Commissioner of Rating and Valuation v. Yiu Lian Machinery Repairing Works Ltd and Others

CACV000085/1984

Headnote

Rating Ordinance, Cap. 116

BETWEEN

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Coram: Hon. Cons, Fuad & Kempster, JJ.A.

Dates of hearing: 13 and 14 November 1984

Date of delivery of Judgment: 29 November 1984

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JUDGMENT

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Cons, J.A. delivered the judgment of the Court:

1. We are concerned in these proceedings with questions that arise under the Rating Ordinance, Cap. 116, in relation to valuations made by the Commissioner of Rating and Valuation in respect, inter alia, of five floating dry docks. The docks are moored within the limits of the harbour for the purpose of repairing ships and are by name the "Yiu Lien No. 1" and the "Yiu Lian No. 2", owned and operated by the Yiu Lian Machinery Repairing Works Ltd., the "Taikoo" and the "Whampoa", owned and operated by the Hong Kong United Dockyards Ltd., and the "Chung Shan" held on charter by the Euroasia Shipyard Co. Ltd. but sub-chartered to the Hong Kong United Dockyards Ltd.

2. At the time of the proceedings below all, except the "Yiu Lian No. 2", were stationed off Tsing Yi Island above portions of the sea bed leased or agreed to be leased to their respective owners save that in the case of the "Chung Shan" the lease was held not in the name of the Euroasia Shipyard Co. Ltd. but in that of a company closely associated with it. The vessels were maintained in their stations by means of chains attached to mooring blocks set in the sea bed. Some of the blocks were placed beyond the perimeters of the land actually leased but provision had apparently been made for this situation in the leases themselves.

3. The situation of the "Yiu Lian No. 2" was different in that she was held in her station, which was off Tsuen Wan, by her own anchors and chains and no sea bed lease or other agreement was involved.

4. In addition three of the vessels were connected to areas of dry land, which had also been leased to their owners on Tsing Yi Island, by means of permanent piers or floating pontoons, and all were supplied with electricity and telephone connections. These additional factors however are no longer relied upon by the Commissioner in support of his case.

5. Floating dry docks must have been known in Hong Kong for many years, indeed the "Chung Shan" arrived here in 1971 and the "Taikoo" in 1972. But it was not until 1980 that the Commissioner thought fit to draw any into his domain, influenced perhaps by the granting of the leases to which reference has already been made. In February of that year he served Notices of Interim Valuation upon the Yiu Lian Machinery Repairing Works Ltd. and upon the Hong Kong United Dockyards Ltd. In November he served a similar notice upon the Euroasia Dockyard Enterprise and Development Co. Ltd. (the parent company of the Euroasia Shipyard Co. Ltd.) The valuations covered as well the sea bed and areas on dry land, although it may be assumed that the bulk of each was attributable to the appropriate floating dock.

6. The Respondents concede their liability to rates on the land and sea bed leases but object to the inclusion of the dry docks. Notices were therefore served on the Commissioner, under Section 40 of the Ordinance, who, in due course, confirmed the valuations he had earlier made. Appeals were then taken to the Lands Tribunal, in accordance with Section 42, where on the 11th March 1982 the President, sitting in his own right, found against the Commissioner. The Commissioner taking the view that the Tribunal had erred in law, and wishing to take the matter further, availed himself of Section 11(2) of the Lands Tribunal Ordinance Cap. 17 which at that time was in these words:

7. Both sides appear to have accepted the procedure envisaged by the sub-section to be somewhat analogous to the "case stated" procedure provided by Sections 105 et seq. of the Magistrates Ordinance, Cap. 227 under which it is usual for the applicant to draft the case stated for the approval of the Magistrate, who will then take into account suggestions from the other side. Whether or not this was intended by the legislature is not now material, for in 1983 the subsection was repealed and replaced by provisions for a simple appeal to this Court, to be brought in such manner as may be prescribed by Rules of the Supreme Court. These are now to be found in Order 60A.

8. The wisdom of the change is well illustrated by what occurred in the present case. Between those concerned the drafting, amending and approval of the case stated took well over two years. Even then it achieved no more than to set out the various questions of law upon which the decision of this Court is desired, many of which have now been abandoned. It was not until the proceedings were actually opened before us that we, or the present Respondents, were made aware of the grounds upon which the Commissioner relied. Two further matters which the Respondents wished to raise had been brought to our attention only a few days earlier by way of a Respondent's Notice.

9. Counsel for the Commissioner has observed, without objection, that both sides were equally to blame for the delay. Nevertheless it is difficult to accept such a situation as satisfactory, particularly as we understand that these proceedings are something in the nature of a test case, the Commissioner having in mind, if successful, to extend his operations to floating restaurants and perhaps other forms of waterborne accommodation.

10. Only three issues have been argued before us. They are succinctly set out in the Respondents skeleton argument:

Chattels enjoyed with the land

11. The learned President explained the English principle in these words:

"The English law has now developed to the stage that if a chattel is enjoyed with the land, it forms part of the hereditament and must be included within the valuation of the hereditament for rating purposes. In England a large body of case law exists whereby the common law has extended the rateability of 'lands' to include, in appropriate circumstances, certain chattels. It may be noted that Hong Kong's statutory definition of tenement is concerned solely with land and fixtures and that there is no express reference to chattels. Whether the English doctrine of chattels enjoyed with the land applies in Hong Kong is a separate matter I shall have to consider shortly.

12. After consideration of many English authorities, and one from Scotland, he came to the conclusion that he was satisfied that it did. The Respondents say that he is wrong.

13. The English law of rating takes its beginning from the Poor Relief Act 1601 where liability was placed, inter alia, upon "every occupier of lands, houses, tithes impropriate or propriations of tithes, coal mines or saleable underwoods" in the parish. So far as lands and houses are concerned the law remains the same today.

14. It can been seen that no reference is made there to chattels which might be on or in the lands or houses, but there is no doubt that by at least the middle of the 19th century the presence of such chattels was regularly taken into account. The practice was endorsed by the House of Lords in Kirby v. The Hunslet Union Assessment Committee ⁽¹⁾ and again in London County Council v. Wilkins⁽²⁾. The learned editors of Ryde on Rating⁽³⁾ put it this way:

"It has, however, now to be considered whether the occupier (as opposed to the inhabitant) is in any circumstances liable in respect of personal property. Such property is clearly not rateable per se, because the liability of the occupier is limited by the General Rate Act, 1967, to land and houses.

However, there is a long line of authority culminating in the decision of the House of Lords in 1956 in London County Council v. Wilkins (Valuation Officer), that chattels, albeit not part of the land, may nevertheless be rated with the land if they are enjoyed with it and enhance its value. "

and then after considering other authorities⁽⁴⁾:

"It cannot now be doubted therefore that the occupier of a chattel enjoyed with the land may be rateable, not only for the land occupied by the chattel, but for the chattel itself. This is very far from the plain words of the Poor Relief Act, 1601, and the General Rate Act, 1967, which only rate the occupier of 'lands and houses'. "

15. Hong Kong did not adopt the English legislation. The first rating ordinance, No. 2 of 1845 which was for the Upholding of the Police Force, required the appointment of persons to estimate "the annual value of the lands, houses, and premises, within the said Island, or within any particular district thereof, which shall be in the tenure or occupation of any person or persons;" and for the rates deduced therefrom, to be "paid ........ by the occupier, or owner of each parcel of ground, house, or building .......... "

16. By 1863 the lighting of the Colony had become chargeable to the rates in addition to the police and by Ordinance 5 of that year, which repealed the 1845 Ordinance, valuation was to be made simply of "the tenements in this Colony or such part thereof as the Governor with the advice of the Council aforesaid (i.e. the Executive Council) may at any time direct and appoint". "Tenement" was to be construed -

"to include any house, cottage, shed, apartment, ground or building, or house together with land annexed thereto and ordinarily occupied therewith as garden or pleasure-ground, all outbuildings, stables, warehouses, yards and offices belonging or contiguous to any house and occupied therewith by one and the same person or his servants as one entire concern or undivided tenancy or holding, or not so belonging contiguous or occupied;"

17. Ordinance 12 of 1875 is more modern in its form:

"The term 'Tenement' means any land, with or without buildings, which is held or occupied as a distinct holding or tenancy; and includes piers and wharves erected in the harbour. "

18. There was a change of heart as to piers and wharves in 1901, but piers were expressly re-included in 1948. In 1954, land under licence from the Crown was added and the words "any land, with or without buildings" were replaced by "any land or any building or part thereof".

19. The present definition stems from 1973:

"'tenement' means any land (including land covered with water) or any building, structure, or part thereof which is held or occupied as a distinct or separate tenancy or holding or under any licence. "

20. It is suggested for the Commissioner that there is no material distinction between the word "lands" used in the English provisions and the word "land" used in our own, and that we should therefore adopt a similar interpretation, including the doctrine of chattels enjoyed with the land, unless of course the circumstances of Hong Kong or its people would make that course inappropriate. That has not been suggested. What Mr. Widdicombe has urged for the Respondents is distinction in the legislation itself. He points out that the units of assessment are not the same, being in one "hereditament" and in the other "tenement". He draws our attention also to Section 7 which sets out the general rules for ascertainment of rateable values, and in particular to sub-section 5(b), which requires the assessor to have regard to other premises situated in the locality. It is suggested that these rules are consistent with the limitation of rates to land itself and are not immediately apt in relation to a floating dock.

21. Then the difference in liability is emphasized. In England it is placed on the occupier alone, here it is put upon both the occupier and the owner. "Owner" is defined in Section 2 as "the holder of any tenement direct from the Crown, whether under lease, licence or otherwise, or the immediate landlord of any tenement, or the agent of any such holder or landlord". This definition, when taken together with the second limb of the definition of tenement, is said to be important as envisaging something which must be "held", a term not appropriate to a chattel which may enjoy an absolute proprietor.

22. Finally Mr. Widdicombe prays in aid the rule of interpretation that taxing statutes, like those of a penal nature, should be construed strictly in favour of the subject. Fees are already payable in respect of the docks to the Director of Marine. Nothing further should be required without clear authority.

23. So far as English law goes it seems to us that the question is one of valuation rather than of construction. In none of the authorities to which we were referred do we find any suggestion that "lands" means anything other than realty or that which has become part of it. The issue in most is what is the value of the realty in the sense of what, apart from the natural configuration of the land, may be taken into account when assessing its rateable value. The authorities indicate that in that jurisdiction regard may be had to the use to which the land is put as well as to those things which may have been put in or on it. That is the way in which chattels enjoyed with the land have become important. The ratio is that their presence enhances the value of the land. This is apparent from the judgment of Lord Esher M.R. in Tyne Boiler Works Co. v. Overseers of Longbenton⁽⁵⁾ in which he refers to many of the earlier authorities. At p.92 he says:

"I believe the rule really to be that things, which are on the premises to be rated, and which are there for the purpose of making, and which make the premises fit as premises for the particular purpose for which they are used, are to be taken into account in ascertaining the rateable value of such premises. "

24. Recent authorities tend to speak of the rateability of the chattel itself. But we think this no more than a convenience of language. That land is still the foundation of the ratepayer's liability is to be found in Lord Denning's more modern formulation in Field Place Caravan Park Ltd. v. Harding⁽⁶⁾:

"The correct proposition today is that, although a chattel is not a rateable hereditament by itself, nevertheless it may become rateable together with land, if it is placed on a piece of land and enjoyed with it in such circumstances and with such a degree of permanence that the chattel with the land can together be regarded as one unit of occupation. "

25. If this analysis be correct it may be that the inclusion of "houses" in the English legislation is otiose, as would appear to be suggested by the learned editors of Ryde⁽⁷⁾. It does not necessarily follow that the same view must be taken of our "buildings" and "structures" in legislation enacted over two and a half centuries later.

26. Methods of valuation are matters that we apprehend ought to be left to the Commissioner and that the courts should only interfere if the method adopted in any particular instance is wrong in principle or excluded upon a proper construction of the statute. It cannot be suggested that the method adopted in the present instances is wrong in principle, for that principle has been accepted by the highest authority. Is it then excluded by our ordinance?

27. The first point to be noted is that it has not been included, as well it might have been, either by general words or by relation to particular types of chattel as has been done in England and in Scotland. It is interesting to observe that in the former jurisdiction floating docks are expressly deemed to be part of the hereditament by reason of The Plant and Machinery (Rating) Order 1960 and Schedule thereto.

28. The second is the history of the provision. Had the "lands, houses and premises" of the original ordinance been allowed, as in England, to remain unchanged to the present day there would have been considerable force in the contention that the legislature had at all times intended that the English principle should be applied here. However within less than twenty years radical changes were made. As we have seen, in 1863 the concept of the "tenement" was introduced, and the extensive definition given to that word, rather than continuing the English practice of founding liability on the land, takes the opposite course and places it initially on the house or other building specified, the land being taken into account only if annexed thereto. Land ostensibly became the basis for liability as from 1875, but the subsequent replacement of the words with which it was then qualified, i.e. "with or without buildings", by the words "or any building or part thereof", leads us to think that the legislature had intended no change, other than to include land itself as a separate rateable item. It is pertinent to note that the 1954 amendment was said to be in clarification of the then existing definition⁽⁸⁾. The addition of the word "structure" in 1973 is another indication that the legislature was treating whatever was put on the land as an item rateable in its own right.

29. This view does not sit too easily with dual liability, for if the occupation and ownership of the chattel are both in ownership of someone other than the owner of the land on which it stands then, subject to rules against double recovery of rates, there would be the possibility of different assessment. However we find it difficult to accept that the legislature would over the years have paid such detailed attention to the wording of the definition had it not intended that all the words should have effect.

30. We have therefore come to the conclusion, although not without hesitation, that what Danckwerts L.J. referred to in Field Place⁽⁶⁾, as at page 500, as the "stricter course" prevails in Hong Kong and we must respectfully disagree with the learned President below on this point.

Application of the Principle

31. If we are wrong in our conclusion it is necessary to consider how the principle should be applied in the present instances.

32. There are only three reported cases where the principle has been applied to vessels floating on water. The first is Thomas v. Witney Acquatic Co. Ltd.⁽⁹⁾. However it, provides no assistance in the present instance for the Tribunal, applying the dictum of Lord Russell in Westminster County Council v. Southern Railway Co. Ltd.⁽¹⁰⁾ that land is "understood as including not only the surface of the earth but all strata above or below" found the lake on which the clubhouse directly rested was itself land for the purpose of the inquiry.

33. Thomas ⁽⁹⁾ was applied without question in Bristol v. Courage (Western)Ltd.⁽¹¹⁾. In addition the Tribunal concluded that the two ships there concerned had ceased to have any maritime character and were in fact no more than structures.

34. A different view had been taken in Scotland, where a converted wool clipper had been presented by the Admiralty to the R.N.V.R. Club (Scotland) and was permanently moored alongside a wharf in the Clyde for use as a clubhouse. Reliance was placed by the assessor upon a Scottish caravan case⁽¹²⁾ very similar to Field Place ⁽⁶⁾. Lord Fraser had this to say⁽¹³⁾:

"One difference between them and the present subjects, which might be enough by itself to distinguish the cases, is that the caravans were static while this ship moves to some extent as it rises and falls with the tide. But there is also a much more fundamental difference, and it is on this that I would base my decision. The caravans occupied sites on the land, while this ship floats, on water, and, in my opinion, it would only be in the most exceptional circumstances that a ship, floating on its native element, could be heritable. None of the counsel was able to refer us to any anthority on the point and I have not myself been able to find any, but considering that valuation for rates is concerned with the valuation of lands and heritages, I do not think that a floating ship, even if permanently moored in one place, could enter the roll as being lands or heritages, except perhaps if there was a high degree of mutual adaptation between the ship and the berth at which it was moored. ...................... Counsel for the assessor maintained that the only significance of the fact that this vessel was floating was that it was capable of being moved. But, in my opinion, its real significance is to show that the vessel is on water and not on land. "

35. It is suggested that the principles of Scottish rating law are significantly different, in particular that the subject matter of assessment has to be something which is "heritable", a suggestion which may draw some support from the comment of Lord Denning in Field Place⁽⁶⁾ that "the provisions of the Scottish acts are different from ours". However it would seem likely that in the practical application of Lord Fraser's test of "mutual adaptation", much the same considerations would be relevant as would be in England.

36. We find ourselves unable to accept the proposition that a vessel which floats in the sea many feet above a piece of land is properly said to be enjoyed with it or to enhance its value. If that is so, then the same must be said in respect, for example, of an advertising balloon attached by wire to dry land, or even perhaps to a block in the sea bed off a popular holiday resort. Both the balloon and the vessel are of course connected to the land, but the connection is not for the purpose of enjoying or enhancing the land. It is simply to prevent either getting lost or into difficulties. Objects left free in air or on water are inclined to stray unless properly tethered. Builders huts and caravans set upon jacks do not.

37. Whether a chattel is sufficiently connected with a piece of land to be taken into account in estimating its rateable value is essentially a question of fact. The learned President came to the conclusion that none of the docks was so sufficiently connected. For the reasons which we have just indicated we would ourselves have come to the same conclusion. We see no reason for this Court to interfere.

Machinery

38. Section 8(b) of the Ordinance provides that for the purpose of ascertaining the rateable value of a tenement no account shall be taken of the value of any machinery in or on the tenement for the purpose of manufacturing operations or trade processes. For this reason the Commissioner had discounted 25% of the value attributed to the "Chung Shan" and 20% in respect of the other docks.

39. It was argued below that he should have allowed 100% on all, because in effect the docks are nothing more than waterborne hoists. The President rejected that submission. He said:

".......the floating dock itself mechanically rises and lowers during the docking process. So it is far more than a floating platform. The raising and lowering process itself requires considerable skill to maintain trim and adjust the keel blocks. These are different skills to those required to operate a dry dock.

But it seems to me that they are closer to those discharged by the captain of a vessel than by the operator of a hoist or similar machinery. In its ordinary meaning, a vessel or ship is not referred to as 'machinery'. Although affixed to most vessels are various kinds of machinery including hoists, lifts, and cranes. The floating docks have similar, if more sophiscated and complicated, lift machinery. The fact that the floating platform on which they are affixed is also raised and lowered as an essential element in the trade process of repairing ships, does not, in my view, change the fundamental nature of a floating dock as a vessel into machinery. "

40. It is said that at this stage of the argument the President should no longer have looked upon the docks as ships, but that he should have treated them simply as chattels enjoyed with the land or as structures in their own right.

41. We do not agree. The maritime peculiarities of the docks cannot be ignored and furthermore the President had the advantage that we have not of actually seeing what they were like. The extent to which something can be said to be machinery is again basically a question of fact and we see no reason to interfere with the conclusion reached below.

42. For these reasons we dismiss the appeal.

(1)    (1906) Appeal Cases 43

(2)    [1957] A.C. 362

(3)    13th Edition p.148

(4)    at page 152

(5)    (1886) 18 Q.B. 81

(6)    [1966] 2 Q.B. 484 at 497G

(7)    at page 148

(8)    Memorandum to the Rating (Amendment) Bill 1954

(9)    (1972) 18 R.R.C. 384

(10)    (1936) A.C. at 529

(11)    (1981) 260 Estates Gazette 823

(12)    Regates Caravan Parks Ltd. v. Assessor for Ayrshire (1973) S.L.T. 52

(13)    Assessor for the City of Glasgow v. RNVR Club (Scotland)  [1974] S.L.T. 291 at 294

Representation:

Mr. Neil Strawbridge and Mr. Dennis Law, Crown Counsel for Appellant.

Mr. Widdicombe, Q.C. and Miss Maria Yuen (Messrs. Deacons) for Respondents.