FAN CHUN KEUNG v. THE SECRETARY FOR THE ENVIRONMENT, TRANSPORT AND WORKS

cacv 5/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 5 of 2006

(on appeal from LDMR NO. 5 of 2004)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This was an appeal from a decision of the Lands Tribunal dated 15 July 2005 and a Decision on Review dated 2 November 2005 whereby the Lands Tribunal had awarded the applicant the sum of $9,570,000.  At the conclusion of the hearing the appeal was dismissed with reasons to be given in writing.

The application for compensation

2.  The applicant applied for compensation pursuant to section 29(7) of the Roads (Works, Use and Compensation) Ordinance, Cap. 370.  It is unnecessary to dwell on the details of the matter save to say that the Tribunal accepted that the existing use of the land in question was as a container vehicle park.

3.  The applicant contended that the compensation should be calculated on what was referred to as an investment basis which might be summarised as being a calculation of the future income likely to be generated from the property discounted at an appropriate discount rate.  The respondent contended that the compensation should be calculated by using sales comparables.  The matter of calculation of compensation based on comparables was simply an assessment of the value of the land based upon the sales prices of comparable pieces of land.  The Tribunal’s approach was summarised in paragraphs 20 to 23 of the decision of 15 July 2005 as follows:

“Investment approach or direct sale comparison approach

20. Mr. Lau’s investment approach is no doubt an alternative means of ascertaining the market value of a property, but it is not the best method in valuation.  As pointed out by Mr. Yip, the best method in valuation is the direct sale comparison approach, and the Lands Tribunal has repeatedly expressed its preference for the comparative method: Director of Lands and Survey v. Fung Ping Chung [1977] HKLTR 37.  Mr. Lau has in fact identified 4 sale comparables, but for certain reasons, he finds that these comparables were not suitable for comparison and hence adopts the investment approach.  It is clear that if there were suitable sale comparables, Mr. Lau would not have used the investment approach.  Therefore, we can conclude that both surveyors giving evidence in this case agree in principle that the best method is the direct sale comparison method.

21. Under this method, suitable sale comparables were analyzed and adjusted, to reflect the differences between the comparables and the resumed lots, arriving at an appropriate adjusted unit rate for the valuation of the resumed lots.  As discussed later in this judgment, we find that there are in fact suitable sale comparables in the present case and hence there is no need to resort to the investment approach at all.

22. Moreover, Mr. Yip points out that the investment approach involves summation of all the future income generated from the property and then discounting the income at an appropriate discount rate.  There are 3 elements in this approach: rental income, capitalization rate and holding period.  The capitalization rate and holding period will work out a multiplier, i.e. Years’ Purchase.  A minor change in the capitalization rate will greatly affect the capital value of the property.  It goes without saying that with one more set of variable, there is a less certain chance of arriving at a value that equals to the market value of the subject land, which is the subject matter of valuation.  More importantly, it is commonly known, and acknowledged by both surveyors in this case, that mainly because the sales of land demised for agricultural land were scarce, there was no market evidence at all as to their yield.  Therefore, the yield adopted in Delight World case, as in other cases when the agricultural land in question were valued on the basis of investment approach, was simply a figure that had to be adopted in the absence of any other evidence.  In view of the forgoing, we find that the investment approach is not as reliable or accurate as the direct comparison approach.

23. Since there are suitable sale comparables in the present case and the investment approach is not as reliable or accurate as the direct comparison approach, we find that we should adopt the direct comparison approach.  There are many matters concerning the letting comparables disputed by the parties, but as we adopt the direct comparison approach, these matters become irrelevant and we shall not deal with them in the judgment.”

4.  Using five different sale comparables and adjusting them to take into account the varying factors affecting the various lots, the Tribunal came to the conclusion that the compensation should be $7,980,000.

5.  In the Decision on Review dated 2 November 2005 the Tribunal revised that figure to $9,570,000.  The Tribunal compared that with its own calculation based on an investment approach and came to the conclusion that whereas on the comparable approach the value per square metre of the land was $2,100, on an investment approach the estimated value would be $2,480 per square metre.  This worked out as a difference of some 18%.  In paragraph 54 of the Decision on Review the Tribunal said:

“We can say that this is within the reasonable range of values that any valuer may find when employing different approaches of valuation for the same piece of land such as the subject site.  This is certainly not the case, as suggested by the Applicant in his submission, that if the value obtained on cross check by investment approach was so substantially higher from the value obtained on direct sales comparison approach, one may conclude that the value arrived at by direct sales comparison was not reliable and should be abandoned.  On the contrary, this narrow margin confirms that the check valuation using the investment approach supports our valuation of the subject site using the direct sales comparison approach.”

This appeal

6.  This appeal was brought under the provisions of section 11(2) of the Lands Tribunal Ordinance, Cap. 17 which reads:

“Subject to the provisions of any Ordinance relating to appeals from the Tribunal, any party to proceedings before the Tribunal may appeal to the Court of Appeal against a determination or order of the Tribunal on the ground that such determination or order is erroneous in point of law.”

7.  Prior to the hearing of this appeal Mr Miu, who appeared on behalf of the respondent, pointed out in his skeleton argument that there had been no identification of a point of law.  In a supplementary skeleton argument Mr Lai, who appeared on behalf of the applicant sought to identify, over the course of some four pages, various points which were argued to be or involve points of law.  The first point sought to be raised was:

“Whether there is any inflexible rule of law in land resumption compensation assessment generally that the “comparison method” is always superior to and must take precedence over the “investment method”?  (Proposed answer: no; critical examination required of some notions, namely “universally regarded as best method”, “LT repeatedly expressed its preference”, “intuition”, spurious accuracy).”

8.  However, in the course of argument, Mr Lai accepted that paragraph 20 of the Decision quoted above expressed the position accurately.  In my view he was correct in this.  There was no point of law which arose therefrom.

9.  Although some attack was made in respect of the Tribunal’s approach to the discrepancy of 18% referred to in paragraph 54 of the Decision on Review, again quoted above, that is clearly a matter of fact which it is open to the Tribunal to assess.  In many instances questions of valuation have to be matters of judgment and valuations are sometimes referred to as being matters of art and not science.

10.  In my view there was no point of law raised in the appeal and I am unable to see any error in approach or in the application of the law in either of the two decisions under appeal.  The points sought to be raised were questions of fact upon which it would be impossible to say that the Tribunal had reached a perverse conclusion. 

11.  The other general point is that Mr Lai argued that the Tribunal should have adopted the investment approach because it would have given his client a larger amount of compensation.  In my view there was nothing in this complaint.  The Tribunal came to the best assessment of the value of the land which it could.  It did so by using comparables.  The cross check using the less satisfactory investment approach did not raise any sufficient discrepancy that the Tribunal would or could have caused the Tribunal to revise its assessment.

Hon Le Pichon JA:

12.  I agree.

Hon Sakhrani J:

13.  I also agree.