View Point Development Ltd v. Secretary for Transport
Read the full judgment text of CACV 439/2002, CACV 64/2003 on BabelCite. This Court of Appeal judgment was delivered on 24 December 2003 before Le Pichon JA, Yeung JA, Reyes J.
Civil law – land resumption – compensation assessment – agricultural land held under Block Crown Lease with restrictive covenants as to user and building – two consolidated appeals from the Lands Tribunal concerning compensation for resumption of agricultural land in Yuen Long, New Territories – central issue was the effect of the Court of Final Appeal decision in Director of Lands v Yin Shuen Enterprises Limited and Nam Chun Investment Company Limited [2003] 2 HKC 490 on whether section 12(c) of the Land Resumption Ordinance precludes compensation assessment taking into account development potential of land that could not be realised without modification of the lease terms – whether compensation should reflect hope value or speculative element – whether section 12(aa) of the Ordinance, which excludes taking account of certain zoning under the Town Planning Ordinance, re-introduces what section 12(c) excludes – whether Melhado use (alternative non-building use permitted under the lease covenant, e.g. open storage) should be considered as basis for compensation – whether the tribunal's severance compensation assessment was valid. Held, allowing cross-appeal in View Point and appeal in Busy Firm: Section 12(c) of the Land Resumption Ordinance excludes from compensation any element reflecting the speculative element in the value of land referable to the prospect of obtaining a modification of the user covenant in the lease. This follows from the Court of Final Appeal's decision in Yin Shuen, which overruled Suen Sun-yau v Director of Buildings and Lands [1991] HKDCLR 33 and held that development potential is 'more than the intrinsic value of the land' and that the prospect of obtaining a lease modification 'falls squarely within the words of s.12(c)'. This is consistent with the underlying rationale of section 12(c) (derived from Lynch v Corporation of the City of Glasgow (1904) 5F 1174) that compensation is for the claimant's estate and interest in the land as restricted by the lease, not for value to the acquiring authority, and is reinforced by Article 105 of the Basic Law. On section 12(aa): Section 12(aa) was enacted in 1973 to prevent the Town Planning Ordinance from being used to rezone or blight land so as to reduce compensation on resumption. It addresses a different mischief from section 12(c), which targets the speculative element of lease modification. The legislative history (Mr Robson's second reading speech) confirms that section 12(aa) was not intended to bear on the vexed problem of development potential of agricultural land. As the two subsections are of equal standing, they should not be interpreted as cancelling each other out, and section 12(aa) does not re-introduce what section 12(c) excludes. On burden of proof: Where a respondent challenges comparables as containing a speculative element, the respondent has the evidential burden to establish, on a balance of probabilities, that a speculative element was embedded in the comparables. If discharged, the claimant bears the burden of showing what adjustments would factor out the development potential. The comparative method of valuation is not the only available method; the investment method and residual method may provide useful cross-checks. On Melhado use: Where the original tribunal proceedings predated the CFA decision in Yin Shuen and proceeded on the basis of assessing existing use and best potential development use, Melhado use was not squarely before the tribunal. It would be unfair to deprive the applicant of the opportunity to argue that the optimal alternative use of its land conforming to the lease covenant (as construed in Attorney General v Melhado Investment Ltd [1983] HKLR 327) was open storage rather than open car park. The matters were remitted for limited purpose of Melhado use assessment. The need for planning permission arising from 'U' zoning must be excluded by virtue of section 12(aa). On severance: The tribunal's severance compensation assessment was unsustainable under Edwards v Bairstow [1956] AC 14 where it failed to determine whether the remaining land was landlocked and made assumptions not supported by evidence. The severance assessment was also remitted for fresh determination. Dispositions: In View Point (CACV 439/2002), the applicant's appeal was dismissed, the Government's cross-appeal was allowed, and the matter was remitted to the tribunal for assessment of compensation on Melhado use (open storage) basis and for reassessment of severance compensation. In Busy Firm (CACV 64/2003), the Government's appeal was allowed and the matter was remitted to the tribunal for reassessment of value on Melhado use basis and for assessment of diminution in value to the remaining land and contiguous lots. Costs of the appeals and below were ordered to be borne by the applicants in both cases.
Legal issues: Effect of Yin Shuen CFA decision on section 12(c) – exclusion of development potential · Interaction between section 12(aa) and section 12(c) · Remittal for Melhado use assessment · Validity of severance compensation assessment
Outcome: In CACV 439/2002 (View Point), the applicant's appeal was dismissed and the Government's cross-appeal was allowed, with the matter remitted to the Lands Tribunal for limited reassessment. In CACV 64/2003 (Busy Firm), the Government's appeal was allowed, with the matter remitted to the Lands Tribunal for reassessment.
Cites 3 cases
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CACV000439/2002 CACV 439/2002 & CACV 64/2003 CACV 439/2002 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 439 OF 2002 (ON APPEAL FROM LDRW NO. 4 OF 2001) ____________________
____________________ CACV 64/2003 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 64 OF 2003 (ON APPEAL FROM LDRW NO. 6 OF 2001) ____________________
____________________ Coram: Hon Le Pichon, Yeung JJA and Reyes J in Court Dates of Hearing: 2 & 3 December 2003 Date of Handing Down Judgment: 24 December 2003 ____________________ J U D G M E N T ____________________ Hon Le Pichon JA and Reyes J: 1.These are two appeals from the Lands Tribunal ("the tribunal") concerning the assessment of compensation for the resumption of agricultural land in Yuen Long, New Territories. Central to these appeals is the effect of the judgment of the Court of Final Appeal of 17 January 2003 in Director of Lands v Yin Shuen Enterprises Limited and Nam Chun Investment Company Limited [2003] 2 HKC 490 ("Yin Shuen"). 2.The judgments of the tribunal under appeal, delivered in November 2002, predated the decision of the Court of Final Appeal in Yin Shuen that allowed appeals from this court. In the judgments under appeal, the tribunal sought to give effect to this court's decision in Yin Shuen that section 12(c) of the Land Resumption Ordinance (the Ordinance) did not preclude an assessment of compensation being made which took into account development potential of the land although such potential could not be realised without a modification of the lease. 3.The two appeals were heard one after the other since they raised similar issues. In the View Point appeal (CACV 439 of 2002), the applicant is the appellant and there is a cross-appeal by the Secretary for Transport ("the Government"). In the Busy Firm appeal (CACV 64 of 2003), the Government is the appellant. There is no cross-appeal by the applicant in that case. (I) View Point Background facts 4.The applicant was the lessee of agricultural land held under a Block Crown Lease which contained restrictive covenants as to user and building. The land comprised two separate groups of contiguous lots, namely, "the large site" and "the small site", divided by a vehicular track. It was roughly rectangular in shape, level and paved and was situated between two road junctions and abutting on to Tin Fuk Road in Tin Shui Wai, north west of Yuen Long town centre. Immediately to its north, on the other side of Tin Fuk Road were major high rise residential developments, public housing estates and home ownership scheme estates. The land had a total area of some 22,739 sq m. The resumption affected 20,542.4 sq m, comprising the large site and half of the small site. The applicant's valuer opined that "such a large merged site in single ownership in the New Territories is extremely rare". 5.At the date of resumption, the land was used as a car park. It had been acquired by the applicant between October 1997 and July 1998 for some $154 million. At the date of resumption, the resumed land had been zoned "U" or "Undetermined" under the Draft Ping Shan Outline Zoning Plan No. S/YL-PS/2 dated 19 September 1997 ("the Draft Plan"). Upon resumption, the applicant submitted a claim for compensation including compensation for severance of the remaining unresumed part of the land comprising just under 2,200 sq m. The parties' respective valuations before the tribunal are summarised below:
The statutory provisions 6.The general principle governing compensation for resumption is to be found in section 10 of the Ordinance. The amount is determined by the tribunal on the basis of loss and damage suffered by the claimant due to the resumption. Such compensation is determined on the basis of the value of the land resumed. Section 12 which contains additional rules for determining compensation provides as follows:
The tribunal's judgment 7.Section 12(aa) of the Ordinance required that no account be taken of the fact that the land was zoned "U" since that zoning fell within section 4(1)(e) of the Town Planning Ordinance. However the tribunal noted that section 4(1)(b) of the Town Planning Ordinance was not included in section 12(aa) of the Ordinance. It therefore held that the fact that the resumed land lay within or was affected by any area, zone or district set apart for residential, commercial, industrial or other specified uses could be taken into account. It proceeded to determine the value of the resumed land on two different bases i.e. (1) its value based on its then existing use as a commercial open car park and (2) its open market value in the "no zone" world on the basis of its alternative highest and best use. The higher of the two valuations was the compensation payable. 8.The tribunal determined that the valuation on the first basis required the assessment of the full open market rental value of the land and its capitalization by an appropriate multiplier. On the evidence before it, the tribunal assessed the existing use value at $49,450,000. 9.As to the alternative valuation based on potential best use, the tribunal considered the zoning of land to be a matter of paramount importance and lease modification, where necessary, was a matter of formality only. It proceeded to determine whether the land would be zoned residential and, if so, the density of such zoning by undertaking a planning exercise. The tribunal concluded that the applicant had failed to show to the tribunal satisfaction, on the balance of probabilities, that in the "no scheme" world, the land would have been zoned for high density residential use i.e. "R(A)" zoning and accepted the Government's submission that a low density residential development such as "R(D)" development with plot ratio of 0.2 might have been permitted. Having made this finding, the tribunal proceeded to value the lots on the basis of direct sales comparables. It held that the best comparables had to be sales of land having the same "R(D)" use, notwithstanding that these comparable lands of "R(D)" zoning might not share the same physical attributes as the land. The latter consideration would at most cause adjustments to be made to the valuation. On that basis, it assessed compensation for the resumed land at $54,030,000. 10.As to compensation for severance, the tribunal found that the remaining land comprised three non-contiguous lots in the small site. At the date of resumption, the remaining land in conjunction with neighbouring land was used as a car park. It was common ground that after the resumption the remaining land by itself was incapable of being used as before. Although there was plainly an issue as to whether the remaining land would be landlocked as a result, the tribunal made no finding on that issue. The tribunal proceeded on the basis that the remaining land would continue to be used as a car park together with the neighbouring land with the result that on the existing use basis, there would be no loss and on the alternative potential low density residential development use, the loss would be $1,450,000. 11.The tribunal's assessment resulted in a valuation of $49,450,000 on the existing use basis and $55,480,000 on the potential alternative use basis. It awarded the higher of the two figures as compensation to the applicant. The appeal and cross-appeal 12.In summary, the applicant's challenge to the tribunal's decision is that it failed to give effect to section 12(aa) of the Ordinance, its methodology in ascertaining whether the land would have been zoned residential was contrary to section 12(aa), and it ignored the attributes of the site in that it paid regard only to planning intention or zoning which led it to adopt comparables that did not have the same attributes as the subject land. The Government's case which formed the basis of its cross-appeal was that the valuation based on potential alternative use which took into account development potential of land held on an agricultural lease was wrong because, it was submitted, the Court of Final Appeal decided in Yin Shuen that development potential must not be taken into account in the assessment of compensation under the Ordinance for land held on an agricultural lease. In its view, the alternative valuation made by the tribunal on the basis of potential alternative use for residential development which could not be realized without a lease modification was precluded by section 12(c) as construed by the Court of Final Appeal with the result that compensation could only be awarded on the existing use basis. 13.Since the determination of the cross-appeal may be dispositive of the appeal, it should be dealt with first. This depends on the true effect of the Court of Final Appeal's judgment in Yin Shuen to which we now turn. The Court of Final Appeal's judgment in Yin Shuen 14.The history of those proceedings shortly stated is as follows. There were two claim for compensation for the resumption of agricultural land in the New Territories held under a Block Crown Lease containing the usual restrictive covenants as to user and building. The land possessed significant development potential, having been zoned for residential use. However, any development would require a modification of the terms of the lease. The Government's valuer did not accept the claimant's comparables. It was his view that the prices paid contained a large element of 'hope value', namely the amount which a purchaser is prepared to pay in excess of the market price of the land for the use permitted under the lease in the hope or expectation of obtaining a modification of the terms of the lease to permit development. It was contended by the Government that section 12(c) of the Ordinance precluded compensation for 'hope value'. The tribunal rejected this contention and awarded compensation on the basis that the claimant was entitled to compensation which fully reflected the development potential of the land even if it could not be realized without first obtaining a modification of the terms of the lease to which the claimant had no legal right. 15.On appeal, this court upheld the tribunal's decisions. This court held that section 12(c) did not preclude compensation for the intrinsic value of the land with all its natural attributes which made it suitable for development. Whilst there was a distinction between an expectancy or a probability that an interest in land may be acquired on the one hand and the potentiality of the land on the other, section 12(c) only affected the former, being restricted to matters relating to interests in land. That did not mean that the lease terms were irrelevant but as the claimant's comparables were true comparables in terms of lease conditions and restrictions, they were directly comparable and therefore the tribunal was entitled to have regard to them. 16.The question before the Court of Final Appeal was therefore this:
See paragraph 5 of the judgment of Lord Millett NPJ ("the Judgment"). 17.The submissions of Ms Eu SC, counsel for the applicant, may be summarized as follows. What the Court of Final Appeal decided was that compensation is to be awarded for the real value or intrinsic value of the land resumed, and the intrinsic value of land means its attributes such as locality, infrastructure and the future use of the land. Thus the size of the plot, zoning, services and infrastructure are, it was said, all part of the land's intrinsic value. In order to convert this intrinsic value into reality, a full premium had to be paid. Insofar as intrinsic value includes elements of development value, the prospect of development is part of the intrinsic value of the land which cannot be taken away by section 12(c). All the Court of Final Appeal did was to remove the speculative element from the price of the land which is purely a matter of the burden of proof. If such speculative element cannot be shown, then, on a balance of probabilities, the comparables must be taken to reflect the intrinsic value of the land. Moreover, the Court of Final Appeal did not in terms say that compensation is only to be given on the basis that the land is restricted to agricultural use. It had not remitted the Yin Shuen and Nam Chun cases to the tribunal on that basis. 18.For Mr Mui, who appeared for the Government, what the Court of Final Appeal decided was simply this: when assessing compensation payable under the Ordinance for resumption of land held on an agricultural lease, no account must be taken of the development potential of the land. 19.In our view, there can be little doubt that the Court of Final Appeal decided that section 12(c) excluded compensation for a tenant's hope or prospect of obtaining a modification of the terms of the lease under which the land is held. This is clear from paragraph 49 of the Judgment:
20.In an earlier part of the Judgment, Lord Millett NPJ (at paragraph 16) cited the observations of HH Judge Cruden in Suen Sun-yau v Director of Buildings and Lands [1991] HKDCLR 33 at 41 as being illustrative of a situation where purchasers on the open market might be prepared to pay more than the intrinsic value of the land:
21.Lord Millett NPJ considered that the question before the Court of Final Appeal was:
The answer, to be found in paragraph 49 of the Judgment, was the overruling of Suen Sun-yau with the result that the 'speculative element' in the open market value has to be excluded. In the context, the 'speculative element' could only have been referable to the 'non-agricultural potential', 'an element over and above their value for agricultural use' and 'the purchaser's hope that he could obtain a change of user' mentioned in the passage cited from Suen Sun-yau. That section 12(c) excludes development potential is reinforced by the following passage in paragraph 50:
22.This is consistent with the underlying reasoning for section 12(c). In the case of a Crown or Government lease, there would not appear to be any distinction in principle between a tenant's hope of obtaining a renewal of his lease with his hope of obtaining a modification of the terms of the user. The provision gave effect to the true ratio of Lynch v The Corporation of the City of Glasgow (1904) 5F 1174 (Court of Session), namely, that the value of the land is to be equated with "the property taken", the subject of compensation being the claimant's estate and interest in the land. By excluding compensation for the possibility of obtaining a modification of the terms of the lease under which the land was held, it went further than contemporary English law. But that did no more than reflect "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." See paragraph 25 of the Judgment. It is equally consistent with article 105 of the Basic Law which requires compensation to be paid for "the property concerned" i.e., the interest acquired, meaning the land for the duration of the Crown lease and subject to the user restrictions in the lease. The corollary is that the development potential of the land remained vested in the Government and remained its property for which "it ought not to be required to pay." See paragraph 57 of the Judgment. 23.We should mention that much was made of the fact that the Court of Final Appeal (in paragraph 50 of the Judgment) appeared to give recognition to the fact that the intrinsic value of the land included its development potential. That would not appear to us to be a correct reading of what the Court of Final Appeal was saying. Those observations were made in the context of this court's observations in Yin Shuen regarding "the intrinsic value of the land 'with all its potentialities'". It is clear from the earlier passages of the Judgment (particularly at paragraph 16) that Lord Millett regarded development potential as something "more than the intrinsic value of the land".
24.Ms Eu SC submitted that the Court of Final Appeal did not say that land held on an agricultural lease had to be valued on an agricultural basis. Rather, comparable sales of land held under Government leases with similar restrictions were not irrelevant but required adjustment if a speculative element could be shown. So, it was said, that was a burden of proof issue. 25.In our view, there appears to be little difference between what Ms Eu SC was urging upon this court and the two-stage approach that had been urged upon the tribunal in Watford Construction Co. Ltd v Secretary for the New Territories [1978] HKLTLR 253. In that case, the tribunal did not accept that the required approach to a valuation under section 12 is first to ascertain the open market value and to then identify, quantify and deduct the expectancy or probability factor although there was no outright rejection of the two-stage approach and the tribunal remarked that that may be a proper and useful approach "in certain cases". (see page 260) But in Watford itself, the tribunal considered that the land was best valued by using the sales of comparable agricultural land which had similar restrictions as to use. 26.In that regard, it is to be noted that in the Watford case, the tribunal endorsed the approach of the respondent's expert who had used comparables of sales of land used purely for agricultural purposes, discarding comparables that "reflected the presence of elements of speculation and expectancy of development" in view of the close proximity of the transacted land to the market town of Shek Wu Hui. 27.Having regard to what, in our view, the Court of Final Appeal in Yin Shuen decided was excluded by section 12(c) when assessing compensation under the Ordinance for the resumption of agricultural land subject to user restrictions, the 'speculative element' in that context must mean development potential. 28.Much importance was attached to the comment (at paragraph 54 of the Judgment) that the claimants' comparables which had been challenged as containing a speculative element were not to be discarded altogether although "they cannot stand without adjustment". We do not understand that comment to be casting a burden on the respondent to identify and quantify the speculative part of the prices of the comparables. It goes without saying that the respondent has the evidential burden of making good its challenge, i.e. it has to establish, on a balance of probabilities, that a speculative element was embedded in the comparables. That can be done in a number of ways and in this regard, it is to be noted that the comparative method of valuation whilst considered the best method is only one of several valuation methods: other methods include the investment method and the residual method. See Cruden, Land Compensation and Valuation Law in Hong Kong, 2nd Ed. at pp 526-534. These alternative methods may well provide a useful means of cross-checking a valuation. But the point being made in paragraph 54 of the Judgment was that the tribunal should have, but did not, evaluate the evidence on the issue whether a speculative element was embedded in the comparables. Rather, it ruled the evidence submitted by the respondent as irrelevant. This explains the remittance to the tribunal directed by the Court of Final Appeal in paragraph 59: viz to reconsider the assessment of the compensation in each case on a full evaluation of all the evidence and in the light of the Judgment. If that evidential burden is discharged, it would follow that the claimant's comparables would require adjustment. It would then be for the claimant to show, on a balance of probabilities, what adjustments would factor out the development potential shown to be embedded in its comparables.
29.Ms Eu SC's submission was that any valuation must give effect to section 12(aa) since that subsection was not in derogation of section 12(c). It is to be noted that the Judgment did not specifically address section 12(aa) or the interaction between section 12(aa) and section 12(c). 30.Section 12(aa) was enacted by way of amendment in 1973. The mischief at which it was directed appears from the observations made by Mr Robson when he moved the second reading of the bill:
In his speech in support of the motion, Mr Bray observed:
At the resumption of debate on second reading, Mr Szeto remarked that:
As Judge Cruden explained in his book at page 80, section 12(aa) prevents the Town Planning Ordinance from being used to rezone or otherwise blight land so as to reduce the compensation payable on a later resumption. 31.Ms Eu SC submitted that zoning and planning benefits form part of the intrinsic value of land on the basis that it was to be inferred from the exclusion of section 4(1)(b) of the Town Planning Ordinance from section 12(aa). Whilst we would agree that as a result of such exclusion, it is permissible to take into account the fact that the lots lay within or are affected by any area, zone or district set apart for use for residential, commercial, industrial or other specified users, two matters should be noted. First, the land in question unlike Yin Shuen was not zoned residential. Whether or not section 12(aa) applies at all would depend on whether the land was "affected" by any area, zone or district set apart for use for residential, commercial, industrial or other specified users. That has to be a question of fact for determination by the tribunal. Assuming, for present purposes, that it were so "affected", its relevance for compensation purposes would depend on the use (existing or potential) to which the land could be put. As explained in Cruden's Land Compensation (at page 95):
32.Mr Miu submitted that where the potential use is non-residential, zoning has little relevance. It would not enhance the value of the land for non-residential use. We agree. In our view it is for this reason that section 12(aa) is of no assistance to the applicant's case. What falls to be excluded by section 12(c) cannot be re-introduced and taken into consideration via section 12(aa). That was not the reason why section 12(aa) was enacted. The legislature could not have intended the two subsections which are of equal 'standing' should cancel each other out. Conclusion 33.It follows that the cross-appeal must be allowed and the appeal dismissed subject to the matters considered below. 34.It was Ms Eu SC's submission that even in this event, this would be a fit case to be remitted to the tribunal for a fresh assessment. Her reasons were as follows. (1) The entire assessment had gone off-course in that the parties had made submissions on a totally different state of the law. The concentration should have been on intrinsic value because, in Ms Eu's view, the Court of Final Appeal did not say that hope value had to be deleted completely from the valuation and effect can be given to it provided there is a discount for the speculative element. (2) The tribunal had failed to give effect to section 12(aa) and in particular the words "affected by" in that provision. (3) As the focus of the tribunal had been on residential use, the Melhado argument (as to which see below) did not get the full recognition that it ought in that the best alternative use such as open storage had not been investigated. (4) The tribunal's finding on compensation for severance was unsustainable. 35.Leaving Melhado use and severance aside (and these aspects are considered separately below) for reasons already given, the first two points made have no substance. We do not therefore consider it appropriate for the entire claim to be remitted to the tribunal for reassessment.
36.Ms Eu SC submitted that, even if the cross-appeal were allowed, the entire matter should still be remitted to the tribunal because the applicant had no opportunity to advance a case for valuing its land based on the best alternative use consistent with the user restriction in the Block Government Lease. 37.The user restriction ("the covenant") was in the following terms:
Attached to the Block Government Lease was a Schedule. That set out the Lot Numbers covered and, beside each number, stated the use (for instance, "dry cultivation", "padi", "salt padi" or "water course") to which the Lot was put and the name of the tenant at the time of the survey on which the Schedule was based. The covenant is typical of those contained in Block Government Leases governing New Territories land. 38.In Attorney General v Melhado Investment Ltd [1983] HKLR 327 this court concluded that the user stated in the Schedule to a Block Government Lease was purely descriptive. That description did not restrict the use to which a Lot under that lease could be put. The operative restriction was that in the covenant. This court accordingly held that the plaintiff lessee of the land in issue could sublet on terms which permitted use of the land "for storage of steel only," there being no evidence that the intended storage would be so closely associated with construction work as to be a building purpose. 39.Since Melhado the covenant has been treated as only imposing a restriction against the use of agricultural land for building purposes. Thus, much of the land in the New Territories covered by a Block Government Lease has long ceased to be farmed and has instead been utilised as open storage (including container storage) or open car park space. Such alternative uses of New Territories agricultural land have come to be known as Melhado uses. 40.Ms Eu SC argued that, because the hearing before the tribunal proceeded on the basis of this court's decision in Yin Shuen, there was no need then to adduce evidence or submissions on Melhado use. The applicant, for example, did not argue that compensation should be assessed on the basis of open storage use. To have done so would have wasted time and cost and needlessly burdened the tribunal. 41.It is true that both the applicant and the Government adduced valuations of the land as open car park space. But this was done because that was the existing use of the land at the time of resumption. The tribunal's approach was first to determine the value of the land on 2 different bases, its existing use and its best use if developed to full potential, and then to award the higher of the 2 valuations. On that methodology Melhado use was irrelevant. It would be unfair if, as a result of what Ms Eu SC characterised as a de facto change in the law caused by the Court of Final Appeal's decision in Yin Shuen, the applicant were now deprived of a chance to argue its case that the best alternative use of its land in conformity with the covenant was open storage and the applicant should be compensated for the value of its land by reference to that use rather than open car parking. 42.As a preliminary point, Mr Miu objected to Ms Eu's proposed use of the land for open storage, because the applicant would still have to obtain Government's permission before the applicant could use the land for open storage. Mr Miu drew our attention to the Explanatory Statement ("the Statement") annexed to the Draft Plan which covered the applicant's land at the time of resumption. According to the Statement, when (as in the present case) land has been zoned "Undetermined":
43.Mr Miu further pointed out that, for land zoned as "Open Storage", the Notes to the Draft Plan specify that permission of the Town Planning Board ("the Board") must be obtained before such land can be used as a "Container Storage/Repair Yard", "Storage of Cement/Sand", "Storage of Chemical Products", "Storage of Dangerous Goods", "Storage of Plant and Machinery", "Storage of Vehicles for Sale or Disposal", "Storage of Vehicles for Stripping/Breaking or Repair" or "Storage of Scrap Metal". He submitted that it could not be presumed, that the Board would grant permission to use land as open storage for (say) dangerous goods, especially where (as here) it was close to the Tin Shui Wai residential area. It was only for "Open Storage (not elsewhere specified)" that no permission was required. 44.On that analysis, it followed that, apart possibly from a limited type of open storage which was unlikely to be of much value, the applicant could not use its land for open storage without permission. If it attempted to use land for open storage without permission, that would be illegal and the applicant could obtain no compensation for such usage. On the other hand, compensation could not be paid for Melhado use as open storage on a mere assumption that any requisite permission would be given, since that would be to take account of an expectancy or probability of the Government granting permission contrary to section 12(c) of the Ordinance. In the circumstances, Mr Miu submitted that there was no point in remitting the matter back to the tribunal to value the applicant's land on the basis of open storage usage. It was argued that Ms Eu SC's case on open storage was simply precluded by the absence of Government permission for open storage use of the applicant's land at the time of resumption. 45.Ms Eu SC replied that, if permission had to be obtained from the Board by reason of zoning, that requirement had to be ignored in calculating compensation for resumption in light of section 12(aa) of the Ordinance. By that section, no account whatsoever could be taken of a requirement for permission due to the relevant land lying within a zone or district not designated for residential, commercial, industrial or other specified use. 46.We agree with Ms Eu. Section 12(aa) of the Ordinance excludes the taking account of any planning requirements arising from land not being zoned residential, commercial, industrial or other specified use. In this case, the applicant's land is zoned "Undetermined" or "U". That zoning must be ignored by reason of section 12(aa) of the Ordinance. Any need for planning permission for a particular Melhado use, such as open storage, which arises in consequence of the "U" zoning of the applicant's land must be excluded from consideration in the assessment of compensation upon Government resumption. If by section 12(aa) one must ignore any requirement to obtain permission to use land for a particular purpose imposed by zoning considerations, it cannot be said that the putative use of the land for such purpose would be illegal. It would only be illegal if one took into account the requirement for permission due to the "U" zoning of the applicant's land. 47.That would be enough to dispose of Mr Miu's preliminary objection. But we should add that in any event we are not persuaded that section 12(c) of the Ordinance would apply here in the manner suggested by Mr Miu. This is because section 12(c) is subject to the proviso that the licence, permission, lease or permit concerned could not have been enforced as of right. 48.Where there is a user restriction in a Block Government Lease, the Government has no obligation to relax or modify that restriction. The lessee has no right to a modification if the Government does not wish to grant one for whatever reason. In contrast, the Board is under an obligation to act reasonably and not to refuse permission on capricious grounds. Where a lessee puts forward a development plan which is consistent with a restriction in the Government lease, the Board cannot refuse permission on irrational grounds. The Board would otherwise be subject to judicial review. If the proposed development plan were such that no Board acting reasonably could reject the same, the permission sought may well fall within the proviso to section 12(c). 49.Life in modern society is highly regulated. Permission is needed before one can carry out most things. But in administrative matters a person would have a legitimate expectation that permission will not unreasonably be refused and, if it were so refused, the person would have a right of recourse to judicial review. We find it difficult to accept that section 12(c) of the Ordinance was intended to preclude taking account of a legitimate expectation of obtaining Government permission for a reasonable development within the user permitted by a lease. Mr Miu's argument comes close to saying that, whenever a permission is needed, the hope of obtaining it must be excluded from consideration in the calculation of resumption compensation by reason of section 12(c). We think that is too wide a proposition. 50.We now move to the question of remitting back to the tribunal. Parties must normally put forward their whole case at a hearing. The Court will not normally permit a person to re-open matters which might have been brought forward as part of an already concluded litigation. This principle is not confined to issues which a court is actually asked to determine originally. It also cover issues which are so clearly part of the original litigation and so clearly could have been raised then that it would be an abuse to allow new proceedings to be started in respect of such issues. See Hong Kong Civil Procedure 2002 Note 18/19/11 (pp. 306-7); Yat Tung Co. v Dao Heng Bank [1975] AC 581. 51.The issue of best alternative use consistent with the restriction in the covenant was mentioned by Mr Hong Kwok Hei Kenneth in §5.4.2 of his expert report on behalf of the Government. Mr Hong stated:
Mr Hong's evidence that open car park was a more valuable Melhado use than open storage was not challenged by the applicant's counsel at the hearing before the tribunal. 52.However, we agree with Ms Eu SC that the question of Melhado use was not squarely before the tribunal. The tribunal seems to have limited its inquiry to comparing valuations based on existing and best potential uses. In that context, it is not surprising that Mr Hong's evidence on Melhado use was not challenged. Given this court's ruling in Yin Shuen, it was unnecessary to raise Melhado use which would not have been a relevant issue for the tribunal. 53.We therefore believe that it would be appropriate to remit the case back to the tribunal for the limited purpose of assessing the applicant's land on the basis of open storage and comparing the value so derived with the value (already determined by the tribunal) of the land used as open car park.
54.The facts are as set out in paragraph 10 above. We agree with Ms Eu SC that the tribunal's conclusion cannot stand on any footing. First, whether or not the remaining land comprising three non-contiguous lots is landlocked as a result of the resumption would unquestionably have a bearing on its value. As noted above, the tribunal left this question unresolved. Second, it was common ground that the remaining land by itself was incapable of being used as before. Third, there was no basis for the assumption made by the tribunal that the neighbouring land would continue to join with the remaining land to be used as a car park. There was no evidence before the tribunal to warrant such a finding, for example, that there was an existing tenancy in favour of a third party or there was an arrangement with the neighbouring owners. In these circumstances, the principle in Edwards v Bairstow [1956] AC 14 at 36 plainly applies. It was a conclusion that no reasonable tribunal acting judicially and properly instructed in the law could have reached. 55.In our view, the value of the remaining land must be remitted to the tribunal to reconsider its assessment. The tribunal will need to resolve the question whether the remaining land (or any part of it) is landlocked and consider on all the evidence the use (if any) to which the remaining land could be put. Having made those findings, it will have to assess the loss of market value of the remaining land. See Suen Sun-yau at 43 D-G. Order 56.Save on the limited issues of remittance back to the tribunal on Melhado use and severance, we would dismiss the appeal. We would allow the cross-appeal. We would remit the case back to the tribunal as set out in paragraphs 53 and 55 above. 57.We would also make an order nisi that the costs of the appeal and the costs of the cross-appeal be borne by the applicant. (II) Busy Firm Background facts 58.The applicant was the lessee of land in the New Territories held under a Block Crown Lease. The land had a total area of 44,003 sq m comprising "the resumed land" of just over 10,000 sq m, "the remaining land" of 15,461.5 sq m and "the contiguous lots" of 18,494 sq m. It is situated in Wing Ning Tsuen, approximately 300 m to the north of the junction of Long Tin Road and Long Ping Road in Ping Shan, Yuen Long. The resumed land, the remaining land and the contiguous lots jointly constituted several irregular parcels of land, interspersed with Government land, other private lots and footpaths. They were accessible by footpaths, tracks or Yung Yuen Road, a narrow village road. The immediate surroundings of the resumed land, the remaining land and the contiguous lots remained rural, with village houses and temporary structures scattered around. The resumed land was agricultural land. With the exception of 80.9 sq m which was a building lot, the remaining land was agricultural land. Approximately 94% of the contiguous lots was also agricultural land, the balance being "house" lots. 59.The applicant acquired the land in 1992. At the resumption date, the land had been shown "U" or "Undetermined" in the September 1997 Draft Ping Shan Outline Zoning Plan. Upon resumption, the applicant submitted a claim for compensation. The parties' respective valuations before the tribunal are summarised below:
The tribunal's judgment 60.The tribunal agreed with the parties that it had to determine the value of the resumed land on two different bases: (1) the open market value on the basis of its then existing use; and (2) its open market value in the "no zone" world on the basis of its alternative highest and best use. As in View Point, the higher of the two valuations was held to be the compensation payable. The tribunal followed its earlier approach in View Point as to the alternative valuation on potential best use. It concluded that the applicant had failed to show on the balance of probabilities that in the "no scheme" world, the resumed land would have been zoned for medium density residential use i.e. "R(B)2" zoning to a plot ratio 1.26. It accepted the respondent's case that a residential zoning "R(D)" with a plot ratio of 0.2 might have been permitted. Accordingly, on the second basis, it estimated the value of the resumed land to be $18,100,000 and the diminution in value to the remaining land and the contiguous lots to be in the sum of $10,810,000 giving a total of $28,910,000. 61.On the issue of existing use, the tribunal did not accept that the existing use of the resumed land was as an open car park. It awarded compensation on the existing value of the resumed land on the agricultural basis in the sum of $8,900,000. Whilst the tribunal also decided that there was some diminution in value to the remaining land and the contiguous lots on the existing use basis, it did not proceed to make any finding in that regard except to opine that "the diminution was definitely lesser than the case on the second basis." The appeal 62.This issues which arise in this appeal are identical to those raised in the cross-appeal in View Point. It follows that the appeal must be allowed. 63.On the question whether this would be a fit case for remittance to the tribunal for reassessment, Ms Eu SC re-iterated the reasons she had earlier advanced for View Point set out in paragraph 34 above. In particular, it was said that there had been no evidence on Melhado use. As explained above, Melhado use does not mean actual use at the time of resumption but the optimal permitted use of the land consistent with any user restriction in the lease. See Cruden's Land Compensation (op.cit.) at 83. 64.In his Rule 20 Statement, the Government's valuer (at section 5.3) dealt with the meaning of "existing use" for the purposes of the Town Planning Ordinance. He then dealt with what was described as optional alternative use permitted under the Block Government Lease in section 5.4. He opined (at section 5.4.2) that whilst open storage and other non-building uses under the user clause of the Block Government Lease are permissible alternative uses, the feasibility of such alternative uses depended very much on the location, the accessibility, the topography and the physical condition of the land. In his view, the resumed land and the remaining land were not suitable for the alternative uses of open car park and open storage "owing to their inadequate accessibility and location." The applicant's valuer addressed the Melhado use point in his Supplementary Report. He put his case for an alternative assessment on the basis of open car park use. 65.The tribunal considered the value of the resumed land on an "existing use" basis. It concluded (at paragraph 129) that having regard to the evidence from the expert surveyors, the physical state of the resumed land, their actual occupation close to resumption, the location, accessibility and the condition of the resumed land, it did not agree that the highest and best "existing use" was for open car parking. Prima facie, this appeared to be a finding that the land was unsuitable for the alternative use put forward. However, we have reservations as to this because in the preceding paragraphs of the judgment (paragraphs 124 to 128), the tribunal's focus appeared to have been on "existing use" in the sense of actual use at the date of resumption and the rejection by the Town Planning Board of an application under section 16 of the Town Planning Ordinance made several months earlier relating to a neighbouring site. 66.The tribunal did not define what it meant by 'existing use' and appeared to have used it in both wide and narrow senses in different parts of its judgment. In assessing the feasibility of using the land in a particular way, actual user may be relevant but the fact that the land was not put to that use on a particular date does not necessarily mean that it is not suitable for that use. Valid reasons may exist as to why the land had not been put to such use. Further, in ascertaining Melhado use, the issue is the suitability of the land for a particular alternative use. Planning considerations are irrelevant. 67.For these reasons, we would allow the appeal, remitting this case to the tribunal for reassessment of the value of the resumed land on the basis of Melhado use. The diminution in value to the remaining lots and the contiguous loss will also need to be assessed. 68.We would also make an order nisi that the costs here and below be borne by the applicant. Hon Yeung JA: 69.I agree with the order as set out in paragraphs 56 and 67 hereof. I also agree to the costs order as set out in paragraphs 57 and 68 hereof. Hon Le Pichon JA: CACV 439/2002 70.There will be an order as set out in paragraphs 56 and 57 above. CACV 64/2003 71.There will be an order as set out in paragraphs 67 and 68 above.
Representation: Ms Audrey Eu, SC and Mr Anthony Ismail, instructed by Messrs Kao,Lee & Yip, for the Applicant/Appellant in CACV 439/2002 and the Applicant/Respondent in CACV 64/2003 Mr Nelson L Miu, instructed by the Department of Justice, for the Respondent/Respondent in CACV 439/2002 and the Respondent/Appellant in CACV 64/2003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment