to His said Majesty, His Heirs, Successors or Assigns …” (“Building Covenant”)

37.  Notwithstanding the reversion of the sovereignty of Hong Kong to PRC in 1997, by virtue of sections 6 and 7 of the New Territories Leases (Extension) Ordinance, Cap 150, such Block Crown Lease has been automatically extended beyond 1997 subject to the same encumbrances and interests as applied immediately before the period of extension, except the reservation of and covenant to pay rent.

38.  On the other hand, in Attorney General v Melhado Investment Ltd [1983] HKLR 327, the Court of Appeal decided in March 1983 that descriptions such as “agricultural or garden ground” under the User Covenant of a Block Crown Lease are merely descriptive and should not be construed to limit the use of the land. The effect of this is that lots demised for “agricultural or garden ground” under a Block Crown Lease can be employed for uses such as open storage of containers, vehicle, and scrap yard (“Melhado Uses”) so long as no structures are built thereon in breach of the Building Covenant. See also Anderson Asphalt Ltd v Secretary for Justice [2010] 5 HKLRD 490 at §§12-13.

39.  When the applicant acquired the Subject Lots in October 1989, there was no Outline Zoning Plan nor statutory town plan covering the Subject Lots.

40.  However, as at the Date of Reversion, the Subject Lots were zoned as “Recreation” (“REC”) on the approved Lung Yeuk Tau and Kwan Tei South Outline Zoning Plan (“OZP”) No S/NE-LYT/17. The “REC” zoning for the Subject Lots first came into force as from the publication of OZP No S/NE-LYT/1 on 1 July 1994 and it remains so zoned under the current OZP.

41.  By virtue of section 12(aa) of LRO as afore-mentioned, such “REC” zoning which falls within section 4(1)(d) of the Town Planning Ordinance, Cap 131, shall not be taken into account in the determination of the compensation to be paid under this Ordinance. Thus, the Melhado Uses that are open to the Subject Lots, if it is possible to be put in reality, prevail[17].

History of the Structures Erected on the Subject Lots

42.  There is no dispute that various temporary structures had been erected on the Subject Lots at different times, including but not limited to the Pre-Existing Structures erected by the applicant’s predecessor(s)-in-title prior to 1989.

43.  On or around 11 March 1981, the District Land Office, North (“DLO”) granted a Short Term Waiver to the predecessors of the applicant to permit the use of portion of Lot 2848 RP for “the purposes of animal and poultry feed stock mill and godown only” (“1981 Short Term Waiver”). The 1981 Short Term Waiver expressly provided that:

(1)  “On the expiration or sooner determination of this temporary waiver, the said premises shall forthwith revert to agricultural use in accordance with the terms of the said Block Crown Lease”[18]

(2)  “The Government shall have full power to resume … all or any part of the said premises … Upon the exercise of this power no compensation whatsoever will be payable to you by the Government in respect of the value of the said premises enhanced by the grant of this temporary waiver or any building lawfully erected thereon after the grant of this temporary waiver or any amount expended by you in any development of the said premises under or by virtue of the terms of this temporary waiver but there shall be paid by the Government to you the following compensation,

(a)  in respect of the land resumed a such sum as the Secretary for the New Territories shall on a fair and impartial valuation, having regard to the unexpired portion of the lease term of the said premises, certify to be the agricultural market value of such land as at the date of resumption; and

(b)  in respect of any building or part of any building lawfully erected on the land prior to the grant of this temporary waiver … resumed – such sum as the Secretary for the New Territories shall on a fair and impartial valuation, having regard to the unexpired portion of the lease term of the said premises, certify to be the market value, as at the date of resumption, of the said building or part thereof.” (underline added)

44.  In fact, by a letter from DLO to one Holkar Company Ltd c/o Perfect Marble dated 1 August 1991, the 1981 Short Term Waiver was terminated with effect from 31 October 1991 (“the 1991 Termination Notice”). By the penultimate paragraph of the 1991 Termination Notice, the recipient was specifically “required to revert the use of [portion of Lot 2848 RP] to agricultural purpose on the date of termination of the Waiver. If [it] fails to do so, the Lot(s) will be subject to re-entry pursuant to the terms of the lease under which the said lot is held[19]”.

45.  By a letter from the applicant to DLO dated 12 August 2000, the applicant applied in respect of Lot 2835 RP, Lot 2848 RP, Lot 2858 and Lot 2859 RP for a short term waiver of the restriction in the Government Lease to use the lots for the purpose of agriculture so as to permit the erection of structures for the use of the same for “General Storage/Godown and Ancillary Office” (the “2000 Waiver Application”)

46.  In the above letter, the applicant had referred to the previous 1981 Short Term Waiver over portion of Lot 2848 RP. According to Drawing No NDX 148A dated 30 December 1980 in relation to the previous 1981 Short Term Waiver (“1980 Waiver Plan”)[20] the bulk of the Pre-Existing Structures were erected on the resumed portion and the un-resumed portion of Lot 2848 RP within Portion A.

47.  Looking at Mr Lui’s estimates in his witness statement, the applicant suggested few changes in the temporary structures standing on the Subject Lots up to at least the early 2000s:

Portion of Subject Lots	1980 Survey Sheet	1980 Waiver Plan	1992 Survey Sheet	2000 Waiver Application	Mr Lui’s Witness Statement
A	957 m2	805.4 m2	1,026 m2	1,142.7 m2	˃1,100 m2
B	89 m2	N/A	102 m2		102 m2
Total Area Estimated	1,046 m2	805.4 m2	1,128 m2		1,202 m2

48.  By a letter from the applicant to DLO dated 15 November 2000, the applicant clarified for the 2000 Waiver Application that no medical, toxic, dangerous, inflammable or dangerous goods would be stored[21].

49.  By a letter from the applicant to DLO dated 6 February 2021, the applicant amended the 2000 Waiver Application such that its application related only to Lot 2835 RP and Lot 2848 RP and that an ancillary watchman quarter would be added (the “2001 Amended Waiver Application”)[22].

50.  By a letter from DLO to the applicant dated 25 May 2001, the Government rejected the 2001 Amended Waiver Application and advised the applicant to demolish all non-agricultural structures on the respective lots and reminded the applicant that the government will consider taking enforcement action[23].

51.  By two warning letters issued by the Government to the applicant (copied to occupiers and applicant’s mortgagee bank) in relation to Lot 2835 RP and Lot 2859 RP respectively on 2 December 2016 (“the 2016 Warning Letters”), the Government reminded the applicant that the unauthorized structures erected on the respective lots constituted a breach of the conditions in the Government lease and required the applicant to purge the breach (by demolishing or removing the said structures) within 28 days.

52.  The government further said in the 2016 Warning Letters to the applicant that the duplicate of the said letters will be registered in the Land Registry should the breach be not purged (their duplicates were in the end registered on 10 May 2017), that the government reserved its right to take further lease enforcement action against the applicant as it deems appropriate and that a further inspection will be made to ascertain if the said letters had been complied with.

53.  By a letter from the applicant to DLO dated 6 May 2017, the applicant applied in respect of Lot 2835 RP and (sic) Lot 2859 RP[24] for, among others, a short term waiver of the restriction in the Government lease so as to permit the existence of certain structures on the said lots for logistics business (the “2017 Waiver Application”). The applicant in the said letter referred to inspection by staff of Lands Department and their demand for demolition of unauthorized structures. Mr Lui in his witness statement dated 3 March 2023 conceded that the reason for making this waiver application might be in response to a request from the staff of the Lands Department for demolition of the temporary structures erected by the tenant on Portion B[25] and we so find.

54.  By a letter from DLO to the applicant dated 20 June 2017, DLO requested the applicant to provide relevant documents/information for consideration of the 2017 Waiver Application and reserved its right to take enforcement action for any breach of lease conditions.

55.  By a letter from DLO to the applicant dated 10 August 2017, DLO informed the applicant that the 2017 Waiver Application could not be processed because the applicant had failed to provide the requested documents/ information. By the same letter, DLO had again reserved its right to take lease enforcement action for any breach of the Government lease.

Applicant’s Assessment taking into account Structures Erected on the Subject Lots

56.  Ms Lau had prepared compensation assessments on the basis of 4 different scenarios which turned on the discrepancies in measurements of the temporary structures:

(1)  on the basis of the 1980 Waiver Plan;

(2)  on the basis of the 1980 Survey Sheet;

(3)  on the basis of the 1992 Survey Sheet; and

(4)  on the basis of the agreed measurements with Ms Ng.

57.  However, no matter which scenario was adopted, it had been the case of the applicant that the value of the temporary structures erected on the Subject Lots had to be taken into account. The respondent did not agree and contended otherwise.

Principle of Equivalence

58.  The applicant submitted that the Government’s stance above has failed to reflect the “real value” of the Subject Lots at the time of resumption as it deliberately ignored the significant increase in value caused by the Pre-Existing Structures. It is submitted that section 12(b) of the LRO derogates from the benchmark of open market valuation under section 12(d) of the LRO, upon which full and fair compensation is to be normally assessed.

59.  At the forefront of the applicant’s submissions are that any person whose property is compulsorily acquired has a right to full and fair compensation under Article 105 of the Basic Law: Director of Lands v. Yin Shuen Enterprises Limited & Another (2003) 6 HKCFAR 1 (“Yin Shuen Enterprises”), §§1 & 55.

No compensation for non-conforming use under LRO

60.  But, in Yin Shuen Enterprises, the Court of Final Appeal had, we note, also decided as follows:

“12. Lord Nicholls of Birkenhead in Director of Buildings and Lands v. Shun Fung Ironworks Ltd [1995] 2 AC 111 … said: “…Conversely, and built into the concept of fair compensation, is the corollary that a claimant is not entitled to receive more than fair compensation: a person is entitled to compensation for losses fairly attributable to the taking of his land, but not to any greater amount…

13. …while the open market value of land is “in general” the measure of fair compensation; it is not universally so. Sometimes a departure from the open market value may be justified. Section 12(d) is subject to exceptions, in particular to ss12(b) and 12(c). They describe particular circumstances in which the legislature considered that the resuming authority ought not to be required to pay the open market value of the subject land.

14. Purchasers are often willing to pay more for land than its intrinsic value would justify. Thus the land may be used for an illegal or non-conforming purpose. In a free market purchasers may be willing to buy such land in the hope or expectation that the current use will continue to be tolerated. Such purchasers may be prepared to pay a higher price than would otherwise be justified. On resuming the land, however, the Government obviously ought not to be required to pay compensation on this basis. Sections 11(3)(a) and 12(b) accordingly preclude the assessment of compensation on the basis of the current use where it is illegal or not in conformity with the terms of the lease under which it is held. This means that the claimant may well receive less by way of compensation than he could receive on the open market; but this is not unfair.

17. Section 12(c) must be understood in its legal and factual context… It was introduced by amendment in 1922, when in other respects the law of Hong Kong in relation to compensation for compulsory acquisition was generally the same as the law of England .... The relevant principles of English law can be summarised as follows:

1. The value of the land is the value to the claimant, not its value to the acquiring authority…

2. Although it is common practice to speak of the value of the land, the property taken, and therefore the subject of compensation, is not the physical land itself but the claimant’s estate and interest in the land….

3. The subject land must be valued not only by reference to its present use but also by reference to any potential use to which it may lawfully be put…

4. Where land is subject to restrictions which affect its value, the claimant is not entitled to be paid the unrestricted value of the land.

18. In the absence of s.12(c), therefore, compensation for the subject lands would be based in the first instance on their value subject to the restrictions in the relevant lease. But regard would also have to be paid not only to the likelihood or otherwise of the Government granting a modification of the terms of the lease, without which the development potential of the lands could not be realised, but also to the costs of obtaining such modification, including the payment of any premium which the Government might demand as the price of modification.

20. …the legislation in question was prompted…by the explosive growth of Kowloon, which was experiencing a speculative boom in land prices….

21. This was the background to the introduction of s.12(c) in 1922…. there was attached to the Bill an Explanatory Memorandum which explained the objects and reasons for the Bill….

24. When introducing the Bill into the Legislative Council, the Attorney-General repeated the foregoing and added…

25. Two points about these passages should be noted. First, the Government was concerned with the fact that purchasers… were willing to pay speculative prices in the expectation that the Government would resume the land and develop it as building land free from any restrictions in the lease. The remedy was to exclude the speculative element from the assessment of compensation. Secondly, contrary to what the Legislative Council was told, s.12(c) had no direct counterpart in the English statutes. It seems likely that the reference was to Lynch v. The Corporation of the City of Glasgow, where the possibility of obtaining a renewal of a lease was described as a mere chance. But the principle laid down in that case was that the subject of compensation was limited to the interest taken. It did not exclude compensation for chances which affected the value of that interest. Insofar as the new s.12(c) excluded compensation for the possibility of obtaining a modification of the terms of the lease under which the subject land was held, it went further than contemporary English law. On the other hand, it was consistent with the principle that the value of the land was the value to the claimant, in whose hands its user was restricted, and not its value to the acquiring or resuming authority, in whose hands its user was unrestricted…

27. The Government’s right to charge the full value of the modification has not been and could not be challenged... While it remained a Crown Colony land in Hong Kong was regarded as belonging to the Crown, which parted with its ownership only for the duration of the lease and for the user specified in the lease. Subject thereto, it remained the undisposed property of the Crown. In granting a modification of the user covenants in the lease, therefore, the Crown in effect made a further disposal of the land for which it was entitled to charge full value…

28. Section 12(c) has been incorporated into a large number of modern statutes…. It cannot be dismissed as obsolete. The philosophy which informs the division of ownership as between the parties to a Government lease has not changed.

29. … the statutory language must be decisive. The first thing to note about ss 12(b) and 12(c) is that they are both in derogation of s.12(d). To the extent that they apply, the open market value of the land which forms the basis of valuation under s.12(d) is excluded.

30. … In assessing the amount of compensation for the land taken, no account is to be taken of any value which the land may have by reason of its non-conforming use, or by reason of the probability or expectancy of obtaining any "licence, permission, lease, or permit whatsoever" to which the claimant is not entitled as of right.

32. The second thing to note is that s.12(c), read with s.12(b), form a consistent whole. Any value which is attributable to the land by reason of its non-conforming use is to be disregarded, together with the probability or expectancy of obtaining permission to continue such use. It would be capricious to disregard the prospect of obtaining permission to continue a non-conforming use while having regard to the prospect of obtaining permission to commence one.

49. With the sole exception of H H Judge Cruden’s observations in Suen Sun-yau v. Director of Buildings and Lands, therefore, s.12(c) has been consistently understood and applied in Hong Kong to exclude from the compensation payable on resumption of land held under a Crown lease any element which would reflect the speculative element in the value of the land referable to the prospect of obtaining a modification of the user covenant in the lease. This is in accordance with the natural meaning of the section and the object which its introduction into the law of Hong Kong was intended to achieve. Despite the great experience of H H Judge Cruden in this field, I do not think that his observations…can stand against the terms of the section and the weight of authority to which I have referred…”

61.  Hence, the Court of Final Appeal had affirmed in Yin Shuen Enterprises that sections 12(b) and 12(c) of the LRO are both in derogation of section 12(d). And in determining the amount of compensation payable on resumption, the value of the land must be taken to be its value subject to the restriction of the Government Lease.

62.  The Court of Final Appeal had also explained at §§56-57 of the judgment of Yin Shuen Enterprises that such requirement under the LRO is compatible with the “real value” as stated in Art 105 of the Basic Law:

“55. The claimants submitted that, if s.12(c) of the Ordinance has the effect for which the Government contended, then it is incompatible with art. 105 of the Basic Law…

56. Two points call for comment. First, art. 105 does not require compensation to be based on the open market value of the property concerned but on its "real value". In general, property is worth what it will fetch, and its open market value reflects its real value. But as the Courts of Hong Kong have repeatedly emphasised, this is not always the case. Sometimes the market is prepared to pay a speculative price which exceeds the true value of the property and reflects an element for which the resuming authority ought not to be required to pay. There is nothing in art. 105 which requires it to do so.

57. Secondly, compensation is only required to be paid for "the property concerned", that is to say for the interest acquired. In the present case, that means for the land for the duration of the Crown lease and subject to the user restrictions in the lease. The right to exploit the development potential of the land by using it as building land was not disposed of by the Crown and remains the property of the Government for which it ought not to be required to pay. If the claimants' argument is correct, then the Government's practice in charging a full premium on modification of the terms of a Crown lease is also open to challenge under the Basic Law; and I do not consider that that is right (bold and italics supplied).”

63.  That the open market value of land under section 12(d) should be subject to section 12(c), and likewise section 12(b), was re-affirmed by the Court of Final Appeal in Dragon House Investment Ltd & Another v Secretary for Transport & Another (2005) 8 HKCFAR 668 at §§11 & 14.

64.  Both decisions of the Court of Final Appeal above are, of course, binding on us. Hence, if sections 12(b) and 12(c) of LRO are to be applied in this case, we would agree with the respondent that the value of the temporary structures erected on the Subject Lots is to be disregarded.

65.  In this case, the applicant advanced 2 reasons to suggest why section 12(b) of the LRO is not triggered.

Paragraph 5 in Part 1 of Schedule to the Ordinance

66.  Firstly, the applicant pointed to section 38(a) of the Ordinance, which reads: “Except to the extent that provision is otherwise made in this Ordinance – (a) the Lands Resumption Ordinance (Cap.124) shall not apply to the resumption of any land ordered under section 13 nor to any claim for or determination, award or payment of compensation for such resumption”, and section 27(1) of the Ordinance[26].

67.  The applicant next pointed to paragraph 1 in Part 1 of the Schedule to the Ordinance which reads:

“The provisions in this Part shall, where applicable, have effect for the purpose of assessing compensation under Part II of this Schedule and shall—

(a) be in addition to such of the provisions of the Lands Resumption Ordinance (Cap. 124) as apply, by virtue of Part II, to the assessment of compensation; and

(b) prevail over any provision referred to in subparagraph (a) which is inconsistent or in conflict with a provision in this Part (italics, underline and bold supplied).”

68.  The applicant then moved to, and relied on, paragraph 5 in Part 1 of the Schedule to the Ordinance (“Paragraph 5”) which states that:

“Compensation may be reduced so far as may be just and equitable in respect of any building or part thereof which has been constructed or modified, or on which building works have been carried out, so as to amount to a contravention of the Buildings Ordinance (Cap. 123) being a contravention within the meaning of that Ordinance or to a contravention of a Government lease or other instrument under which land built upon is held (underline, bold and italics added).”

69.  The applicant referred to Land Compensation & Valuation Law in Hong Kong by Gordon N Cruden and Liza Jane Cruden, 4^th (2017) Edition, where the learned authors commented on Paragraph 5 at §20.50 as follows:

“… Paragraph 5 introduced a change for unlawful building works. Other compensation Ordinances follow the established prohibitions in sections 11 and 12 of the Lands Resumption Ordinance, that compensation is not paid for any use which is for an illegal purpose or not in accordance with the terms of a Government lease.

Paragraph 5 introduced a new twofold discretion to be exercised on just and equitable grounds. The Tribunal first has to decide whether because of the existence of unlawful building works compensation should be reduced. Secondly, if compensation is to be reduced, to determine the extent of the reduction. The Ordinance further provides that the valuation principles set out in Part 1 are to prevail over any inconsistent or conflicting provisions incorporated from the Lands Resumption Ordinance. This makes it clear that paragraph 5 not only applies to non-resumption compensation but also to resumption compensation under Item 1. Hence for the purposes of the Ordinance, the provisions of paragraph 5 prevail over the sections 11 and 12 compensation limitations of the Lands Resumption Ordinance (underline and bold supplied).”

70.  Comparing the imperative word of “shall” found in s.12(b) of LRO against the permissive word of “may” found in Paragraph 5, the applicant stressed that there is nothing in the latter that requires this Tribunal to give “blanketed disregard” for any non-conforming structures that enhance the value of the Subject Lots.

71.  Paragraph 5, the applicant accordingly submitted, is inconsistent with and prevails over section 12(b) of LRO. Hence, section 12(b) of LRO, the applicant argued, has no application to any assessment of compensation under the Ordinance, which adopted unique principles of compensation that exclude compensation limitations in both sections 11 and 12 of LRO.

72.  Moreover, whether or not the value of the Subject Lots should be reduced at all (and even if so, to what extent) is a matter for the Tribunal’s discretion. To maintain compatibility with the Basic Law when exercising its discretion under Paragraph 5 above, the Tribunal should, the applicant argued, award no less than the “real value” of the resumed land. In the absence of clear language, Paragraph 5, it was argued, should not be construed as an interference with a person’s right to full and fair compensation for deprivation of property. In any event, the fact that Government had failed to take enforcement action for non-conforming structures on the Subject Lots from 1991 to date makes it “just and equitable” not to deduct such enhancement of land value attributable to these structures.

73.  In response to applicant’s reliance of Paragraph 5, Ms Ling first submitted that Paragraph 5 is not inconsistent nor conflict with 12(b) of the LRO for the following reasons:

(1)  Paragraph 5 provides that compensation may be reduced in respect of building works which have been carried out in contravention of the Buildings Ordinance or the Government lease.

(2)  Paragraph 5 does not suggest that the unlawful building works have to be taken into account in assessing compensation, nor does it say that compensation should be paid for or increased by such unlawful building works.

(3)  Paragraph 5 does not give any power to the Tribunal to allow for an “enhancement” of land value attributable to such unauthorized building works.

(4)  On the contrary, Paragraph 5 provides that compensation has to be reduced so far as may be just and equitable.

(5)  Both provisions provided that the Government ought not be required to pay open market value of the subject land where the use of it is not in conformity with the terms of the lease.

(6)  The above common treatment is in line with the ruling in Yin Shuen Enterprises that the claimant is not entitled to be paid the unrestricted value of the land.

74.  Ms Ling further submitted that, if the legislative intention of enacting Paragraph 5 is to carve out an exception to the general rule under section 12(b) of the LRO, one would expect clear and unequivocal wordings to such effect under the Ordinance.

75.  It is Ms Ling’ submissions that, after compensation for land resumed having been assessed pursuant to all the principles set out under LRO, including applying section 12(b) thereof disregarding any use not in accordance with the Government Lease, Paragraph 5 further allows the Tribunal to reduce the compensation so assessed in respect of any building works which have been carried out in contravention of the Buildings Ordinance or the Government lease.

76.  Compensation may have, Ms Ling submitted, to be reduced when land is resumed under the Ordinance because the Government would necessarily have to demolish all existing structures on the land resumed to make way for roads to be built under the Ordinance. Thus, if any building works on the land resumed is unlawful, Paragraph 5 has the effect of reallocating the costs of demolishing such unlawful building works on the previous land owner[27] who has built the same in contravention of the Buildings Ordinance or the Government lease.

77.  It would, Ms Ling submitted, be impossible for the Tribunal to decide how much compensation is to be “reduced” for unlawful building works still “existing” on the land resumed. What are to be “reduced” must, she argued, be the demolition costs of these works. That also explains why similar paragraph 5 also appears in Part II of the First Schedule of the Mass Transit Railway (Land Resumption and Related Provision) Ordinance, Cap.276 (enacted in 1974), and Part I of Schedule of Railways Ordinance, Cap.519 (enacted in 1997).

78.  In support of her construction of Paragraph 5, Ms Ling reminded this Tribunal of the following principles of statutory interpretation by reference to Feldman, Bailey & Norbury, Bennion, Bailey and Norbury on Statutory Interpretation, 8^th Edition.

(1)  Statutes which are in pari materia (i.e. on the same subject matter) should be read as a whole: §21.5.

(2)  The law should, as a matter of legal policy, be coherent and self-consistent and courts should prefer construction of statute which avoids inconsistency or arbitrary distinctions: §26.8.

(3)  Another legal policy of statute construction is that a person should not be allowed to profit from his own wrongdoing: §26.6.

79.  In further support of her submissions, Ms Ling quoted Paper for the House Committee meeting on 16 May 1997, Report of the Bills Committee on the Railways Bill, where it was reported at §3 of p.1 that “The Bill is modelled on [the Ordinance] with modifications to speed up the land resumption process” and at §8 of p.3 that:

“Members have compared the provisions for compensation in the Bill with those in the Crown Lands Resumption Ordinance (CLRO)[28], Cap 124, the MTR Ordinance and the Roads Ordinance[29] and note that they are by and large similar…”

80.  Further, at the Second Reading of the Railways Bill on page 81 of the Official Record of Proceedings of the Legislative Council on 4 June 1997, it was reported that

“…Members had compared the provisions on compensation as appeared in the Railways Bill, with similar provisions in the Crown Lands Resumption Ordinance, the Mass Transit Railway (Land Resumption and Related Provisions) Ordinance (MTR Ordinance) and Roads (Works, Use and Compensation) Ordinance and were satisfied that they were broadly in line with one another.”

81.  Ms Ling therefore submitted that the Legislature must have intended that the principles for assessing compensation under all the above ordinances should be consistent and in line with that under the LRO.

82.  It would, Ms Ling argued, be most arbitrary and unfair that, for the same piece of land, compensation would not be given for enhanced value of unauthorized building works thereon if it is resumed for a public purpose under the LRO but that compensation would only be reduced for the said works if it is resumed under the Ordinance for building roads (another public purpose).

83.  Like what the Tribunal (differently constituted[30]) had found similar ground of review (failing to give due regard to similar paragraph 5 of the Schedule to Railways Ordinance) put forward to seek compensation for loss of construction and site improvement works in contravention of block government lease[31] at §6.2[32] of its decision of review in Hon Mei Hing trading as Wing Tat Iron and Steel Engineering v The Secretary for Transport, LDMR 19/2000 (unreported, dated 30 November 2001), we “cannot see how [Paragraph 5] can be of any assistance to the [applicant]” in the present case either.

84.  Despite the great experience of H H Judge Cruden in this field, we do not think that observations made in his book and relied upon by the applicant can stand against the purpose, text and context, of LRO, the Ordinance and the like, the authority of Hon Mei Hing, supra, not referred to or considered by him in his book and other considerations we refer below.

85.  To start with, item 1 in Part II of Schedule of the Ordinance allows, we think, all LRO provisions, including s.12(b) thereof, to be applied in assessing compensation for land resumed under s.13 of the Ordinance by using the words “as if the claim were made under LRO for land resumed under that Ordinance (italics supplied)”.

86.  In our views, Ms Ling was right to submit that, on its proper construction, Paragraph 5 is an additional provision to be applied pursuant to paragraph 1(a) of Part I of the Schedule of the Ordinance after one applies all LRO provisions, including s.12(b) thereof, to assess compensation of land resumed under the Ordinance pursuant to Part II of the Schedule of the Ordinance.

87.  This interpretation of Paragraph 5 above is supported further, we believe, by paragraph 6 in Part 1 of the Schedule to the Ordinance that followed whereby “(t)he compensation assessed under item 6 or 7 of Part II of this Schedule shall be reduced to such extent as may be just and equitable having regard to the share in the responsibility for the loss or damage not reasonably attributable to or connected with the works.”

88.  In other words, we are in complete agreement with Ms Ling’s submissions that Paragraph 5 is not inconsistent nor conflict with s.12(b) of LRO and that it never prevails over the latter. We disagree with applicant’s submissions to the contrary.

89.  In making its submissions at §70, the applicant was, we believe, over-emphasizing the respective application of s.12(b) of LRO and Paragraph 5 to the facts and circumstances of the present case. Due to the restrictive covenants in the Government Lease and lack of building approval given to structures erected thereon, s.12(b) of LRO applies to oblige this Tribunal to disregard any enhanced value of the Resumed Land due to these structures while Paragraph 5, the applicant argued, also applies to allow compensation to be reduced in respect of these unlawful structures in contravention of the government lease such that the applicant could allege that there is conflict or inconsistency between the two.

90.  Depending on the different facts of other cases, users of land resumed may, we imagine, be in accordance with the terms of the government lease such that s.12(b) of LRO does not apply but that buildings may have been constructed thereon in contravention of government lease and/or Buildings Ordinance such that Paragraph 5 applies (or it could be the other way round). In such different scenarios, there could not, we think, be any inconsistency or conflict between the two as alleged by the applicant.

91.  Ms Ling’s submissions at §73 focus, we believe, more on the wordings on s.12(b) of LRO and that of Paragraph 5 and she had rightly compared their different wordings. Her submissions accord, we believe, more in line with paragraph 1(b) in Part I of the Schedule to the Ordinance, where the emphasis is, we think, on inconsistency or conflict between “provisions” and not in their application.

92.  Indeed, considering their respective different purposes, context and text, we think that s.12(b) of LRO and Paragraph 5 are enacted to deal with different subject matters and, as such, there could not be any conflict or inconsistency between these two provisions as alleged.

(1)  As explained in Yiu Shuen Enterprises, s.12(b) and s.12(c) of LRO requires value of resumed land to be assessed without taking into account any user not in conformity with the government lease (and associated enhanced land value due to speculative element of, say, successful modification of lease);

(2)  Reading Paragraph 5, it rather allows compensation to be reduced in respect of building works which have been carried out in contravention of Buildings Ordinance or government lease.

93.  On top of provisions similar to Paragraph 5 found in Railways Ordinance i.e. Cap.519 (enacted in 1997) and, arguably, its MTR predecessor i.e. Cap.276 (enacted in 1974) [33], other paragraphs similar to Paragraph 5 are, we notice, also found in: -

(1)  paragraph 4 in Part I of Schedule of Land Drainage Ordinance, Cap, 446 (enacted in 1994)[34], where there is also provisions for land to be resumed thereunder with compensation to be assessed “as if the claim were made under LRO for land resumed under that Ordinance (italics supplied)”; and

(2)  paragraph 5 in Schedule 1 of Water Pollution Control (Sewerage) Regulation, Cap.358AL (enacted in 1994)[35], where there is also provisions for the Ordinance to be applied with modifications and for land to be resumed under the Ordinance with compensation to be assessed “as if the claim were made under LRO for land resumed under that Ordinance (italics supplied)”.

Lest it be forgotten, the Ordinance was enacted in 1982[36].

94.  The above 5 ordinances enacted at different times all, we note, involve land resumption for public purpose of one sort or another and assessment of compensation under LRO thereafter. Were applicant’s submissions correct, we completely fail to discern (and none was suggested by the applicant to explain) why s.12(b) and s.12(c) of LRO (which were respectively introduced in 1921[37] and 1922, both of them having apparently served Hong Kong well since then) were discarded at different times since 1974 (or 1982)[38] in specific instances of “public purpose” resumption ordinances in favour of Paragraph 5 and similar paragraphs that allow the previous land owners to profit from his/her own wrongs and/or that of his/her predecessor(s) in respect of unlawful building works.

95.  With respect, applicant’s submissions of Paragraph 5 fall foul of all 3 principles of statutory interpretation Ms Ling had referred us to and they produce absurd and arbitrary distinctions that are vividly illustrated by the example she gave at §82. Indeed, we could imagine even more bizarre example when the Ordinance and LRO are both employed together in one single large redevelopment project consisting of building new roads and buildings on lands resumed.

96.  In so far the applicant falls back on the principle of equivalence to justify alleged unique status of Paragraph 5, we would reiterate and emphasize that, as was explained in Yin Shuen Enterprises, the general law before enacting s.12(c) (and, indeed, s.12(b)[39]) of LRO has always been that, in case of resumed land subject to restriction as to user which affects its value, the claimant is not entitled to be paid its unrestricted value. In such cases, the right to develop the resumed land without restriction, as was stressed by Ms Ling, always belongs to the government and has never been disposed of. Section 12 of LRO is, we would point out, perfectly in line with such division of ownership as between parties to a government lease under the general law. With respect, the principle of equivalence does not, we think, assist the applicant to justify Paragraph 5 as alleged.

97.  Mr Dawes has helpfully reminded the Tribunal well-settled principles of statutory construction by reference to several Court of Final Appeal decisions[40]. We have borne these principles in mind in approaching the parties’ submissions on Paragraph 5. We are acutely aware that we cannot construe statute purely for the sake of achieving “desirable” public policy. Our task is to give effect to the legislative intent as expressed by the words of the statute book in their proper contexts within permissible bounds of interpretation. A purposive approach does not allow us to disregard or distort the plain meaning of the text and read the provisions in any manner we want.

98.  All things considered, we are satisfied that Ms Ling’s construction of Paragraph 5 at §76 and §77 give full effect to the intention of the legislature. Considering their meanings in their proper context, including the general law of resumption and other similar resumption ordinances, Paragraph 5 could, and should, be read in the way she suggested.

99.  For the above reasons, s.12(b) of LRO remains, we think, applicable in the circumstances of the present case notwithstanding the presence of Paragraph 5 in the Ordinance.

Abandonment of Restrictive Covenants

100.  In a second attempt to overcome section 12(b) of LRO, the applicant relied on Cheermark Investment Limited & Another v Director of Lands [2018] 1 HKLRD 79 (“Cheermark Investment”) where Kwan JA (as she then was) held as follows:

“91. When [s.12(b) of LRO] is construed in the light of the legal and factual context, the construction favoured by the Tribunal – that the use of the land is in accordance with the terms of the Government lease as at the time of resumption where the user is acquiesced in by the Government when the user covenant is abandoned – is consistent with the legal principles that the subject of compensation is the claimant’s estate and interest in the land (the original restriction in user having fallen by the wayside due to the abandonment of the user covenant by the Government) and that the land must be valued by reference to any potential use to which it may lawfully be put (lawful because of the abandonment of the user covenant by the Government). And there is nothing in the factual context which would call that construction into question. It does not contravene the broad legislative purpose of sections 12(b) and (c) that no account is to be taken of any value which the claimant is not entitled to as of right.

106. … Even without regard to article 105 of the Basic Law, a claimant is entitled to be compensated fairly and fully for the land compulsorily taken from him, subject to the qualifications provided by statute. In the words of Brett MR in Attorney-General v Horner (1884) 14 QBD 245 at 247: “It is a proper rule of construction not to construe an Act of Parliament as interfering with or injuring persons’ rights without compensation unless one is obliged so to construe it.” And although the intention to interfere with property or other rights may be plain, there may still be a doubt as to whether adequate compensation is intended, a denial of this must be clearly stated (Bennion on Statutory Interpretation (6^th ed) p 751).

107. In construing section 12(b), one should not strive to achieve certainty for the sake of good governance at the expense of the principle of equivalence. There is no necessity to give overriding weight to the need for certainty and simplicity by interpreting the words “the terms of the Government lease under which the land is held” to mean “the express terms of the Government lease”. To the contrary, the principle against doubtful penalisation imports a presumption against the imposition of a statutory detriment to a person’s property or other economic interests without clear language. One should not readily ascribe an intention to the legislature of going against the principle of equivalence or making an inroad to that principle that is wider than is warranted.

108. As for the contention that the right to exploit the ground floor premises as shop use was not disposed of by the Government, by virtue of the Government’s abandonment of the User Covenant, the lessee possesses a right to use the ground floor premises without its restriction. This is an interest in the property enforceable against the Government. To the extent that the Government is not entitled to enforce the covenant, it has disposed of its right to charge a premium for the modification of the Government Lease in that respect. This is entirely consonant with the principle that compensation is required to be paid for the interest resumed. In this instance, it is for the duration of the Government Lease not subject to the restriction of shop use in the User Covenant.

109. I would uphold the Tribunal’s construction on section 12(b) of the LRO.

101.  More particularly, the applicant suggested the Government is barred from relying on section 12(b) of the LRO as it had knowingly abandoned the restrictive covenants by waiver or acquiescence by the Date of Reversion as was held in Cheermark Investment.

102.  The applicant acknowledged that in order to show acquiescence, it must prove that:

(i)  The Government knew that the restrictive covenants had been breached, and

(ii)  There was a course of usage wholly inconsistent with the covenant relied upon.

103.  In such regard, the applicant further relied on Attorney General of Hong Kong v Fairfax Ltd [1997] HKLRD 243 at 245I-246J and submitted that a covenant affecting real property could be abandoned if it had been openly and notoriously breached for a prolonged period say 20 years or more. On English case law, it was stressed by Mr Dawes that a prolonged period of breach for 25 years or more[41] will give rise to a presumption of abandonment: Hepworth v Pickles [1900] 1 Ch 108, 110 per Farwell J (24 years); and Gibson v Doeg (1857) 2 H & N 615, 623-4 per Pollock CB (20 years)[42].

104.  In the present case, the applicant developed its submissions in the following manner:

(1)  From 31 October 1991 when the 1991 Termination Notice took effect until at least 2 December 2016 when the 2016 Warning Letters were issued i.e. for a period of no less than 25 years, no enforcement action was taken regarding any of the temporary structures built on the Subject Lots. Thus, this prolonged period alone is sufficient to establish complete abandonment of the restrictive covenants by presumption.

(2)  During the above prolonged period, the applicant had made only one distinct application for a short term waiver i.e. the 2000 Waiver Application and the 2001 Amended Waiver Application.

(3)  The restrictive covenants have yet to be enforced over any of the Pre-Existing Structures to date, 30 years after the 1991 Termination Notices were issued in 1991.

(4)  The 2016 Warning Letters only cover two out of the Subject Lots. And in relation to Lot 2484 RP and Lot 2858 RP forming the subject matter of the 2016 Warning Letters, a sizable portion of the structures thereon was not subject to the 2016 Warning Letters.

(5)  No enforcement action has taken place over any part of the Subject Lots not covered by the 2016 Warning Letters.

(6)  The government had not tendered any factual evidence in response to the aforesaid.

(7)  By the time the applicant made the 2017 Waiver Application in relation to Lot 2835 RP and Lot 2859 RP only, the government had already abandoned the restrictive covenants of the Subject Lots.

(8)  Apart from the aforesaid, the Government’s post-resumption reinforcement at its own cost of the Pre-Existing Structures at Portion A by its contractor wholly contradicts the terms of the Restrictive Covenants.

(9)  Mr Lui’s statement in his witness statement that he had been led to believe that the government would not enforce the restrictive covenant had not been challenged by cross-examination.

105.  The applicant submitted that “boilerplate” warnings by the Government to the effect that enforcement action might be taken against the applicant for breaches of restrictive covenants are ineffective if the Government’s subsequent conduct or the lacking thereof enhances the impression that no enforcement action would be forthcoming.

106.  In support of above submission, the applicant referred to Kwok Hon Shing & Others v Happy Team (China) Limited [2016] 2 HKC 482 as an analogy where the Tribunal found no waiver of the breach of a tenancy agreement in that case, citing Hong Kong Tenancy Law as follows:

“Written leases commonly contain a stipulation that acceptance of rent shall not be deemed a waiver of the landlord’s right to sue. It is doubtful if such clauses have much effect, since a waiver of its nature is based on events which occur after the lease has been entered into and the essence of which is an indication by the landlord that he has abandoned his rights and treats the lease as continuing. The idea, in short, is that he cannot both have his cake and eat it. To give effect to a “no wavier” clause in the lease would not only contradict the essence of waiver but would also use a term of the lease to save the very thing undermined by the waiver – another term of the lease. Furthermore, if the landlord’s act constitutes a waiver of the breach, it may also, presumable, constitute a waiver of his reliance on the “no waiver” clause.”

107.  The applicant further submitted that even if the factual circumstances are not sufficient to establish abandonment by waiver or acquiescence, the Tribunal should not reduce the level of compensation payable by Government to the applicant.

108.  Ms Ling for the respondent disagreed with the applicant’s submissions above.

109.  Ms Ling cited §4.45 of Wilken & Ghaly’s The Law of Waiver, Variation, and Estoppel, 3^rd Edition, to submit that in order to succeed in a claim of waiver, a party must prove:

“(1) An unequivocal representation by X either by words or conduct that it will forgo certain rights; and

(2) X makes that representation when it is aware of the facts that give rise to the rights which are being forgone, of the right to forgo those rights and the connection between the two.”

Further at §§6.29-6.30, it was stated that no waiver can arise as a result of a party’s mere silence or delay in making its election and that therefore acquiescence can be regarded as a form of estoppel.

110.  Ms Ling submitted, as regards acquiescence, it arises where a person having a right, and seeing another person about to commit, or in the course of committing an act infringing upon that right, stands by in such a manner as to induce the person committing the act, and who might otherwise have abstained from it, to believe that he assents to its being committed, he cannot afterwards be heard to complain of the act: De Bussche v Alt (1878) 8 Ch D 286 at p314 per Thesiger LJ.

111.  To succeed in a defence of acquiescence, it must be shown firstly, there was on the part of the plaintiff, an assent or lying by in relation to the acts of another person; and secondly, in view of the assent or lying by and consequent acts it is unjust in all the circumstances to grant the relief in question: The Incorporated Owners of Freder Centre [2016] 2 HKLRD 190, at §25 & 26 per Chu JA (as she then was).

112.  Acquiescence is, Ms Ling stressed, defined by the conduct and belief of the representee, while the representee’s conduct and belief are irrelevant in cases of waiver.

113.  Ms Ling, referring to §62 of Cheermark Investment, further submitted that there is an important distinction between (a) waiver of a breach of a covenant and (b) waiver of the covenant itself. A waiver of a covenant should not be lightly inferred but only where the conduct of the grantor is sufficiently clear and unambiguous that it would be inherently unfair for him to be permitted to go back on his word, either actually spoken or derived from his conduct. At §69 of Cheermark Investment, the Court of Appeal further held:

“Whether the facts found are capable of establishing an abandonment of a covenant as opposed to a waiver of a breach of covenant is a matter of judgment, and is primarily a matter for the fact finding tribunal…”

114.  By reference to §§64-66 of Cheermark Investment, Ms Ling submitted that the facts as found by the Tribunal in Cheermark Investment are distinguishable from the present case. In that case, in light of the open and notorious breaches of using all ground floor units in the neighbourhood as shops over a very lengthy period (i.e. over some 50 and 75 years) without enforcement action nor issuance of warning letter, the Tribunal was satisfied that the Government had abandoned altogether its rights under the Government Lease as opposed to having acquiesced only in taking enforcement.

115.  Ms Ling stressed in her submissions that the same cannot be said in the present case in terms of the magnitude and duration of the breach, as well as the conduct of the Government.

116.  We would start off by noting that it had been said by Hong Kong courts that the English cases cited by Mr Dawes depended on the circumstances and conditions prevailing in England and Wales at the time of their decision, and that they should not be treated as offering guidance in the circumstances and conditions prevailing in Hong Kong: Fairfax Ltd v Attorney General [1995] 2 HKC 617, per Godfrey JA at 623B-D. The key is to apply their principles to the circumstances and conditions prevailing in Hong Kong or the facts of each case.

117.  We next agree with Ms Ling that she was right to distinguish Cheermark Investment in the way she did. Indeed, Attorney General of Hong Kong v Fairfax Ltd, supra, is, we think, also distinguishable. In that case, over a long period of not far short of 40 years (from 1957 to 1992), multi-storey blocks have been built over virtually the whole of Lot 757 (i.e. not just plaintiff’s site) to transform 2 1/2 acres in area into an area of high-density high-rise buildings: Attorney General of Hong Kong v Fairfax Ltd, supra, 246C; Fairfax Ltd v AG [1995] 2 HKC 617, 619H-I, 622F-G, 623G, 625H, 627H, 628D-E.

118.  In the present case, on the contrary, we observed that:

(1)  The Government Lease governs a host of lands in DD 51 and there is no evidence whatsoever that the Government had abandoned the user and building restrictions in any such land in DD 51 in the neighbourhood;

(2)  The Government had previously granted the 1981 Short Term Waiver (in relation to portion of Lot 2848 RP) which was subsequently terminated by the 1991 Termination Notice;

(3)  The applicant had repeatedly and actively applied to the Government for waiver of restrictive covenants under the Government Lease to allow erection of structures by making the 2000 Waiver Application, the 2001 Amended Waiver Application and the 2017 Waiver Application;

(4)  A short period of only 9 years or so had elapsed from the 1991 Termination Notice to the 2000 Waiver Application made by the applicant;

(5)  The applicant put forwards the 2000 Waiver Application and the 2001 Amended Waiver Application for no short period of time from August 2000 to May 2001;

(6)  Though the 2001 Amended Application related only to Lot 2835 RP and Lot 2848 RP (as was the case with the 2017 Waiver Application), the applicant applied in the 2000 Waiver Application in the first place for short term waiver in respect of, importantly, all the Subject Lots;

(7)  Another period of no more than 15 years or so elapsed between rejection of the 2001 Amended Waiver Application made by the applicant and the issue of the 2016 Warning Letters against unauthorized structures erected at Lot 2835 RP and Lot 2859 RP;

(8)  Considering the 1981 Short Term Waiver and the many waiver applications above, at all material times between October 1989 when it acquired the Subject Lots until August 2017 when the 2017 Waiver Application was rejected, the applicant must all along been well aware of the continued existence of the restrictive covenants under the Government Lease;

(9)  The Government had repeatedly and unambiguously rejected all the above many waiver applications made by the applicant;

(10)  In processing and rejecting the above many waiver applications, and in issuing and registering the 2016 Warning Letters, the Government had made it clear to the applicant that compliance with the restrictive covenants of the Government Lease is required and that it will take divers enforcement actions for their breaches;

(11)  Mr Lui of the applicant in effect acknowledged in his witness statement dated 10 June 2022 that the officer of the Lands Department told him that enforcement action would be undertaken when there was a complaint[43];

(12)  In the applicant’s letter dated 6 May 2017 supporting the 2017 Waiver Application, the applicant had admitted that DLO’s staff had seen fit to inspect Lot 2835 RP and Lot 2859, discovered unauthorized structures on the said lots and requested that such unauthorized structures be demolished[44];

(13)  This applicant’s letter dated 6 May 2017 was followed by a “豁免書個案適用申請表格” dated 8 May 2017 and signed by Mr Lui on behalf of the applicant[45]; and

(14)  There has been no evidence that the third-party contractor for the Bypass Construction which carried out the reinstatement works at Portion B was acting in the capacity of Government agent or department like the Lands Department which had the authority from the Government of granting a waiver of the restrictive covenants of the Government Lease.

119.  Judging from the above, we take the views (and agree with Ms Ling) that:

(1)  There has not been open and notorious breach of restrictive covenants of the Government Lease for a sufficiently prolonged period to give rise to or to trigger any presumption of abandonment of the said covenants (as opposed to mere waiver of their breach);

(2)  At all material times, the Government had never acted wholly inconsistent with the restrictive covenants of the Government Lease. Indeed, the Government had acted in line with them in terminating the 1981 Short Term Waiver by the 1991 Termination Notice, in processing and rejecting the many waiver applications above, in issuing and registering the 2016 Warning Letters, and in requesting unauthorized structures be demolished and that agricultural user be reverted.

(3)  The fact that the Government had not taken (or delayed in taking) other enforcement actions during the material period should not be considered in isolation from the rest of the prevailing circumstances in our case;

(4)  The Government had at the same time never made any unequivocal representation to the applicant that it would forgo its rights pursuant to the restrictive covenants. Such consistent communications it had given to the applicant throughout were that it would reserve (or consider exercising) its rights to enforce the restrictive covenants.

(5)  All such acts and words having been considered in the round, there has not been any assent or lying by in relation to applicant’s breaches of the restrictive covenants on the part of the Government.

(6)  And, by reason of aforesaid Government communications and actions, the applicant at all material times knew and knows that the Government had never waived the restrictive covenants under the Government Lease (or else the applicant would not have made the many waiver applications above);

(7)  The applicant did not and does not believe and, in any event, could not reasonably have believed that the Government has abandoned its rights in relation to the restrictive covenants under the Government Lease (and we give no weight to Mr Lui’s bare allegation to that effect);

(8)  Considering all prevailing circumstances during the material period, the Government had never waived or abandoned the restrictive covenants under the Government Lease before the Date of Reversion or before December 2016; and

(9)  There is nothing unjust in all the circumstances of this case in allowing the Government to rely on the restrictive covenants under the Government Lease.

Structures erected on the Subject Lots are to be disregarded

120.  In view of the above, we regret that all the 4 scenarios premised by Ms Lau are not supported and are incorrect for the purpose of the determination of compensation in the present case.

Standalone Valuation of the Resumed Land

121.  Whereas section 10(2)(a) of the LRO provides that the determination of compensation should be made on the basis of “the value of the land resumed and any buildings erected thereon at the date of resumption”, the applicant submitted that, because of the severance of the Subject Lots after the resumption, the amount of compensation payable for the Resumed Land should be arrived at by multiplying the unit rate of the Subject Lots as a whole against the area of the Resumed Land.

122.  The applicant sought support in Section 3.10 of the Valuation Office Agency (England & Wales) Land Compensation Manual which provides:

“… It is the policy of the Valuation Office Agency to have regard to reality so far as possible … Accordingly, the value of the land taken under Rule 2 (of the Compensation Act 1961 in the United Kingdom) would be properly assessed at the amount which would have been realised if the claimant had sold his interest in the open market as a willing seller. Where only part of the claimant’s land is being acquired the value should therefore be assessed as part of the whole, ie disregarding any diminution in value of the land acquired resulting from its severance from the whole. In this way a claimant will receive, so far as the law allows, compensation for his entire loss”

(underline and parenthesis added)

123.  The applicant further referred to Statutory Valuations, 4^th Edition, 2007, by Andrew Baum, Gary Sams, Jennifer Ellis, Claire Hampson and Douglas Stevens at 273-274 which provides:

“Compensation for land taken plus disturbance will not always fulfil the requirements of (the principle of equivalence expressed in Ricket v Metropolitan Rail Co (1867) LR 2 HL 175), however. We are left with an area which is not covered by compensation for land taken, but which is directly based on the value of land. This area is described by the generic terms severance and injurious affection. Strictly speaking, severance is merely one form of injurious affection but it is more usual and convenient to consider the terms as separate but complementary claims …

(a) …

(b) Severance may be suffered where part of a claimant’s holding is [sic] acquired, and the value of the remainder plus the compensation paid for land taken do not equate to the original value for either of two reasons.

(i) The value of a holding when divided into two parts may be less than the value of the single entity. For example, development land will have a value which can be assessed by calculating the difference between the value of the completed development, and its construction cost. Costs per acre may reach a minimum at a certain size of development due to economies of scale. The reduction of the unit may increase the costs per acre and reduce the value of the remaining land. Alternatively consider a plot of land with planning consent for a house, half of which is acquired. Neither the half taken, nor the half retained may be sufficiently large to accommodate a house on its own. Both the land retained, and the land taken will, therefore, suffer considerable loss of value, which should be compensated under any fair system.

(ii) The requirements of acquiring authority might split the land into three parts, the combined values of which do not summate to the value of the whole. Land required for a motorway may be driven through development land. After construction of the motorway, the claimant will be left with two parcels of land on opposite sides of the motorway, plus a right to compensation for the land taken. While each parcel may suffer from the depreciation exemplified at (i) above, one or both of the two parcels might suffer extreme devaluation due to its small size, lack of access or its transformation to uselessness by means of its new awkward shape: all the result of “severance”.”

(underline and parenthesis added)

124.  With respect, however, the above texts cited by the applicant were premised on Rule 2 in section 5 of the Land Compensation Act 1961. Rule 2 states:

“The value of the land shall, subject as hereinafter provided, be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise…”

which by itself or other rules in section 5 of the Land Compensation Act 1961 does not provide for any compensation for loss or damage suffered by any claimant due to the severance of the land resumed. The provision which in fact provides for the latter in in the United Kingdom is section 7 of the Compulsory Purchase Act 1965, which reads:

“In assessing the compensation to be paid by the acquiring authority under this Act regard shall be had not only to the value of the land to be purchased by the acquiring authority, but also to the damage, if any, to be sustained by the owner of the land by reason of the severing of the land purchased from the other land of the owner, or otherwise injuriously affecting that other land by the exercise of the powers conferred by this or the special Act.”

125.  In contrast, under section 10(2)(c) of the LRO, there is a separate provision for “the amount of loss or damage suffered by any claimant due to the severance of the land resumed or any building erected thereon from any other land of the claimant, or building erected thereon, contiguous or adjacent thereto”.

126.  Notwithstanding the above, in Ramac Holdings Limited v. Kent County Council [2014] UKUT 0109 (LC), there was a dispute between the parties on how the reference land compulsorily acquired but forming part of a larger site should be valued. The Upper Tribunal (Lands Chamber) ruled at §62 as follows:

“In our judgment the effect of rule (2) is clear. The reference land must be valued as if it alone was being sold on the open market by a willing seller. This is a hypothetical basis because the seller – the claimant – may be anything but willing, particularly if the reference land forms an important part of other land retained by it. Insofar as the claimant suffers a loss because of a diminution in the value of retained land then this will form a claim for compensation for severance and/or injurious affection. It does not justify adopting an artificial approach to valuing the reference land as if is still formed part of a larger whole (underline supplied).”

127.  This judgment was recently cited with approval by the Privy Council in Estate of Dame Bernice Lake QC (Deceased) and Another v Attorney General of Anguilla [2022] UKPC 33, [2022] RVR 355 where some 10 acres from a larger plot planned for the development of a tourist resort was acquired. There section 18(2) of the Land Acquisition Act of Anguilla provides that for assessment of compensation: “The value of the land shall … be taken to be the amount which the land, in its condition at the material time, might be expected to realise if sold at that time on the open market by a willing seller.”

128.  While we consider such provision is comparable to section 12(d) of the LRO, the Privy Council in Lake QC (Deceased), supra, held at §71 that the Board of Assessment (“BoA”) on behalf of the Government of Anguilla did not go wrong in law by approaching the valuation exercise in relation to the 10 acre plot as it was directed to do by section 18 of the Act, so long as it was also prepared to consider the issues of compensation for severance and injurious affection of land retained by the landowner, according to the analogy with section 7 of the 1965 UK Act. The Privy Council continued at §74 as follows:

“… the onus was on the Lake appellant to persuade the BoA that it would be appropriate to adopt an approach other than that mandated by section 18(2) of the Act, which focuses on valuing the acquired land on a stand-alone basis.”

129.  In the present case before us, although the Resumed Land constituted portion of a larger plot, i.e. the Subject Lots, the building of structures thereon prior to the resumption was, as found above, in breach of the Government Lease and should be disregarded in the determination of compensation.

130.  Though the Resumed Land comprises as much as 1,779.8 sq m, the remaining land for Portion A and Portion B still comprises 956.0 sq m and 1,865.3 sq m respectively. That 1,779.8 sq m is not significantly below the area of 2,804 sq m at the northern fringe of Yuen Long Town resumed in Yuen Long Fish Merchant's Association Limited v Secretary for Transport, LDMR 44/2000 (unreported, dated 3 April 2001)[46] where compensation was assessed on the basis of an open car park, a Melhado use.

131.  The present situation is, we think, different from cases in §123 where the resumption of development land would result in “the reduction of the unit may increase the costs per acre and reduce the value of the remaining land”. Neither is this a case where the claimant will be left with two parcels of land on opposite sides of the motorway or by-pass leaving one or both of the two parcels suffering extreme devaluation, due to its small size, lack of access, or its transformation to uselessness by means of its new awkward shape.

132.  For all the above reasons, we have decided to determine the market value of the Resumed Land on a stand-alone basis as in Lake QC (Deceased), supra, and the applicant has failed to persuade us otherwise.

Evaluation of expert evidence of Applicant’s expert

133.  There was a general consensus between Ms Lau and Ms Ng that:

(1)  Direct comparison is generally regarded as the best method of valuation; and

(2)  Nevertheless, income approach should be used where there are no suitable comparable land sales to support the direct comparison method.

It is in fact the latter approach that had been adopted by Ms Lau.

134.  Ms Lau initially proposed four comparables for the purpose of carrying out the income approach of valuation. But after the joint meeting with Ms Ng, Ms Lau agreed to drop her comparables T1, T2 and T3, leaving only T4, being Lot 2670 in DD102, which has a site area of about 730 sq m. In spite of this concession, Ms Lau proceed to value the Subject Lots by applying a conversion factor as much as 1.5 (ie +50% adjustment) to take into the account the area of some 263 sq m (ie 36%) covered with structure and decompose the transaction price of T4 at $10,000,000 into a unit value for the uncovered part (ie )[47]. This is rebutted by Ms Ng who pointed out that the site had more than 35% of the site area covered with structures in breach of the Block Crown Lease and the application of a conversion factor of 1.5 by Ms Lau was arbitrary and without support. We agree with Ms Ng.

135.  Indeed, Ms Lau’s approach is analogous to the two-stage approach by taking the open market value land obtained by the use of comparables with structures thereon and attempting to quantify the element which must be disregarded in order to arrive at the value of the land subject to the no-structure restriction under the Government Lease. Such approach or the argument by the applicant that non-conformity with the Government Lease might not reduce any enhancement in land value attributable to any such non-conforming temporary structures was particularly ruled against by the Court of Final Appeal in Dragon House Investment, supra, at §48.

136.  In any event, Ms Lau herself accepted that this comparable left is not a desirable comparable due to its relatively small size and poor accessibility[48]. Thus, all 4 income comparables T1, T2, T3 and T4 proposed by Ms Lau are also disregarded. In addition, the other only comparable relied on by Ms Lau i.e. R1 in carrying out her valuation[49] was conceded by her at trial that it was a transaction between connected parties and had to be disregarded. This left her with no comparable at all for the income approach.

137.  Notwithstanding the above, Ms Lau agreed that, by reference to the Final Report of Study on Existing Profile and Operation of Brownfield Sites in the New Territories – Feasibility Study (“Brownfield Study”)[50], there had been a very diverse range of monthly rent for brownfield sites, going from a minimum of $0.9/square feet to a maximum of $22.2/square feet[51]. However, with respect, Ms Lau failed to distinguish the monthly rental between different uses of brownfield sites and the structures erected thereon, which, in our opinion, might be important in the analysis. The Brownfield Study was only a general study for the whole of the New Territories. We note that the logistics industry, for instance, which may require a larger proportion of covered structures, was able to pay the highest monthly rental from $2.0 to $22.2 whereas industries like rural industries and vehicle scrapping which may require minimal covered structures were paying the lowest monthly rental from $0.9 to $3.7 or $5.6 as the case may be.

138.  In order to bypass the impasse, Ms Lau tried to make use of the prevailing tenancy information for Portion A and Portion B, presenting two simultaneous linear equations as follows[52]:

1,084.56x + 1,005.44y = $250,000 for Portion A, and

213.49x + 2,289.51y = $190,000 for Portion B

where the coefficients of x and y represent the roofed covered area and uncovered land area respectively.

139.  By solving the simultaneous equations, Ms Lau arrived at the unit rate of roofed covered area (x) at $168.11 per sq m and the unit rate of uncovered land area (y) at $67.31 per sq m. Pausing here, Ms Lau’s analysis was contradicting her assumption of a conversion factor of 1.5 as stated in §134 above.

140.  With respect to Ms Lau, we find her logic of the formation of the equations wrong. For instance, the figures of 1,084.56 was derived from the total size of temporary structures of 1,136.31 sq m minus 51.75 sq m of structures under the 2016 Warning Letters, ie 1,136.31 – 51.75 = 1,084.56. On the other hand, the figure of 1,005.44 was derived from the total area of Portion A at 2,089.88 sq m minus 1,084.56 but with the 51.75 sq m of structures under the 2016 Warning Letters thereon, i.e. the so-called uncovered land area was not really the case but with structures under the 2016 Warning Letters thereon. The tenant did not remove the unauthorized structures covered by the 2016 Warning Letters.

141.  Moreover, the tenancy for $250,000 per month for Portion A was to commence on 1 December 2019, foreshadowed by the Date of Reversion. That is, very soon, Portion A was left with temporary structures of 644.91 sq m with uncovered land area of 956.0 sq m - 644.91 sq m = 311.09 sq m. Therefore, the equation, if it were to be adopted, should be rewritten as

644.91x + 311.09y = $250,000

142.  Similarly, the figures of 213.49 was derived from the total size of temporary structures of 1,212.87 sq m minus 999.38 sq m of structures under the 2016 Warning Letters, ie 1,212.87 – 999.38 = 213.49. Again, the commencement of the tenancy of Portion B for paying $190,000 per month was 1 February 2020, i.e. even after the Date of Reversion. Then Portion B was left with structures having 626.13 sq m (inclusive of 414.88 sq m under the 2016 Warning Letters[53]). The uncovered area should therefore become 1,865.3 sq m - 626.13 sq m = 1,239.17 sq m. The equation, if it were to be adopted, should be rewritten as

626.13x + 1,239.17y = $190,000

143.  Unfortunately, when the two simultaneous linear equations were rewritten as above, there would be no solution as the equations are illogical[54]. At least, the rental of $250,000 per month for Portion A was not reliable as disclosed by Mr Chan, who claimed that “the rental area would be substantially decreased after the resumption, it could not meet the operational needs of my business at Portion A[55]” and that Man Young “moved from Portion A into the Yim Tso Ha site in or about the end of October 2020[56].” The above claims contradicts with Ms Lau’ allegation at §2.5.3 of her Supplemental Expert Report dated 31 March 2022 that Man Young agreed to pay the same rental even though a substantial portion of land would be taken by the Government[57]. With respect, this allegation is also against common sense.

144.  In any event, we should not rely on transactions (or rental) of the Subject Lots when the resumption itself was forthcoming. In Lam Kit v Director of Lands, LDLR 15/1994 (unreported, dated 5 May 1995), the Tribunal held at §11 as follows:

“Moving on from the possible affect of the CRA[58], to the affect of the resumption scheme, the well established Pointe Gourde principle requires any increase or reduction in value wholly due to the scheme to be disregarded - Pointe Gourde Quarrying and Transport Co. v Sub-Intendent of Crown Lands [1947] AC 565. The affect of a resumption scheme on market value is at least liable to occur from the date of formal public notification. In many cases it may occur even earlier, particularly where the likelihood of a future resumption is well known.”

145.  Similarly in Yuk Fong Investment Limited v Director of Lands, LDLR 1/2014 (unreported, dated 11 January 2016), the Tribunal held at §20 that “the effect or threat of a resumption scheme on pedestrian flow or the value of the Property should be disregarded.”

146.  And more recently in Alliance Develop Limited v Director of Lands, LDLR 1/2020 (unreported, dated 20 February 2023) at §25, the same Pointe Gourde principle was applied:

“…The affect of a resumption scheme on market value is at least liable to occur from the date of formal public notification. In many cases it may occur even earlier, particularly where the likelihood of a future resumption is well known. In the present case, the resumption scheme was announced in 1996 and is the first and largest of a total seven similar schemes in the area bounded to the west and to the south by Ma Tau Wai Road and Bailey Street respectively.”

147.  In the present case, as stated in §2, the Government announced on 31 December 2015 that the Resumed Land shall be resumed from the Subject Lots to facilitate the Bypass Construction. The latest tenancy agreement for Portion A dated 29 November 2019 can be found at Appendix 10 of Ms Lau’s Expert Report dated 11 October 2021[59] or Appendix 1.3 of her Supplemental Expert Report dated 31 March 2022[60] (or Appendix 10 of Ms Ng’s Expert Report dated 8 February 2022)[61]. Of particular interest is clause 14 of the tenancy agreement which stated that even though the resumption was imminent, Man Young was prepared to pay the increased rental of $250,000 per month:

“業主與租客雙方同意，租客並知悉在該用物業已被香港政府劃出一部份（見附圖），有可能在租賃期內被香港政府收回，現租客向業主確認及承諾，在租賃期內如被香港政府收回該部份，租客將會繼續支付本租約上之租金，並不會要求業主減租，並不會得到任何賠償。”

This is contradictory to the contents of witness statement of Mr Chan where he claimed “Since the rental area would be substantially decreased after the resumption, it could not meet the operational needs of my business at Portion A[62].” More particularly, Man Young saw fit to move away from Portion A to somewhere else in Yim Tso Ha in October 2020 more than 1 year prior to the end of the tenancy[63].

148.  Therefore, not only the latest tenancy for Portion A in December 2019 and the latest tenancy for Portion B in February 2020 should not, we think, be relied on for the purpose of determining compensation, even the earlier tenancies entered after 31 December 2015 were questionable for that purpose.

149.  As well, as we have already formed the view that in the determination of compensation in the present case, all structures erected on the Subject Lots have to be disregarded, i.e. the determination of compensation would be on the basis no structures would be allowed on the Subject Lots as restricted by the Government Lease, it is doubtful in that scenario whether Man Young or Hong Kong Ocean would be attracted to the Subject Lots in the first place and pay substantial rental at all.

150.  Thus the analysis carried out by Ms Lau as described above in her “fall-back scenario” as contained in her 3^rd Supplementary Expert Report dated 9 March 2023 was faulty and had to be totally disregarded.

151.  As such, we decide that we should as far as possible revert to the direct comparison approach.

Evaluation of expert evidence of Respondent’s expert

152.  As opposed to Mr Lau’s opinion, Ms Ng opined that there were suitable comparables for direct comparison in the determination of the market value of the Resumed Land. She relied on the four comparables below[64]:

Comp	Address	Zoning	Site Area (m2)	Site Coverage	Instrument Date	Consideration	Unit Price (/m2)
Resumed Land	Portions of Lots 2835 RP, Lot 2848 RP, Lot 2858, Lot 2859 RP DD 51, Fanling	Recreation*	1,779.8	Should be Disregarded	27 Dec 2019
C1	Lot 2545 DD 102, San Tin	Open Storage	242.81	Nil	14 Feb 2020	$1,359,072	$5,597
C2	Lot 2450 DD 102, San Tin	Open Storage	323.75	10%	30 Nov 2020	$1,219,680	$3,767
C3	Lot 823 sA & sB DD 111, Pat Heung	Open Storage	399.80	Nil	18 Jun 2020	$3,442,400	$8,610
C4	Lot 537 sA DD 84, Hung Lung Hang	Agriculture	1,254.20	Nil	26 Apr 2019	$10,762,184	$8,581

* Zoning should be ignored by reason of section 12(aa) of LRO.

153.  According to Ms Ng, these comparables had no or minimal covered area by reference to the aerial photos taken around the date of the respective transactions. But as we shall see later in this judgment, the applicant contended that C4 had structures as much as 230 sq m (ie some 18%) by reference to the aerial photo taken on 17 July 2019, ie some 3 months after the date of its transaction. However, we do not find it of much importance. Firstly, 3 months could be a long enough period of time to erect temporary structures. Secondly, if Ms Ng was contented to adopt this as comparable although it had some 18% coverage, it would only work to the applicant’s advantage because we have already ruled that the determination under the Ordinance should be on the basis there would not be any structures erected on site.

154.  Comparable C1 is located to the east of Shek Wu Wai and to the northwest of San Tin Barracks in the Yuen Long district. According to the aerial photo and by reference to the Brownfield Study as well as our joint site inspection on 28 March 2023, it occupies the rear portion of an enclosed site for brownfield operation. It is accessible via a single-lane local track leading more than 200 metres from the main road network of Ka Lung Road which is a local access connecting to Route 9 via Kwu Tung Road. We agree with Ms Lau’s comment that this is not a suitable comparable owing to its small size, inferior accessibility that has to pass through at least 6 private lots before reaching the site. It was assigned at $520 per sq ft, a usual round sum for sale of an “agricultural lot” in the New Territories.

155.  Comparable C2 is situated just to the north of San Tin Barrack with a covered structure of about 33.45 sq m. Again, it is accessible via a local track leading some 150 metres from the main road network of Ka Lung Road. We agree with Ms Lau’s comment that this is not a suitable comparable owing to its small size and inferior accessibility. By virtue of the Agreement for Sale and Purchase dated 30 November 2020, its sale price was equivalent to a low of $350 per sq ft. We also have reservation on its reliability as comparable.

156.  Comparable C3 is located in Pat Heung of the Yuen Long district. It is divided into two portions by a local track with Lot 823 Section A (“Lot 823 sA”) having 95.6 sq m and Lot 823 Section B (“Lot 823 sB”) having a larger area of 291.72 sq m. According to the aerial photo and by reference to the Brownfield Study, Lot 823 sA was used as a warehouse/ workshop[65] while Lot 823 sB was used for open storage as at the transaction date. While these sites are accessible via a local track leading some 200 metres from Fan Kam Road, a main distributor in the district, these sites form part of a larger area occupied for brownfield operation. We agree with Ms Lau that this is not a good comparable owing to its small size, separation into two portions and inferior accessibility that has to pass through more than 14 private lots before reaching the site. But it was assigned a more realistic rate of $800 per sq ft. In the absence of better comparables, we rely on it for the purpose of our evaluation.

157.  Comparable C4 is located in Kong Nga Po, Hung Lung Hang of the North District. According to the aerial photo and by reference to Brownfield Study, the site was occupied together with Lot 537 Section B and Lot 537 Remaining Portion as a single brownfield operation. It is accessible by a narrow single-lane local track leading some 200 metres from the nearest main road network of Kong Nga Po Road which branches off from Man Kam To Road or Ping Che Road. We agree with Ms Lau that this is not a good comparable owing to its small size, inferior accessibility that has to pass through at least 13 private lots before reaching the site. By virtue of the Agreement for Sale and Purchase dated 26 April 2019, its sale price was equivalent to $800 per sq ft. But, in the absence of better comparable, we also rely on it for the purpose of our evaluation.

158.  At trial, Ms Ng acknowledged that there were deficiencies in her proposed comparables but in her valuation exercise adopted the following adjustments:

Factors	Adjustment
Time	Adjustment is made according to the Private Flatted Factories Price Index published by the Rating and Valuation Department (“RVD”)
Size	Progressive Adjustment on Size -2% adjustment is made for every 100 sq m larger in size for the first 200 sq m; -1% adjustment is made for every 100 sq m larger in size for the later 200 sq m and 500 sq m; and -0.5% adjustment is made for every 100 sq m larger in size for the later 500 sq m and afterward
Location	While location is an important element affecting the value of lands used for storage, the closer proximity to the traffic network system, ie main and primary roads, is superior.
Accessibility	+5% adjustment is made for comparables with inaccessibility of every type of vehicle or inconvenient to access; Another +5% adjustment is made for comparables that pass through fenced/ gated private lots from the site to the main road system.

159.  As regards the adjustment for time, both Ms Lau and Ms Ng agreed to adopt the Private Flatted Factories Price Index published by RVD owing to the lack of sufficient transactions and price index related to storage and open storage properties in the New Territories. In fact the same was agreed to by the Tribunal in Wan Kwok Leung & Others v Director of Lands [2019] 1 HKLRD 1129. As well, in Yuen Long Fish Merchant's Association Limited v Secretary for Transport, LDMR 44/2000 (unreported, dated 3 April 2001), the rental indices for flatted factories were adopted as well in the absence of other better evidence. We therefore have no objection to applying the Private Flatted Factories Price Index published by RVD in the present case.

160.  For location, Ms Ng applied an upward adjustment of 5% generally for all her comparables because according to the Brownfield Study, the location factors were weighted the lowest by the operators. Ms Ng indeed referred to the following Short Term Tenancies granted by the Government in support of her adjustments[66]:

STT No	Effective Date	Term	User	Area (m2)	Monthly Rent	Unit Rent (/m2)
STT 653, Fanling	April 2019	5 years certain	Open Storage; Covered Storage	430	$8,170	$19.0
STT 679, Fanling	April 2019	3 years and 3 months certain	Workshop/ Factory	768.8	$21,836	$28.4
STT 795, Fanling	April 2019	1 year certain	Covered Storage	1,000	$28,400	$28.4
STT 1036, Kwan Tei	April 2019	1 year certain	Covered Storage	250	$6,960	$27.8
STT 1108, Kwan Tei	April 2019	1 year certain	Covered Storage	45	$1,500	$33.3
STT 1227, Kwan Tei	April 2019	3 years certain	Covered Storage; Shops, Retail Use	163	$2,700	$16.6
STT 1471, Kwan Tei	April 2019	Half-year certain	Covered Storage	856	$10,310	$12.04

161.  By reference to in particular STT 653, Ms Ng opined that short term tenancies for open storage purposes in the vicinity of the Subject Lots fetched $20 per sq m[67]. She also found that STT 1100 and STT 1120 in Ping Che (namely, Area 1, to the southwest of Baptist Assembly and Ping Che Road, a local distributor running from Fanling New Town towards the border) which were all for open storage purposes had a monthly rental between $19 per sq m and $20 per sq m. Ms Ng therefore was of the view that whether closer to Fanling or On Lok Tsuen was not a critical factor for brownfield operation site.

162.  At this juncture, we would like to point out that none of the comparables C1 to C4 are situated in Kwan Tei or at an area close to it. Ms Ng’s analysis above was only in response to the similar analysis presented by Ms Lau in her Expert Report dated 11 October 2021. However, Ms Lau’s analysis had missed out STT 1036 or STT 1108 which were granted at higher unit rates per sq m. We also agree with Ms Ng that Ms Lau’s analysis failed again to distinguish their users, extent of covered area, size of factory/ workshop buildings etc.

163.  In view of the urban-rural environment in which the Subject Lots are situated, we prefer an upward adjustment of 15% for comparable C3 and 20% for comparable C4 to the 20% or 30% proposed by Ms Lau based on similar analysis which though failed to distinguish the different usages[68]. As well, Ms Lau had accepted during cross-examination that driving distance is not that important so long as one can get to the main road quickly.

164.  Turning to accessibility, we agree with Ms Ng that “accessibility” should be factored in the surface quality of the access road as well as whether heavy goods vehicles are able to enter and manoeuver at the site. We would however like to add another 10% for the fact that the occupier has to pass through various private lots and there is question of hidden cost/ risk to use the site.

165.  Regarding the adjustment for size or quantum, we appreciate that the adjustment proposed by Ms Ng was subjective. Nevertheless, we agree, like the Tribunal in Yuen Long Fish Merchant's Association Limited, supra, that there should be an optimal size limit but the size of the Subject Lots as a whole up to 4,601.1 sq m might be too large. As a matter of fact, the Subject Lots had been subdivided into Portion A and Portion B, though with Pre-Existing Structures thereon in breach of the Government Lease, with sizes at 2,089.88 sq m and 2,502.67 sq m respectively. Below that size, by reference to §4.10.1 of the Brownfield Study which is re-stated below, we prefer to adopt the traditional approach of adjusting the value downwards as the size increases and the lump sum price increases:

“According to the questionnaire survey, “Site Meeting Operational Requirement” and “Affordable Rent” were the two most selected reasons considered by the respondents as the reason(s) of choosing the current site for operation. Among 3,420 respondents to the questionnaire survey, 60% and 34% of the respondents selected the two reasons respectively (Chart 4.2).”

166.  The applicant had indeed criticized the site sizes of the comparables obtained by Ms Ng as being too small, drawing our attention to Table 4.3.1 of the Brownfield Study which found the average active brownfield had a site size of 1,917.59 sq m. However, the figure of 1,917.59 sq m failed to distinguish the different brownfield site usages:

Type of Industry	Average Site Size (sq m)
General Warehouse / Storage	1,393.89
Construction	2,358.09
Logistics	3,323.93
Vehicle Repairing and Related	1,245.01
Vehicle Parking	2,428.51
Port Backup (Container-related)	5,786.84
Waste Recycling	1,933.56
Rural Industries	2,208.65
General Workshops	1,231.82
Vehicle Scrapping	1,631.50
Total Active Brownfield Sites	1917.59

167.  From the table above, which is excerpted from the Table 4.3.1 of the Brownfield Study, it was only those industries that demand sites with structures thereon eg Construction, Logistics that require sites of larger sizes. On the one hand, we had heard evidence from Ms Ng that if the Subject Lots were not used for logistics, but for a different brownfield operation, the optimal size would be smaller. On the other hand, Ms Lau conceded that while it would be ideal to have a site area of at least 1,000 sq m, a site used for open storage can be smaller[69]. This is supported by her own list of Short Term Tenancies Nos A, B, C, D, and E[70] which corresponds to the table found in §166 above. While we appreciate the difficulties in finding suitable comparables, we consider, as we shall see, the proposed adjustments made by Ms Ng on size not unreasonable. They should, we think, be preferred to those size or dimension adjustments applied by Ms Lau which she conceded as being very abstract or general “概括”.

168.  In the meanwhile, we are aware of Ms Lau’s remark at §2.3.3 of her 3^rd Supplemental Expert Report dated 9 March 2023 as follows:[71]

“Good/ suitable comparable transactions are rare for brownfield sites. From our observation, it may be due to the potential risk of the right of access, potential dispute on boundary lines, undisclosed tenancy/ commitment with surrounding lots, ownerships of brownfield are held by local villagers’ families etc. In fact, it is quite common to find connected party transactions or transactions made by common buyers, for instance, comparable nos C1 and C2 adopted by the Respondent are incidentally purchased by the same company.”

169.  Owing to the very small sizes of comparables C1 and C2, we tend to agree with Ms Lau and therefore these two transactions are disregarded as comparables. As regards the applicant’s contention that Ms Ng failed to verify whether comparables C1, C3 and C4 were owned or controlled by connected individuals and entities by company searches etc, Ms Ng had already explained in cross-examination that she had checked the identity of the seller and the buyer and had confirmed that the transactions were not connected and even the adjoining lots belonged to apparently different ownerships[72]. To prove otherwise, with respect, we consider it falling within the burden of the applicant who, however, failed to provide any evidence. But Mr Dawes then queried that when the comparable was occupied with adjoining lots belonging to different owners, whether it could still be relied on as a comparable. Ms Ng conceded that when owners of different identities came together for a joint venture or operation, there might be a discount in value for the risk of control[73]. In such regard, we would add another 10%. This is the other side of the coin that in Deluxe Ascent Limited v Director of Lands, LDLR 9/2018 (unreported, dated 28 February 2022) where the Tribunal was determining the compensation for partial interest at §185, a discount of 10% was applied.

170.  As a result of the above, we would determine our assessment of the compensation for the Resumed Land as follows:

Comp	Unit Price (/m2)	Adjustments							Adjusted Unit Price (/m2)
		Time	Location	Accessibility	Size	Layout	Ownerhsip	Total
C3	$8,610	2.3%	15.0%	10.0%	-11.4%	5.0%	10.0%	32.4%	$11,400
C4	$8,581	-9.0%	20.0%	15.0%	-7.1%	0.0%	10.0%	28.3%	$11,009
								Average:	$11,205

171.  Notwithstanding the above, Ms Lau, in her 2^nd Supplementary Expert Report and 3^rd Supplementary Expert Report, identified 2 market transactions in her Appendix 4, though for the purpose of assessing the loss due to severance under section 10(2)(c) as follows[74]:

Comp	Address	Zoning	Date of Agreement	Consideration	Site Area (m2)	Covered Area (m2)	Unit Price (/m2)
D1*	Lot 2670 DD102, San Tin	Open Storage	20 Nov 2019	$10,000,000	730	263	$13,700
D2*	Lot 537 sA DD 84, Hung Lung Hang	Agriculture	26 April 2019	$10,762,184	1,249	230[75]	$8,617

* This D1 is indeed T4 and D2 is in fact the same as comparable C4 above.

172.  As stated in §134 above, Ms Lau applied a conversion factor as much as 1.5 to account for the portion with structures to arrive at what she called “Effective Area”. She then carried her analysis or assessment for the residual portion of Portion A and Portion B as follows[76]:

	Portion A		Portion B
Comparables	D1	D2	D1	D2
Date of Agreement	20 November 2019	26 April 2019	20 November 2019	26 April 2019
Land Area (m2)	730	1,240	730	1,240
Structures Area (m2)	263	230	263	230
Effective Area (m2)	861.5	1,364	861.5	1,364
	Adjustments
RVD Class (Private flatted factories) Index Figure	834.8	924.0	834.8	924.0
Time	0.8%	-9.0%	0.8%	-9.0%
Location	20%	30%	20%	30%
Vehicular Access	50%	50%	50%	50%
Size and Dimension	10%	10%	30%	30%
Total Adjustment by Multiplication	99.5%	95.3%	135.8%	130.8%
Adjusted Unit Rate on Land Area (HK$/m2)	23,159	15,408	27,370	18,209

173.  We have already in §134 above stated that the conversion factor of 1.5 was subjective. Further we have found in §139 above that if Ms Lau’s analysis were correct, her finding of a conversion factor of 2.5 was contradicting her own assumption of a conversion factor of 1.5. More importantly, we have stated that if the structures thereon were in breach of the Government Lease and when this was the case, we are doubtful whether the prevailing tenants on site would be attracted to the Subject Lots and pay anything at all.

174.  We would disregard comparable D1 again when the percentage of structures thereon amounted to some 36% of site area.

175.  Thus, we are left with comparable D2 to which we have already carried out our analysis at §170 above, assuming no structures were erected thereon as per the opinion of Ms Ng.

176.  Having reviewed the above, we are contented to adopt $11,200 per sq m as the market value of the Resumed Land as at the Date of Reversion. That is, the compensation to be paid by the respondent under section 10(2)(a) of the LRO to which Item 1 in Part II of the Schedule to the Ordinance refers is:

1,779.8 sq m x $11,200 per sq m = $19,933,760

which is rounded to $19,934,000.

Cross-Checking by Income Approach

177.  Owing to the various deficiencies in carrying out the direct comparison method of valuation above, we accept that it is prudent to carry out the income approach as an alternative means of ascertaining the market value of the Resumed Land. Here we find the Short Term Tenancy No 1025 which was granted in April 2019[77] for open storage of assistance. This short term tenancy was in fact put forward and identified by Ms Lau in her Expert Report dated 11 October 2021 as STT No G[78]. It is located right beside a car park off Ping Che Road. Comprising an area about 750 sq m, this short term tenancy was granted at a monthly rent of $17,083 per sq m or $22.78 per sq m. We would only consider an upward adjustment of 10% for location but no adjustment for accessibility. We arrive at a unit rent of $25 per sq m or thereabout.

178.  By reference to the Property Market Yield for Flatted Factories published by RVD at 3%, Ms Lau had in her Expert Report dated 11 October 2021 adopted 2.8% on the ground that, in her opinion, the Subject Lots had better growth potential because they comprised a larger storage area with good vehicular access[79].

179.  Should we follow the yield of 2.8% put forward by Ms Lau, we arrive at a valuation as follows:

1,779.8 sq m x $25 per sq m x 12 ÷ 2.8%

                    = $19,069,285

which is some 4% lower than $19,934,000.

180.  We are of the opinion that the open market value arrived by the direct comparison approach at $19,934,000 is reasonable and around the mark.

Compensation due to Severance

181.  In addition to section 10(2)(a), section 10(2)(c) of the LRO provides that compensation would also be payable on the basis of

“the amount of loss or damage suffered by any claimant due to the severance of the land resumed or any building erected thereon from any other land of the claimant, or building erected thereon, contiguous or adjacent thereto”.

182.  In the present case, we have already stated that the Subject Lots have been bisected into two separate portions as a result of the resumption though, prior to that, the Subject Lots had already been subdivided by the applicant into Portion A and Portion B for letting purpose since the end of 1995.

183.  Thus owing to the resumption, there was reduction in site area for both Portion A and Portion B as follows;

	Portion A	Portion B	Total
Prior to Resumption	2,089.88 sq m	2,502.67 sq m	4.601.1 sq m
After Resumption	956.0 sq m	1,865.3 sq m	2,821.3 sq m

184.  Ms Lau, as afore-mentioned in §172 above, had tried to evaluate the “before value” in assessing the loss due to the severance of the land resumed by applying a conversion factor of 1.5 for the structures erected thereon. With respect, we have already ruled that it was a wrong approach without any basis. We did not agree with Ms Lau on her adjustment for size either but prefer those applied by Ms Ng.

185.  On the other hand, in her Expert Report dated 11 October 2021, Ms Lau relied on an acquisition by the City University of Hong Kong of a site in Lam Tsuen on 15 November 2017 as a comparable for assessing the “after value” for Portion A and Portion B[80]:

186.  Firstly, this analysis of Ms Lau was obviously wrong or non-consistent in the first place. The residual portion of Portion A is around 956.0 sq m, i.e. this site in Lam Tsuen is about 10 times as much and yet Ms Lau applied an adjustment for size at +10%. But when adjusting for the size of the residual portion of Portion B which is around 1,865.3 sq m, i.e. significantly bigger, Ms Lau applied a larger adjustment of +21%. Of course, it may all be Ms Lau’s oversight when the adjustment applicable to the residual portion of Portion A should be applicable to the residual portion of Portion B and vice versa.

187.  And, in her 3^rd Supplementary Expert Report dated 9 March 2023, Ms Lau took into account the area covered by structures and applied a conversion factor of 1.5 as afore-said, arriving at revised adjusted unit rates for Portion A and Portion B of $9,210 per sq m and $10,131 per sq m respectively[81].

188.  While not further commenting on the suitability of this comparable (which is much bigger than the Residual Land or some ten times bigger than the West Portion) or the various adjustments applied by Ms Lau, on the basis of her own assessment of the “after value” above, we find the adjusted unit rates of $9,504 per sq m and $10,454 per sq m (or alternatively $9,210 per sq m and $10,131 per sq m respectively) not significantly lower than $11,200 per sq m determined above in §176 above.

189.  As regards Mr Chik’s allegation in his witness statement of drop in monthly rental for Portion B payable at the end of 2021, we agree that one of the likely reasons was owing to contractor of the Government entering upon the Resumed Land, and Hong Kong Ocean thus having to operate on a much smaller site[82]. We do not agree however with Mr Chik’s further allegation, by reference to our on-site observation on 28 March 2023, that Portion B had lost the use of main entrance and the only access.

190.  As was mentioned by Ms Ng during cross-examination, we agree with her that there may be many reasons for the reduction in rent for the Residual Land and those reasons may not be related to the resumption, e.g. the economic downturn due to the Covid-19 pandemic etc.

191.  As regards the submission by the applicant on whether, after the resumption, the “existing use’ status of “storage and open storage” can be maintained for the Residual Land, we consider it mere red-herring which does not deserve any detailed analysis. On the one hand, Ms Ng had, by reference to the e-mail correspondence contained in Appendix 2 of her 2^nd Supplemental Expert Report dated 9 March 2023[83], stated that the present use as storage and open storage on the Residual Land is still considered as “existing use” under the Town Planning Ordinance. There is, we think, no evidence adduced to support the applicant’s speculative assumption. More importantly, Ms Lau’s assumption that, after the resumption, the value of the Residual Land would have been reduced because of its “Recreation” zoning was also in defiance of section 12(aa) of the LRO.

192.  In any event, the two decisions cited by the applicant, being HKSAR v Wu Koon Tai & Others, HCMA 337/1999 (unreported, dated 12 April 2000) and 香港特別行政區 訴 合盈汽車服務有限公司, HCMA 39/1999 (unreported, dated 8 September 1999) do not, in our views, assist the applicant.

193.  In Wu Koon Tai, on a balance of probabilities, the site concerned was found, prior to 5 October 1990, used primarily as an open storage. Then the magistrate accepted the evidence of officer from the Town Planning Department that since 1992, storage activities at the site had increased substantially: the storage area had taken up to between 70% to 85% of the site and at various places, vehicle parts were piled up to the height of some 15 feet from the ground. The magistrate found from these facts of that case that there had been a substantial increase of storage activities on the site to the extent that it constituted a material change in the user of land since 1992. It was a case decided on the facts of its own rather than an authority that an increase in percentage of covered area constituted material change of use.

194.  Similarly, in 合盈汽車服務有限公司, there was found to be a material change in the use of the land from the original four different kinds of uses to only car repairing use. It does not support the applicant’s contention that a mere increase in the percentage of covered area would amount to a material change of use under the Town Planning Ordinance.

195.  Notwithstanding the above, in Fan Chun Keung v The Secretary for Environment, Transport and Works, LDMR 5/2004 (unreported, dated 15 July 2005), the land in question which was an open storage compound was bisected into two parts after resumption like the Subject Lots. The experts on both sides agreed that the southern portion after the resumption suffered loss due to the severance of that portion from the other land held by the owner but they held different views as to the quantum of severance loss. The Tribunal, after taking into account the opinion of the two surveyors, the configuration of the subject site in both the before and after situation, and in particular the shape and size of the southern portion of the subject site, held that a reasonable diminution in value of the southern portion of the site was about 30% of the total area of 2,412.8 sq m.

196.  In the present case, the Subject Lots comprised originally 4,601.1 sq m. After resumption, they had been bisected into two portions, Portion A and Portion B, having a residual area around 956.0 sq m and 1,865.3 sq m respectively. Upon our joint inspection on 28 March 2023, we observed that both portions still had their vehicular access in and out for heavy vehicles and are still capable of beneficial use for open carparking or storage otherwise save for the erection of structures in breach of the Government lease.

197.  Thus, although Ms Lau’s approach of relying on comparables with significant structures erected thereon in assessing the “before value”, applying a conversion factor of 1.5 and the relatively close “after value” to our determination of the market value of the Resumed Land was, we find, faulty, we opined that the applicant still suffered some loss, principally at Portion A (i.e. the West Portion), due to the severance of the Resumed Land from the Residual Land and that a reasonable estimate of such severance loss would be 10% of the value of Portion A. Based on our estimated market value of the Resumed Land of $11,200 per sq m, we estimate the diminution in market value of the Residual Land to be $11,200 x 10%, or $1,120 per sq. m. Applying this amount to the area of Portion A of 956.0 sq m, we calculate the diminution in value of the Residual Land due to severance to be 956.0 sq m times $1,120 per sq. m., which is equal to $1,070,720, which is rounded to $1,071,000.

Conclusion

198.  We therefore determine that the compensation payable to the applicant is as follows:

Market Value under section 10(2)(a) of the LRO:	$19,934,000
Severance Loss under section 10(2)(c) of the LRO:	$1,071,000
Total:	$21,005,000

Orders

199.  Accordingly, we order that the respondent do pay the applicant compensation for the resumption in the sum of $21,005,000.

200.  We further order that the two outstanding matters of professional fees and interest be agreed by the parties, failing which it/they shall be restored for arguments before Court No.3 of Lands Tribunal on such date(s) to be fixed in consultation with counsels’ diaries, with liberty to parties to apply for directions on any other ancillary and consequential matters.

201.  And we make costs order nisi that the respondent do pay the applicant the costs of these proceedings to be taxed at High Court scale if not agreed, with certificate for 2 counsels for this trial. The said order nisi shall become absolute if none applies to vary within 14 days of this judgment.

202.  Finally, we thank all counsels for their submissions.