Secretary for The New Territories v. Lee Pui Leung
Read the full judgment text of LDLR 1/1981 on BabelCite. This Lands Tribunal judgment was delivered on 8 January 1982.
1. In these proceedings the Secretary for the New Territories requires the Tribunal under section 6(3)(b)(ii) of the Crown Lands Resumption Ordinance to determine the amount of compensation to be paid in respect of the resumption of "1/9th part or share of and in Lot 2079 R.P in D. D 449 (i. e. Ground floor of House M, 226 Castle Peak Road, Tsuen Wan, N. T.)", a claim for $3,428,300 submitted by the Respondent under Section 6(2) of the Ordinance not having been agreed by the Applicant. In his Ru
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LDLR000001/1981
Coram: J. Lyons, Presiding Member, and W. Hume and D.W. Mahoney, Additional Members, in Court Date: 8 January 1982 ---------------- JUDGMENT ---------------- 1. In these proceedings the Secretary for the New Territories requires the Tribunal under section 6(3)(b)(ii) of the Crown Lands Resumption Ordinance to determine the amount of compensation to be paid in respect of the resumption of "1/9th part or share of and in Lot 2079 R.P in D. D 449 (i. e. Ground floor of House M, 226 Castle Peak Road, Tsuen Wan, N. T.)", a claim for $3,428,300 submitted by the Respondent under Section 6(2) of the Ordinance not having been agreed by the Applicant. In his Rule 18 document the Applicant proposed that the proper amount of compensation was $1,151,000. 2. The notice under section 3 of the Ordinance that inter alia Lot 2079 R. P. was required for a public purpose was dated 11th August 1980 and published in the Government Gazette as G.N. 2541 of 1980. It stated that the Lot would be resumed and revert to the Crown on the expiration of 6 months from the date of the affixing of the notice to the land. The notice was affixed to the land on 15th August 1980, which means that the valuation date is 16th February 1981. 3. The rejected claim that had been submitted by the Respondent and the Applicant's application to the Tribunal both indicated that the Respondent was, prior to the resumption, the owner of the ground floor of Lot 2079 R. P. The Ground floor premises consisted of two shops, a store, a kiosk or shop stall, and a yard, having the following areas as measured from the plan:-
4. The Tribunal noted, however, that Mr Sung Tze-wah, A.R.I.C.S., the expert-values called by the Applicant, did not include the kiosk or shop stall in his stated particulars of the Respondent's interest, while Mr Ian R.C. Cullen, Dip. Gen. Survey, A.R.I.C.S. the expert values called by the Respondent, stated in his description of the property that the kiosk or shop stall was located in a portion of the ground floor designated as a right of way. This uncertainty as to the exact premises to be valued was cleared up when Mr Robert McCullough, Crown Counsel, who appeared for the Applicant, tendered a copy of the Assignment dated 21st May 1968 and registered in the Tsuen Wan District Land Office by Memorial No. 81771 by which the Respondent had acquired his 1/9th share of and in Lot 2079 R. P. This revealed that the Respondent was indeed the owner of the whole of the ground floor. That being the case, Miss Maria YUEN of Counsel, who appeared for the Respondent, amended her claim to include the whole value of the kiosk or shop stall, to which Mr McCullough acquiesced. The whole of the ground floor is accordingly hereinafter referred to as the subject premises. 5. The first issue to which we have directed our attention in this matter is one raised by Mr Cullen, namely, whether or not the valuation is affected by the existence of a scheme which would involve the application of the principle generally referred to as the Pointe Gourde principle. That principle would require the Tribunal, in assessing the value of the subject premises at the valuation date, to disregard any effect of the scheme on the value of the premises. 6. The prelude to the resumption of Lot 2079 R.P. began when, on 2nd July 1976, a draft Outline Zoning Plan for Tsuen Wan (LTW/146) was published by the Government. According o Mr Cullen's Rule 18 document, which was not in this particular challenged by the Claimant, this plan designated a large land parcel situated to the north of Castle Peak Road and including Lot 2079 R. P. for future development into a Town Centre. The notes attached to the plan apparently envisaged that the area affected might include shops, offices, public facilities, continued residential land use and a possible Mass Tranisit Railway Station Castle Peak Road directly outside the subject premises. Implementation of this plan did not necessitate the resumption of Lot 2079 R. P. 7. Subsequently the Government amended the draft Outline Zoning Plan, and on 26th August 1977 published am amended plan (LTW/146A). On this amended plan the area formerly designated as a Town Centre was shown as Commercial/ Residential, but the permitted or planned uses were substantial as indicated in the notes to the 1976 Plan. The material change as far as the Respondent was concerned, however, was that the northern extension to Tai Ho Road which in the 1976 plan change would have passed in front of the subject premises, had now been realigned so as to pass through them. It was this plan that led to the resumption of Lot 2079 R. P. 8. In these circumstances we have no doubt but that a scheme exists. The question to be resolved is whether the scheme consists of the two plans taken together as representing one evolving scheme for the redevelopment of Tsuen Wan, or is represented by the second plan only. 9. If the former view is taken, the Tribunal in valuing the subject premises should ignore the effects of both plans and value the subject premises in the circumstances in which they existed before the 1976 plan, i.e. situated in a centralised position within the then layout of Tsuen Wan and amidst low-density residential and light industrial developments. If, however, the latter view is taken, the effects of the 1976 plan are not to be disregarded by the Tribunal, but only the effects of the 1977 Plan. 10. Since the latter view is clearly more beneficial to the Respondent, it was no surprise that Mr Cullen urged that view upon the Tribunal, though without producing any real evidence in support of his contention. As far as the Claimant's case was concerned, his witness, Mr Sung, under cross- examination stated that the resumption of Lot 2079 R. P. was for the northern extension of Tai Ho Road and for no other purpose, and in this connection it is to be noted that the heading to the Resumption Notice G.N. 2541 of 1980 reads:-
In his final address to the Tribunal Mr McCullough acknowledged that he could not dispute Mr Sung's evidence, but he pointed out, quite correctly, that what constitutes a scheme is a matter of fact for determination by the Tribunal, and he felt that the question was open to the Tribunal to decide as it saw fit. 11. Unfortunately neither counsel was able to refer us to any authority that might guide as on this important issue. We are ourselves aware of a Lands Tribunal case in England in which six comprehensive development areas arising out of a city centre redevelopment were held to be one single scheme (John T. Bell & Sons Ltd v. Newcastle upon Tyne City Council (1971) 11 R.V.R. 209). In that case, however, the six areas were entirely separate from, though contiguous to, each other, and appear to have been dealt with separately purely for administrative convenience, programming and financial considerations. Our case is different : here we have the 1976 plan followed in 1977 by an amended plan that relates to substantially the same area as the 1976 plan, but with somewhat different proposals. If we were to accept that the two plans are to be looked at together as representing one single scheme, this would involve us in accepting that immediately after the publication of the 1976 plan the value of the subject premises (since they were not to be resumed under that plan) was enhanced by virtue of the plan, but that when the 1977 plan appeared (involving the resumption of the subject premises) the value of those premises at once reverted back to what it was before the 1976 plan was published. We would also have to accept that if, before the resumption took place under the 1977 plan, the Government had had yet another change of mind and produced a third plan, which did not involve the resumption of the subject premises, the value of those premises would once more have risen to reflect the advantages of the scheme. We cannot believe that that could be a correct view, and we therefore hold that in the circumstances of this case the scheme is represented by the 1977 plan only, which means that we do not disregard the effects of the 1976 plan on the value of the subject premises. 12. Before we turn to the actual valuations prepared by Mr Sung and Mr Cullen we wish to make these observations on their approach. 13. In the first place the Tribunal has emphasised on a number of occasions in the past and particularly in the case of CHEUNG Lai-wan and others v. Director of Public Works, 1977 HKLTLR 14 at p. 18 that it is not prepared to rely on opinion evidence which is unsupported by factual evidence where such factual evidence is available. We are of the opinion that there should be little difficulty, for instance, in arriving at an adjustment figure for time difference based on evidence if only sufficient effort is put into analysing correctly the evidence presented. Similarly there should be an abundance of evidence on the differentials to be applied for location, trading potential, saleable ratio and all the other elements which go to make up a correct analysis. Most of these should be an on-going exercise so far as professional valuers are concerned, and it should seldom be necessary for an expert witness to rely solely on his "experience" when arriving at a figure for any purpose. Experience in this context consists of choosing between two or more figures which have been arrived at by a mathematical analysis. There are of course variations on this method of procedure, such as a straightforward average if the expert considers all comparables are of equal validity, the choosing of one or more-from a selection if the expert considers that is appropriate or the weighting of one or more to arrive at a correct figure, i.e. to say "I lean 60% towards A and 40% towards B" and to calculate accordingly. What is not acceptable is for an expert to arrive by analysis of his comparables at a number of different figures and then to choose one out of his head which bears no calculable relationship to the results of his analyses. Thus in the case of Watford Construction Co. Ltd v. Secretary for the New Territories 1977 HKLTLR at pp. 263-4 the Tribunal stated:-
14. The Tribunal is, frankly, at the complete loss to know what Mr Wong means by this statement. He was according to his opening paragraphs, endeavouring to arrive at the due market value as restricted by the lease conditions at the date of reversion to the Crown'. What he has done is to take an average value from a number of dissimilar and unadjusted comparables. It is valid, in the view of this Tribunal, to take an average from the sale prices of a number of dissimilar comparables only after an analysis of each has revealed how it differs from the subject land so that these differences can then be quantified and the sale price of the comparables adjusted accordingly. After conducting the averaging exercise Mr Wong arrived at a value of $2.05, per sq. ft. He then, because some of the comparables were 'much closer to Shek Wu Hui than the subject lost and hence fetched higher prices' concluded that the Crown's value of $3 was 'fair and reasonable'. Surely if more valuable comparables were included in prices averaged then the value of the subject land must have been at some figure below $2.05 per sq. ft and not at $3 per sq. ft. The Tribunal is aware that Mr Wong's actual words in Exhibit 4 were that the Crown's offer was ' fair and reasonable' but it was apparent from his evidence overall that he was also saying that it was his expert opinion that $3 was the value for compensation of the land. This Tribunal wishes to make it clear that the duty of an expert witness is to give his honest opinion as to the value of the subject land. It is no part of his function to suggest to the Tribunal that the Crown acted fairly and reasonably at the time it made its offer. This Tribunal cannot help but have the suspicion that Mr Wong's whole 'valuation' exercise was conducted in order to justify the Crown's offer of $3 per sq. ft and not in order to assist the Tribunal to arrive at the compensation value of the land. Indeed when Mr Wong came to give evidence he stated that Item 2 should be omitted his list of comparables. The average figure then arrived at, with Item 2 deleted, was $1.54 per sq. ft. some 51 cents lower than his original average price. (See Exhibit 7A). However this seemed in no way to affect his contention that $3 per sq. ft was the proper figure for compensation. Indeed it seemed apparent to the Tribunal that no matter what average figure Mr Wong arrived from his comparables he would always eventually arrive at $3 per sq. ft. as the proper figure for compensation." 15. It is because of this type of illogical reasoning by expert witnesses that the Tribunal has suggested that mathematical adjustments be made to figures thrown up by comparables to arrive at the value of the property being considered. 16. The second observation we feel obliged to make is that we consider that there should be a much greater effort on the part of both sides to agree as many facts as possible before the hearing. There have been cases in which no attempt had been made to agree even simple measurements. In the case of YEUNG Ying-kit, Bill v. Commissioner of Rating and Valuation, for instance, 1978 HKLTLR 242 at p.247 the Tribunal said:-
17. This type of approach is an unnecessary waste of the Tribunal's time, and it is of interest to note that the President of the United Kingdom Lands Tribunal, Sir Douglas Frank Q.C., has laid down for that Tribunal the following rules:-
18. We strongly recommend this procedure to all those concerned with applications to this Tribunal. 19. On the same point we are very much concerned with the use and presentation of comparables. In the subject case, the applicant produced six comparables and the Respondent/Claimant, eleven. None of the Applicant's comparables appeared in the Respondent's list, and vice versa, although Mr Sung agreed, on a question from the Tribunal, that he was aware of the Respondent's comparables. 20. We consider that here again there is room for agreement between the parties on a list of comparables from which each side can then choose those on which it intends to base its case. It can then consider the reasons why it rejects the others on the list so that these reasons can be explained to the Tribunal. 21. The third observation we wish to make has been made on many different occasions. An expert witness when giving evidence before the Tribunal is no longer negotiating on behalf of a client. His sole purpose at that stage of the proceedings is to assist the Tribunal in arriving at a correct decision. He should answer questions put to him to the best of his ability and should not, for example, except when being questioned on the other expert's evidence, assert in answer to questions by counsel or the Tribunal as to his own methods or procedure that the witness for the other party has taken the same or any other course of action. 22. Turning now to the Rule 18 Documents we find that as part of his analysis in dealing with pedestrian flow Mr Cullen has used what is known as a simple linear regression analysis. As this is the first time such an approach has been used in valuations before the Tribunal we have considered this method with particular care. 23. In the case of the Director of Lands Survey V. CHEUNG Yun-heung, 1978 HKLTLR 45 at pp. 48-49 the Tribunal was asked to approve the use of a method known as the "real value" approach. This method, apparently propounded by a Dr Ernest Wood was rejected by the Tribunal on the grounds set out on page 50 of the decision in that case, and it appears to us that two of the grounds for the rejection apply equally in the case of regression line analysis; i. e. that
24. It is true that in the case of Dr Wood's "real value" approach we were dealing with a new and recent suggestion which may or may not eventually be adopted, while regression line analysis is far from being a new concept and has in fact been available as a method of analysis for many years. It is significant, however, in our opinion that it has nevertheless not over those years been generally adopted as a suitable method for valuation purposes. 25. It must be emphasised that we did not reach this conclusion without a great deal of serious thought and we do not rule out its use in future provided there is acceptable evidence that the valuation profession generally is prepared to adopt it. 26. In saying that regression line analysis is not at present a suitable line of approach we do not condemn pedestrian flow as an item to be considered. We accept that this is a factor to be taken into account, although not necessarily, in our view, a deciding factor. We are not persuaded that there is a direct relationship between pedestrian flow and value, and can envisage a number of circumstances in which an increase or decrease in pedestrian flow would have no significant effect on property values. It is axiomatic that no analysis can provide a result of greater accuracy than the data on which it is based. 27. The Tribunal inspected the subject premises and the comparables on 25 November 1981. It was obvious from this inspection that in the environment and conditions as they existed at that date none of the comparables was sufficiently similar to the subject premises in respect of either location or trading potential for a direct comparison to be made and that considerable adjustment would be necessary to arrive at a proper valuation of the subject premises. 28. It is perhaps unfortunate that in this case the "no scheme (or pre-scheme) world" is not represented by the physical conditions pertaining before implementation of the current plans was commenced. It is necessary to cast our minds back not to the low density residential and light industrial development mentioned above but to a Town Centre proposal which was wholly superseded by later schemes without so much as a brick having been laid as it were. This is undoubtedly the most difficult of the adjustments to be made as a preliminary to valuation and, whilst the other items of adjustment are capable of quantification, this one must in the circumstances be largely a matter of conjecture. There can be little or no evidence of values and probably less evidence of the effect on values of taking these circumstances into account, even if we accept that the scheme had a significant effect on values. Be that as it may, what we now have to consider is a property on the edge of what is described as a Town Centre development separated from the remainder of the town by a main road carrying a considerable volume of traffic to and from the North Western part of the New Territories, and compare this with other property in a similar situation which has developed in Tsuen Wan. 29. Included in the scheme which we are to take into account is a proposed Mass Transit Railway Station in Castle Peak Road and, as the Railway itself is designed in this area to be overhead, it follows that the station must be overhead. If this station had been designed in a similar manner to the other overhead stations in the system already in existence it would be logical to assume that it would have staircase entrances and exits form either side of Castle Peak Road and a facility for non- passengers to cross the road. So far as can be seen, however, there would have been no need for the complicated system of overhead pedestrian ways which has been incorporated into the latest plan, nor were we made aware of any such proposals in the 1976 scheme although we are aware of the popularity of these systems in other parts. One of the effects of the station as originally proposed would thus have been to draw the two sections of the town a little closer together, and we consider that this fact alone would have affected to a degree the value of the subject premises. 30. We turn now to the question of the use of what is known as the "zoning" method of analysis of shop values. The underlying principle of this method of analysis is that it is the front portion (including the shopfront) of a shop which attracts the customers, the rear portion often being used mainly for storage purposes. The front portion is thus the most valuable. The Tribunal has already considered the question of zoning analysis in Man On Investment Co. Ltd. and others v. Director of Public Works 1977 HKLTLR 4 at p.7, where stated:-
31. In that case the comparable shops and the subject property differed little in shape or size, and a direct comparison was not difficult. In the present case, however, the subject shop is triangular and has little depth compared to its frontage, whilst in all of the comparables the depth/frontage ratio was considerably greater. We are of the opinion therefore in this case that a degree of zoning of the comparables would be permissible. 32. In his submission Mr Cullen used a 6 metre depth for his zone A. Apart from a statement by Mr Sung that zoning in this case was in his opinion unnecessary, Mr Cullen's method of analysis on this point was not seriously challenged, and we therefore accept it. 33. There appeared to have been little research carried out on the question of adjustment for time difference. Mr Cullen used an adjustment figure of 20% per annum, and although Mr Sung's rate is not quoted it appears from the adjustments he has made that he is using approximately the same figure. We therefore adopt 20% per annum as being the correct figure to use. 34. The expressions "location" and "trading potential" we take, in the circumstances of this case, to be synonymous, bearing in mind that what is required is the vacant possession value of a shop and not a shop being used for any particular purpose. We appreciate that the subject shop was occupied at the date of reversion and but for the resumption would have continued to be so occupied for a period of 12½ months, and we shall deal with that point later in this decision. 35. On the question of pedestrian flow we are of the opinion that this forms part of the location or trading potential adjustment and is reflected in the prices paid in the market. We accept Mr Cullen's statement that purchasers of this type of commercial property are aware of and take account of pedestrian movements, although no evidence was adduced to show that they analysed in the way that My Cullen has done. We are satisfied that if suitable comparables are analysed and adjusted in respect of location/trading potential then this in itself includes pedestrian flow as an item of adjustment. 36. At this stage we turn to the evidence which was put in as exhibits in the case. One plan, that of the subject premises themselves, was incorrect, a fact which was revealed by the photographs produced by the Applicant. There can be no excuse for incorrect plans, and in this case a miscarriage of justice could have resulted had not this point been noticed by a member of the Tribunal. There was additionally a misunderstanding about the right of way shown on the plan and thus of the status of the kiosk, and neither party appeared to be aware of the wording of the assignment and in consequence of the precise interest to be valued. 37. We turn now to the valuations. The first point we wish to make is that what is to be valued is the Claimant's interest. It may well be that by taking the vacant possession value of the premises and deducting therefrom what is described as the tenant's interest a correct figure will be arrived at, but it equally well may not. There are circumstances in which the tenant's interest plus the landlord's interest do not necessarily add up to the vacant possession value. 38. In the analysis of his comparables Mr Cullen added 20% of his derived vacant possession value for enhancement because of the scheme. He has apparently taken no account of the fact that the scheme is one which would take a considerable period to come to fruition, and the effects of the scheme would need to be discounted for that period. We therefore use a deferment period of 5 years at 8% interest. We are not, however, convinced that the implementation of the scheme at some future date would have any significant effect as at the resumption date on the values of the comparables all of which are on the opposite side of the main road from the subject property. We therefore reject this adjustment as being too remote and speculative in nature. 39. We have reached the conclusion that the following comparables suitably adjusted could be used in the valuation of the subject property.
40. The date shown for the Applicant's Comparable No. 5 is for the actual assignment of the property and not the date of the agreement for sale and purchase. Although otherwise suitable as a comparable, this fact would result in too low a figure and must be rejected on that account. 41. The analysis of the remaining comparables is thus as follows:-
42. We are left with 3 analysed figures of $20,787, $24,498 and $23,524 per square metre of floor space on a Zone A basis with vacant possession. The average of these three figures is $22,936. 43. The agreed areas of the subject property are 61.997 square metres of floor space and 7.4 square metres of yard. As these figures have been agreed between the parties we shall use them, although they appear not to conform to the amended plan Exhibit 9. 44. The valuation of the subject premises thus becomes:- 45. Shop A (Whole) Income to 29.2.82
46. The open market value of the interest we therefore take as $1,425,000, and we award this sum as compensation. 47. The Applicant will pay the Claimant's costs on the High Court scale mutatis mutandis with certificate for counsel.
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