Delight World Ltd v. The Secretary for Transport

LDMR000002/2002

LDMR 2/2002

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS REFERENCE APPLICATION NO. 2 OF 2002

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Date of Judgment: 27 June 2003

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J U D G M E N T

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1.This is an application by the Applicant for compensation pursuant to s.29(7) of the Roads (Works, Use And Compensation) Ordinance, Cap. 370, in respect of the resumption Lot Nos. 260 (Portion), 261 RP (Portion), 264 (A - D)(Portion), 264 (E - H) RP (Portion), 266 (A) RP, 266 (B) RP (Portion), and 268 (C) (Portion) in Demarcation District 109 ("the Affected Lots").

2.The Affected Lots were referred to in Government Notice No. 3905 dated 22 June 2000, which was published in the Government Gazette on 23rd day of June 2000, and a copy was affixed on the Lots on 22nd June 2000, and the Affected Lots were reverted to the Government of the Hong Kong Special Administrative Region on the 23rd September 2000. Under item 1 of Part II to the Schedule of the Roads (Works, Use and Compensation) Ordinance, compensation may be claimed for a resumption of land under section 13 of this Ordinance as if the claimed were made under the Lands Resumption Ordinance for land resumed under the Lands Resumption Ordinance.

3.The Applicant is also the owner of the lots of land immediately adjourning the Affected Lots shown in the site plan as Site A with a total area of about 5,795.09 m2, Site B with a total area of about 15,033.47 m2 and the Northern Portion of DD 109 Lot 260 of with a total area of about 424m2.

4.The issue in this case is on what basis the compensation of the Affected Lots is to be valued. The Applicant's surveyor, Mr. James Ng ("Mr. Ng"), provided his valuations of compensation on 4 alternative scenarios: -

(1) the open market value of the Affected Lots as building land;

(2) the open market value of the Affected Lots as Melhado land;

(3) the open market value of the Affected Lots with "hope value"; and

(4) the open market value of the Affected Lots without "hope value".

5.Whether the land covered by the Affected Lots is building land or agricultural land

5.1The basic issue for the Tribunal to decide is whether the land covered by the Affected Lots is to be valued on the basis that it is building land, or whether it was demised as agricultural land so that no building can be erected on it without a licence from the Government. Relying on the decisions of Attorney General v. Melhado Investment Ltd. [1983] HKLR 327 ("the Melhado case"), Niceboard Development Ltd. v. China Light & Power Co. Ltd. [1994] HKDLR 69 ("the Niceboard case"), and Wong Wai Tsak Tong & Anor. v. Secretary for Transport [1996] 4 HKC 301 ('the Wong Wai Tsak Tong case"), the Applicant argued that the Affected Lots were not demised for limited use as agricultural or garden ground because they were designated as Class 1 land in the classification column of the schedule of the Block Government Lease; the relevant lawful user of the Affected Lots was building land on which houses, may as a matter of right, have been lawfully erected with the consequence that the Affected Lots should be valued as building land.

5.2Referring to the Melhado case, the Applicant submitted that the Court of Appeal in that case held that the particulars in the schedule of a Government Lease under the column headed Description of Lot "are merely descriptive of the historical use of the land and do not restrict or limit lawful user".

5.3The Applicant referred to the Niceboard case, stating that the court in that case held that to determine lawful user, the description in the schedule of a Government Lease is not of assistance but that the classification column, i.e. the column headed "Class", may be helpful. This case was cited with approval by the Court of Final Appeal in Director of Lands v. Tin Shuen Enterprises & Anor. (FACV Nos. 2 and 3 of 2002) ("the FACV case"). The Niceboard case was referred to in paragraphs 40 to 42 of the FACV case. But in those paragraphs the Court of Final Appeal was not dealing with the issue of how to determine the lawful user of a particular piece of land under a Block Government Lease. It was dealing with the effect of s.10(5) of the Electricity Networks (Statutory Easements) Ordinance, and s.12(c) of the Crown Lands Resumption Ordinance.

5.4Relying on the Wong Wai Tsak Tong case, the Applicant cited the following passage from the judgment of that case: -

"The proper construction of a lease, requires the whole of its contents, including any schedule, to be considered in its overall context.... In the absence of an express user covenant, a material and important indication of the contractually permitted user under a block Crown lease, is the 'Crown Rents' column of the schedule. This column is more extensive than its mere heading. In addition to prescribing the rent payable for each lot, it specifies the class of land within each lot. The rent for each lot varies according to class. The highest unit rent is for class I land, which includes house land and other major building land. Class 2 land includes minor buildings. The lowest rent is for class 3 land, which principally includes agricultural and garden ground."

5.5The Applicant submitted that the said passage was clearly meant to apply to all Government leases and not only leases in Cheung Chau, because Judge Cruden in the said passage referred to "a lease" and "a block Crown lease". At that part of his judgment Judge Cruden was specifically referring to the particulars of the Cheung Chau Block Government Lease. He was not referring to another Block Government Lease. The generalization made by him when referring to "a lease" and "a Block Crown Lease" simply cannot be stretched to cover the construction of another Block Government Lease.

5.6Another problem with this part of the judgment is the classification of land. Under the "Crown Rent" column, there was no reference to "class 1" land. There were only "class 2" and "class 3" land The other kinds of lots have a pre-fix H. For examples Lots 33, 34 and 35 are H 2nd class land, and the description of Lot for them is "House". Lots 36, 37 and 38 are H 1st class land, and the description of lot for them is "House". There must be a difference between a lot having a prefix "H" and another lot without this pre-fix. But Judge Cruden made no reference to such difference in the said passage. No doubt the class of land having prefix "H" is also a class of land. But the learnt judge did not include it within his classification.

5.7Judge Cruden did not explain on what basis the user of the land was classified into class 1 land, class 2 land and class 3 land. In the absence of reasons, it is difficult for the Tribunal to find justification to accept such classification.

5.8What is the meaning of an "express user covenant"? In the Niceboard case, Judge Cruden referred to such a covenant: -

'There were three particular covenants in a Crown lease on which the Tribunal received lengthy submissions. First, there was a restrictive covenant user covenant but limited to land demised as agricultural or garden ground, which provided that the lessee could not convert it into use for non-agricultural or garden building purposes, without the previous licence of Crown ("User Covenant") ......... Secondly, there was a covenant prohibiting the lessee from using the demised land for any noisy, noisome or offensive trade or business ("offensive Trades Covenant"). Thirdly, there was a covenant, which applied not only to agricultural but to all demised land, requiring the approval of the Crowner's Surveyor, to the erection of any building a structure ("Building Covenant").'

5.9In its amended opening, the Applicant submitted that 'Like the Block Crown lease in the Wong Wai Tsak Tong case, the Block Crown Lease contains a building covenant but not an express user covenant. In fact there are covenants in the Block Crown Lease to the contrary. More importantly, the Affected Lots/Property are "1st class" land in the "Class" column.' This statement is not correct. Counting from the top, lines 32 to 37 on page 2 of the Cheung Chau Block Government Lease read: -

"AND FURTHER that ( ) or any other person or persons shall not, nor will, during the continuance of this demise, use, exercise or allow, in or upon the ( ) or any part thereof, any noisy, noisome or offensive trade or business whatever, nor convert any ground hereby demised as agricultural or garden ground into use for building purposes other than for the proper occupation of the same ground as agriculture ( ) ground without the previous Licence of His said Majesty, His ( ), Successors or Assigns, signified in writing by the Governor of the ( ) of Hong Kong, or other person duly authorized in that behalf: ................."

5.10For D. D. 109, lines 32 to 37 (counting from the top) on page 2 of the Block Government Lease of D. D. 109 read: -

"AND FURTHER that the Lessee or any other person or persons shall not, nor will, during the continuance of this demise, ........... nor convert any ground hereby expressed to be demised as agricultural or garden ground into use for building purposes other then for the proper occupation of the same ground as agricultural or garden ground without the previous Licence of His said Majesty, His Heirs, Successors or Assigns, signified in writing by the Governor of the said Colony of Hong Kong, or other person duly authorized in that behalf:"

5.11It can be seen that the above said user covenant of D. D. 109 and that of Cheung Chau are the same. This is the same user covenant referred to by Judge Cruden in the Niceboard case. The Block Government Lease of Cheung Chau in the Wong Wai Tsak Tong case does have a user covenant. Therefore, what Judge Cruden stated in the Wong Wai Tsak Tong case is not correct. Likewise, the Block Government Lease in the present case also contains a user covenant, and the Applicant's opening submission is not correct.

5.12Judge Cruden's judgment has yet another problem. The 2 relevant lots concerned in the Wong Wai Tsak Tong case are Lot 7 and Lot 10. On page 307, Judge Cruden made the following reference to them: -

"Lot 7 is a relatively large lot, described as waste, house and two latrines. Under the 'Crown Rent' column, the total rent for those 3 uses, therein particularized as '93W, H 1st, 2H 2nd' is $2.93 pa. Lot 10 is described as a house. Under the 'Crown Rent' column, the annual rent is $1 for this therein described 'H 1st' class land."

5.13On page 308, Judge Cruden again made reference to these 2 lots: -

"The historically merely descriptive reference, to the subject land in the schedule for lot 7 is waste, house and two latrines while lot 10 is solely described as house."

These references contain factual mistakes. Lot 10 is not described as house. In the Block Government Lease it was described as "Waste". The factual mistake would cast doubt on the correctness of his judgment.

5.14What was the lawful user of the Affected Lots at the time of the demise? Under the column "Description of Lot" all the Affected Lots were described as "padi". In relation to other lots under the same demarcation district, other descriptions were given to them. The descriptions of Lot 1388 and Lot 1390 were "House Site", and the class was "1st". Lot 1448 to Lot 1474 had the description of "building". What was the intention of the drafter of the Block Government Lease when he used different descriptions under the column of "Description of Lot" in the schedule? No doubt, he was describing the use to which the land was put when it was demised. The Court of Appeal in the Melhado case said,

'What may have caused difficulty is the ambiguity of the phrase "demised as agricultural or garden ground". As is apparent from Watford Construction Company v. Secretary for the New Territories [1978] HKLR 410 that could mean, on the one hand, that the land was demised on terms which prohibited its use for anything but agriculture or gardening, or, on the other, that it was land which was described as agricultural or garden ground ........ The lease itself contains the words "that piece or parcel of grounds ...... set out and describedion the schedule". The whole purpose of the schedule was to identify the lands and the parties to which the lease related, and then to particularize the terms and the rents which had been reserved by the body of the lease..... It will have been observed that we have throughout assumed that, where the restrictive covenant in the Block Crown Lease refers to ground "hereby expressed to be demised as agricultural or garden ground" those words are appropriate to include ground demised as "padi" and "dry cultivation". The term "padi" is commonly used to describe not only the crop grown in a padi field but also the field itself.'

5.15In the Wong Wai Tsak Tong case, Judge Cruden held that by analogy to the Melhado case, non-agricultural or building land were words appropriate to include land demised as 'house', 'latrine' and also 'waste' where, as in the Wong Wai Tsak Tong case, the latter category is otherwise unrelated to agricultural use.

5.16The description of the Affected Lots does not contain words such as "house", "latrine" or "waste". The only description for them is "padi". Following the observation of the Court of Appeal in the Melhado case, this Tribunal has no hesitation in concluding that the resumed lots are grounds demised as agricultural or garden ground. It follows that according to the user covenant in the Block Government Lease no building can be erected thereon unless approval in writing has been obtained from the Government.

6.Whether land covered by the Affected Lots can be put to the Melhado case use?

6.1The Applicant argued that if the Resumed Lots were demised as agricultural or garden ground, they were to be regarded as capable of being put to any use which does not require the erection of a building. In paragraph 6.3 of his supplementary report, Mr. Ng, applied a 15% upward adjustment to the unit rate for his comparables at Appendix III of that report. Paragraph 6.3 reads: -

"In paragraph 3.8 above, we stated that if the Affected Lots/Property were demised as agriculture or garden ground, in light of Melhado, they could be lawfully used for any purpose that did not require a building. We have not been able to find 'Melhado' land comparables in the vicinity of the Affected Lots/Property. However, we have been able to find land demised for agricultural or garden uses located nearby which are set out with adjustments in Appendix III. The location plan of these comparables are at appendix IV respectively. The adjusted average unit rate for such land is $300 per ft2. In our opinion, this rate should be increased by 15% to reflect that such land can be lawfully used for any purpose that does not require a building e.g. open storage, that is to say, to reflect its greater flexibility in terms of permitted uses of land. The open market value of the Affected Lots/Property in such circumstances is therefore $345 per ft2 ($300 per ft2 x 1.15). The open market value of the Affected Lots/Property is $30,472,500 (88,326 ft2 x $345 per ft2)."

(Underline provided)

6.2Appendix III contains 3 comparables. The first comparable (subsequently abandoned by the Applicant) is "used for open storage", whereas the 2nd and the 3rd comparables were demised for agricultural use. Mr. Ng did not explain in the report why these comparables cannot be used for the Melhado case use, so that an adjustment in the unit rate of these comparables have to be made. He also did not explain why this figure of 15%, and not another figure, is to be adopted. We find that in the support of evidence this is an arbitrary figure and we reject it.

6.3The Affected Lots fell in an area zoned for AGR purposes under the Kam Tin North outline Zoning Plan No. S/YL - KTN/3. Section 4(1)(h) of the Town Planning Ordinance includes zones or districts set apart for agricultural use. Section 12(aa) of the Lands Resumption Ordinance provides that the Lands Tribunal shall take this fact into account when determining the compensation to be paid. In the premises the Lands Tribunal must ignore any zoning effect that may have on the Affected Lots, and for the same reason, sections 16 and 20 of the Town Planning Ordinance have no relevance in the determination of compensation.

7.Summary of the Applicant's claim

7.1We set out below a summary of the estimates of compensation made by Mr. James Ng, the Applicant's expert: -

Summary of estimates of compensation by the Applicant's expert

COMPENSATION FOR THE AFFECTED LOTS
Lots	Basic (1): Open market value as building land	Basic (2) Open market value as Melhado land	Basic (3): Open market value asagricultural land with hope value	Basic (4): Open market value asagricultural land without hope value
(1) The Resumed Lots	$58,295,600-	$30,472,500-	$35,330,400-	$26,497,800-
COMPENSATION FOR SEVERANCE OF OTHER LOTS OWNED BY THE APPLICANT
(2) The Northern Portion / Northern Land	$2,711,000-	$1,417,100-	$1,643,000-	$1,232,300-
(3) Site A (excluding Lot 269 s. B)	$14,512,900-	Site A (including Lot 269 s. B)- $2,152,100-	Site A (including Lot 269 s. B)- $9,980,500-	Site A (including Lot 269 s. B)- $1,871,300-
(4) Lot 269 s. B	N/A
(5) Site B	$64,080,800-	$33,496,800-	$38,836,900-	$29,127,700-
Total severance:	$81,304,700	$37,066,000	$50,460,400	$32,31,300
Total for the Affected Lots and severance:	$139,600,300	$67,538,500	$85,790,800	$58,729,100

7.2Although Mr. James Ng estimated the compensation for the Affected Lots and the compensation for the severance of other lots owned by the Applicant on 4 different bases, his highest estimate for the compensation of the Affected Lots and the severance compensation, assessed on the basis that both the Affected Lots and all other lots owned by the Applicant but severed by the resumption could be used as building land, were in the sum of $139,600,300.

8.The Respondent's valuation

On the other hand, the Respondent's expert surveyor, Mr. Patrick Lai considered it only appropriate to assess the compensation for the Affected Lots on the basis of agricultural use. This he estimated to be $13,130,000. In addition, he opined that there was no loss due to the severance of other lots from the Affected Lots, with the exception of the Northern Portion of Lot No. 260 in DD 109. He estimated the loss in the value of the latter lot to be $67,840. Hence, his total estimate of the total compensation payable to the Applicant was $13,197,840.

9.Basis of valuation for the Affected Lots

In light of our findings and the reasoning set out hereinbefore, we find that the only correct basis for the assessment of the compensation of the Affected Lots and the compensation for the severance of other lots owned by the Applicant, if any, in the present application must be the value of the Affected Lots and the diminution in the value of other lots severed by the resumption on the basis that these other lots are restricted to the use demised, i.e. for agricultural use only. We have already decided that in assessing the agricultural use value of the subject lots, we have to take into account the additional value, if any, due to the so-called "Melhado use" as termed by Mr. Ng. However, as explained before, there was no evidence from Mr. Ng regarding the additional value due to the "Melhado use". We have also stated that we do not understand on what basis he allowed an additional value of 15% over and above the pure agricultural value to arrive at his estimate of the "Melhado use" value.

10.Summary of the comparables considered by the expert surveyors

We have considered and gone through the comparables collated by both Mr. Ip and Mr. Lai in all of their Valuation Reports filed under Rule 20 of the Lands Tribunal Ordinance, as well as their supplementary reports. The parties have also helpfully summed up these comparables and their adjustments in Exhibit AR-2 (Illustration Bundle, pages 1A and 2A of Tab M). In light of the basis of our assessment as set out above, we firstly decide to exclude the Applicant's list of "building lot comparables" (i.e. Comparable A7, A8, A9 and A10) which are obviously not relevant for the present valuation exercise. Of the remaining 9 comparables, 2 Comparables, namely A2 and R4 are common comparables. Therefore, there remain only 8 comparables (i.e. Comparable A1, A2/R4, A3, A4, A5, R1, R2 and R3) to be considered. An extract of page 1A of the said Tab M setting out the details of these comparables is reproduced below:

11.A summary of comparables

Agr. = Agriculture; AGR. = Agriculture; V = Village Type Development

BGL = Block Government Lease; OZP = Outline Zoning Plan

12.According to Mr. Ng, Comparable A5 was so obviously out of line with his other comparables, Comparables A1 to A4, that he considered it appropriate to discard Comparable A5 at the outset. We find this to be reasonable and that it will be very proper to exclude consideration of this comparable any further.

13.Choice of comparables

We find from the evidence of both experts that the remaining Comparables A1, A2/R4, A3, A4, R1, R2 and R3 were all land held under Block Government Leases of DD 103, DD106 or DD112, and demised as Padi or Agriculture land. With the exception of Comparables A1 and A2 which were zoned "V" (Village Type Development) under the respective Outline Zoning Plans ("OZP"), they were all zoned "AGR" (Agriculture) under the OZP.

14.Comparables A1 and A3

14.1The surveyors advised that these comparables were zoned "V" (Village Type Development) in the relevant OZP. We note from Mr. Ng's Valuation Reports that in assessing the open market value of the Affected Lots on the basis of agricultural use without hope value, he did not make use of these two comparables.

14.2The Explanatory Statement of the Approved Kam Tin North OZP No. S/YL-KTN/3 states, "The boundaries of the "V" zones are drawn up having regard to the existing village environs, outstanding Small House demands for the next ten years, topography and site constraints. It is the planning intention of the Town Planning Board to concentrate development within the "V" zone for a more orderly development pattern, economic and efficient use of land and provision of infrastructure and services...". Therefore, we find that any land falling with such a "V" zone will, in practice, invariably carry with them a hope value for future development into Small Houses.

14.3The Court of Final Appeal in FACV Nos. 2 and 3 of 2002 (Director of Lands v Yin Shuen Enterprises Limited and Nam Chun Investment Company Limited) already decided that in compensation, because of Section 12(c) of the Lands Resumption Ordinance (Cap. 123), hope value reflecting potential for development must be excluded from the transaction prices of the comparables. The Court of Final Appeal said in paragraphs 53 and 54 of the said Judgment,

"53. ...But the market is not perfect. Purchasers are prepared to pay prices which do not reflect the intrinsic value of the land, but contain a speculative element for which the Government ought not to be required to pay on resumption.

54. In the present case the Government valuer asserted that the prices paid by purchasers on the claimants' comparables contained such an element and should be disregarded for this reason. His evidence has not been accepted or rejected, but rather ruled to be irrelevant. It is not irrelevant, but highly material. If correct, then the claimants' comparables cannot be taken at face value. It does not follow that they must be disregarded altogether; but they cannot stand without adjustment."

14.4In the property market, among the market players and their professional consultants (including valuation surveyors), there is no commonly accepted method for adjusting or excluding the hope value elements from the transaction values of land that contain hope values. Therefore, we hold the view that for any valuation surveyor or any valuation court (and including this Tribunal as well), no matter how experienced they may be, it is very difficult for them to exclude this element of hope value. This is obvious because land with hope values and land without hope values basically belong to two different categories of land, somewhat similar to land permitted for different uses, for instance, land for office use as against land for residential use.

14.5Therefore, we decide that since Comparables A1 and A3 are land within "V" zone and thus contain an element of hope value, and as it is difficult to exclude this element of hope value, we should discard these 2 comparables and concentrate on the other more relevant comparables.

14.6In the present case, we find that the two surveyors between them still have a number of comparables that both agree do not contain any element of hope value due to the higher order zoning and so on. These are Comparables A2/R4, A4, R1, R2 and R3. In fact, we note that Comparables A2/R4 and A4 were the 2 agricultural land comparables used by Mr. Ng to arrive at his estimated unit value of $300 per sq. ft. ($3,229.2 per sq. m.) for the open market value of the Affected Lots, on the basis that they were for agricultural use only. Mr. Lai at first did not object to the use of these two comparables although he did not use them in his valuation in the Rule 20 Report. The comparables adopted by Mr. Lai in his Rule 20 Report were Comparables R1, R2, R3 and A2/R4. He came to his final conclusion of unit value of $1,604 per sq. m. for the Affected Lots, on agricultural use basis. Mr. Ng opined that, Mr. Lai's Comparables R1, R2 and R3 should be rejected on the ground that there were substantial differences with the Affected Lots in terms of their physical attributes. We do not agree with Mr. Ng's opinion and decide to use Mr. Lai's comparables in the analysis below.

14.7We noted that the Applicant submitted that the "hope value" referred to in the decision of the Court of Final Appeal contained a large speculative element, because the comparables adopted in the case of Nam Chun Investment Co. Ltd. v. The Director of Lands (LDLR 3 of 2000) were scheme comparables which contained a large element of "hope value" or a large speculative element. They were "special purchasers' bids". Mr. Ng's comparables are non-scheme comparables and do not contain "hope value" in the sense used in the Court of Final Appeal's judgment. We must point out that in the case of Nam Chun Investment Co. Ltd. v. The Director of Lands, although the Respondent challenged the Applicant's comparables as special purchasers' bids and abandoned this argument, we did not make any finding as to whether there were special purchasers' bid. Furthermore, 12(c) of the Lands Resumption Ordinance refers to "any" expectancy or probability. Therefore if the prices paid for a comparable contained any speculative element this element must be discarded. We therefore reject the Applicant's submission in drawing a distinction of hope value between scheme comparables and non-scheme comparables. No such distinction is to be drawn.

15.Comparable A2/R4

15.1This is the only common comparable between the two surveyors. Mr. Lai stated in his report that this comparable was the best comparable. During the hearing, he added that this would be the best comparable if he were allowed to take "hope value" into consideration. This was challenged by the Applicant's counsel who maintained that Mr. Lai had said that this comparable was the best comparable.

15.2The Respondent's counsel submitted that regardless of whether Mr. Lai had been careful enough to qualify his opinion when giving evidence, the fact remained that the comparable was rezoned to "R(C)" on the day following the signing of the Agreement for Sale and Purchase, with a developer, Cheung Kong Holdings as the purchaser of the lot. The Respondent's counsel further submitted that "The Tribunal may take judicial notice that whenever Cheung Kong purchased agricultural land in the NT, it was done with development potential in mind. So there must have been an element of expectancy or probability in this comparable sale." We did not accept this argument because this is not within our judicial notice.

16.Adjustments to the comparables by the expert surveyors

16.1Both surveyors gave evidence that the other surveyor's comparables are not relevant comparables, save and except the common Comparable A2/R4 between the parties. Even for that comparable, whilst Mr. Lai stated in his report that this was the best comparable, he retracted from his position and submitted in his oral evidence during the hearing that it would not be a relevant comparable if land containing an element of hope value (i.e. value not as agricultural land) should be excluded.

16.2We find that the adjustments of the comparables by Mr. Ng were not made on the assumption that the highest and best use for the Affected Lots was restricted to the use as agricultural land. Mr. Ng always had in his mind the potential for other higher order use such as development land use when adjusting the comparables.

16.3Similarly, we find that although Mr. Lai, in making his adjustments, has considered the differences between his comparables and the Affected Lots as well as other lots severed by the resumption and attempted to restrict the potential uses of the Affected Lots and the severed lots to "agricultural use", there was not much consideration as to the important factors affecting agricultural uses.

16.4In the Concise Oxford Dictionary, 1976 Edition, the term "agriculture" has the meaning of "science or practice of cultivating the soil and rearing animal". In the American Heritage College Dictionary, 1976 Edition, "agriculture" means "the science, art and business of farming" and "farming" means "to cultivate or produce a crop on."

16.5On land zoned agriculture under the OZP for Kam Tin North, the uses always permitted include: agriculture use, ancestral hall, on-farm domestic structure, plant nursery, police post/police reporting center, rural committee building/village office, shrine and tree plantation.

16.6Indeed, if a surveyor / real estate appraiser is to value a piece of agricultural property only on its basis as being restricted to agricultural use, we find that one has to be familiar with the characteristics of the immediate agricultural district, the specific types of agriculture and complementary land uses found in the area, the data on soil productivity, type of potential crop, crop yields as well as information and forecasts of waters available for irrigation, irrigation, environment control and so on. (source: pages 75 and 238 of the standard text of the Appraisal Institute, USA, "The Appraiser of Real Estate, Eleventh Edition"). In the surveyors' valuation, we do not find any evidence on almost any of these matters. We also do not know what types of agricultural products the surveyors expected the subject land or the comparable land to produce.

16.7To be fair to the two expert surveyors called to give evidence in this case, we at first think that this is probably due to the death of agriculture land being actually put to active agricultural use in Hong Kong, not to mention the scarcity in the sale of such land.

16.8However, after perusing Exhibit R-9, the Explanatory Statement of the Approved Kam Tin North Outline Zoning Plan No. S/YL-KTN/3 dated March 2000, we find the following statements under the land use zoning of Agriculture ("AGR"): -

"	9.11.1	The planning intention of this zone is to retain and safeguard good agricultural land for agricultural purposes. The areas under this zoning are usually well served by irrigation and servicing facilities as well as marketing facilities for intensive farming including lovestock rearing, fish culture and horiculture. This zone is also intended to retain fallow arable land with good potential for rehabiliation.
	9.11.2	The area under this zoning constitutes the largest land use category within the Area. A substantial portion is in the eastern and middle parts of the Area. The majority of agricultural land in the Area at present is under active cultivation....."

16.9So, according to this Explanatory Statement, there is a large area of agriculture zone in Kam Tin Planning Area. Why is it not possible for both experts to gather more information to assist the Tribunal to find out the open market value of agricultural land? This is beyond our understanding.

16.10Unfortunately, the reality is that there is only limited information from the surveyors given in their reports and oral testimony as well as information on access and location gathered from our site inspection with the parties. We can only attempt to do our best in considering the adjustments as submitted by the surveyors and endeavour to make a reasoned decision below.

17.Adjustment for access

17.1Mr. Lai agreed that in general land accessible from motor track from nearby local roads commands a relatively higher value when compared to land accessible by footpath.

17.2Mr. Ng stressed great importance in the factor of access when adjusting his comparables for which he gave adjustment percentages of up to 30% for Comparable 3 which enjoyed vehicular access though it was of a local standard. In commenting on Mr. Lai's comparables, he criticized Mr. Lai for giving insufficient adjustments of between 5 and 15% to reflect the access of the Affected Lots. It was also mainly for the differences between access and location characteristics of Mr. Lai's comparables and the Affected Lots that Mr. Ng decided not to use the former in the valuation. Mr. Ng opined that "the difference in land values for sites without direct vehicular access should be about 50% less than sites with direct vehicular access."

17.3We do not agree with Mr. Ng with regard to the degree of importance of vehicular access for land used for agriculture purposes. We agree that a vehicular access for loading and unloading of material such as fertilizers and seeds as well as agricultural products such as flowers or vegetables is not only convenient but cost effective. However, we do not think that the values to agricultural land of an immediate access to a main road, or the close proximity to West Rail Station, for example, are as important as the case for residential or commercial development. Also, agricultural production in Hong Kong is generally of a small scale and does not require the operation of large farming machines like tractors, so whether the vehicular access for a piece of agricultural land is sufficiently wide enough for large vehicles are of less importance than other types of land uses.

17.4Having regard to the above observation, we find that we tend to agree more with Mr. Lai than Mr. Ng, in so far as the adjustments to the comparables are concerned. Our adjustment percentages are from 0 to 15% as detailed in the table below.

18.Adjustment for location

18.1Mr. Lai opined, "Land situated in a developed area or near established villages is considered having a relatively higher value compared to land located in an undeveloped area."

18.2Mr. Ng opined that he should adjust his comparables vis-à-vis the Affected Lots and other lots severed by the resumption according to the difference in "location and development potential". He therefore allowed 30% for Comparables A2/R4 and A4. Mr. Ng also commented that since Mr. Lai's Comparables R1, R2 and R3 were located far away from major infrastructural provisions such as the West Rail Station, the Tsing Long Highway as well as the Main Drainage Channel project, Mr. Lai's adjustments were too inadequate.

18.3Our comments on location are similar to that for access in that we have to bear in mind the usage of the land under consideration. Whilst there are locational advantages for being closer to major infrastructures, we are of the view the differences should not warrant such a high adjustment percentage as for commercial or residential land uses. We therefore adopt the comparables adjustment rates close to those used by Mr. Lai. Our percentage adjustments are from 0 to 15% as shown in the table below.

19.Adjustment for size

Mr. Lai suggested that we should apply the usual rule for property valuation, i.e. a higher unit rate for a smaller area. On the other hand, the reverse was advocated by Mr. Ng. We decide to agree with Mr. Lai since his assumption has generally been accepted, in the absence of any empirical evidence from either witness in support of each contention.

20.Adjustment for time

At first there was some difference in the adoption of the basis for time adjustment. Mr. Lai agreed to change his basis during the hearing. We therefore decide to adopt the surveyors' time adjustments to the comparables.

21.Adjustment for town plan zoning

Although both surveyors considered this factor, they do not consider necessary to make any adjustment for these factors. We agree that no adjustment is required for this factor.

22.Other adjustments

As we said before, the Tribunal could only consider the evidence as produced. Although we consider that a thorough consideration of the values of any land for agricultural use cannot be completed without any discussion to various important factors affecting agricultural land uses and their values. However, since neither surveyor produced any evidence of these factors, we find that we have no basis for any adjustments based on the difference in any of these factors, no matter how relevant they may be as far as valuation of land for agricultural use is concerned.

23.Summary of adjustments to the comparables

Under the circumstances, we sum up our adjustments to the comparables in the table below: -

Adjustments to the comparables

Ref. No.	Unit Rate ($/m2)	Adjustment (%)					Adjusted Unit Rate ($/m2)
		Access	Location	Size	Time	Total
A2/R4	2,897	0	0	-5	-10	-15	2,462
A4	2,524	0	5	-5	-8	-8	2,322
R1	1,177	10	15	-10	7	22	1,436
R2	1,956	10	15	-5	-1	19	2,328
R3	969	15	15	-10	-8	12	1,085

24.Ex-gratia compensation offered to the Applicant

24.1The Respondent originally made an offer to the Applicants in the sum of $20,602,039.50, calculated on the basis of ex-gratia compensation rate applicable to the Affected Lots and the lots severed by the resumption. This sum, divided by the area of the Affected Lots, 8,205 sq. m., show that the unit rate of the Government's ex-gratia compensation offer was $2,510 per sq. m. The Applicant submitted that the assessment by Mr. Lai was unreasonably low as it was even less than the ex-gratia compensation offer of the Respondent.

24.2The Applicant also produced evidence of the zonal plan applicable to the assessment of the ex-gratia compensation. They show the various zones in which the Affected Lots and the comparables were situated. The land in the Zone B were compensated at 75% of the basic rate whilst that for Zone C and Zone D at 50% and 30% respectively. Mr. Ng said that the fact that the Respondent's Comparable R1 was in Zone D and Comparables R2, R3 and R4 were in Zone C confirmed that their locations were all inferior to that of the Affected Lots, which were all in Zone B.

24.3The Applicant submitted that even Mr. Lai himself in re-examination admitted that one of the elements in the ex-gratia compensation was the market value of the land and he also admitted that Government revised the basic rate from time to time (the zoning was also redrawn from time to time) in the light of changing market conditions. However, neither party called for any evidence as to how the ex-gratia compensation rate was actually assessed or how the ex-gratia compensation offer made by the Respondent to the Applicant prior to this application by the Applicant was arrived at in the first place. Therefore, we have no idea as to how this ex-gratia compensation can be related to the statutory compensation, assessed on the basis of open market value of the Affected Lots under Section 12(d) of the Ordinance. In the circumstances, in the course of determining the compensation for the Affected Lots and for the severance of other lots, we cannot give any weight at all to the amount of ex-gratia compensation offer previously made by the Respondent but not accepted by the Applicant.

24.4Also, from what the zonal plan shows, the broad brush nature of the identification of various zones, regardless of how often the boundary were withdrawn suggest to us that they should not be used as substitutes for the valuation of any land on the open market value basis. The plan and the specified zones are probably made with expediency in Government administration. Therefore, we find that no weight should be given to the ex-gratia zonal plan as evidence of locational advantages or open market values of land when adjusting for the comparables.

25.Assessment of compensation for the Affected Lots

We find from the analysis above that the average of the 5 comparables considered above is $1,927- per sq. m. We decide that we should apply this average unit rate to the total site area of the Affected Lots of 88,326 sq. ft. (8,205.70 sq. m.) Thus, we estimate the open market value of the Affected Lots at the relevant valuation date in the sum of 8,205.70 sq. m. x $1,927- per sq. m., or $15,812,383.

26.Compensation due to severance of the Applicant's other lands

The Applicant in the application applied for compensation of their other lands affected by the resumption. These lands were not resumed but severed by the resumption as a result of which the Applicant claimed that it suffered loss. In the following sections, we will firstly re-coup the basis under which severance compensation for the Applicants' other lands is payable, followed by a brief discussion of the general principles governing the assessment of severance compensation and the detailed consideration of these other lands of the Applicant (described by the Applicant as Site A, Site B and the Northern Portion of DD 109 Lot 260).

27.Basis for the assessment of severance compensation

27.1The law which provides the basis for assessment of compensation due to severance of land not resumed by the Respondent but also owned by the Applicant is as follows: -

27.2Section 10(2)(c) of the Ordinance provides that the Tribunal shall determine the compensation (if any) payable on the basis of the amount of loss or damage suffered by any claimant due to the severance of the land resumed or any building erected thereon from any other land of the claimant, or building erected thereon, contiguous or adjacent thereto.

27.3We agree that since Section 12 of the Ordinance applies generally "in the determination of the compensation to be paid under this Ordinance", any loss due to severance under Section 10(2)(c) is also subject to the operation of Section 12(c). Therefore, the damages, if any, due to the severance of the Applicant's other lands must be assessed on the same basis as that adopted for the Affected Lots. For claims of these damages, the Applicants must not only prove that these lands were not only severed by the resumption, but that there were damages to these lands caused by the resumption. The onus of proof rests with the Applicant.

28.Assessment of compensation due to severance of Site A

28.1Mr. Ng stated in his second supplementary Rule 20 report dated 13 November 2003 that the resumption of the Affected Lots cut off Site A from Site B and the Northern Portion of DD 109 Lot 260. He further said that the loss suffered by the Applicants due to the resumption is "the increased cost of operating Site A for agricultural purposes ... for example, employing more security personnel, and/or purchasing and installing more security devices, erecting more fences and employing more staff." Mr. Ng added that Site A suffered from the reduction in size, and the noise and pollution of the surrounding roads. In his opinion, the value of Site A depreciated by 10%. On the basis that Site A was assessed for agricultural purpose at $300 per sq. ft., same as that for the Affected Lots, Mr. Ng estimated the diminution in the value of Site A, and hence the compensation payable by the Respondent to be $1,871,300 (i.e. 62,378.3 sq. ft. x 300 per sq. ft. x 10%).

28.2Mr. Lai said that after resumption, Site A, having a site area of about 5,795 sq. m., could still be beneficially used for agricultural purposes after being severed from the other lands of the Applicant, with no evidence of any increase in operating costs. He therefore considered that there should not be any diminution in the value of Site A after resumption.

28.3The parties agreed that there was a gate at the southern end of Site A facing Kam Tin Road. They further agreed that the vehicular access to Kam Tin Road of Site A was not affected by the resumption which took place generally to the north of Site A. As such, unlike Site B and the Northern Portion of DD 109 Lot 260, the Applicant did not submit that Site A suffered from loss of vehicular access after the resumption.

28.4We find that the Applicant failed to discharge entirely the burden of proof in respect of its claim for severance compensation of Site A. There was no evidence whatsoever on Mr. Ng's suggested "increased cost of operating Site A for agricultural purposes". Mr. Ng also did not produce evidence of any actual or estimated loss or any details of how the agricultural operation on Site A would increase its cost of production. As we said before when considering the Affected Lots, Mr. Ng did not even consider the types of agricultural operation that the Applicant was contemplating after the resumption. We are surprised to find that he could have jumped to the conclusion that the cost of operation would be increased in future and that the increased cost could be capitalized in the sum of about 10% of whatever the open market value of Site A would be. In theory, we would think that even if there might be an increase in the cost of agricultural operation on any severed land subsequent to a resumption of adjoining land, the equated sum of such cost on the severed land might not be a simple fraction of the open market value of the said severed land. In order to substantiate their claim, the Applicant must prove their case by producing sufficient evidence that there was such a loss as claimed. However, there is clearly a lack of any such evidence in the present case. For this reason, we have to dismiss the Applicant's claim on the compensation due to severance of Site A from other lands also owned by the Applicant.

29.Assessment of compensation due to severance of Site B

29.1Mr. Ng stated in his Supplementary Rule 20 Report that the resumption of the Affected Lots cut off the direct vehicular access from Kam Tin road as a result of which the value of Site B, on the basis of agricultural use without hope value, depreciated by 60%. In giving oral evidence, Mr. Ng said that Site B, the Affected Lots and Site A originally formed a continuous parcel with vehicular access at Kam Tin Road. After the resumption, the linkage to Site A was cut off in its entirety so that Site B no longer enjoyed its advantage of having the direct vehicular access from Kam Tin Road. Although a new road servicing the new drainage channel constructed to the north of Site B was found near the northern edge of Site B, separated in between by a narrow strip of Government Land, Mr. Ng said that Site B was denied any vehicular access to the said new road. As a result, Mr. Ng calculated the loss to the Applicant in respect of the severance of Site B due to the resumption to be $29,127,700 (161,820.3 sq. ft. x $300 per sq. ft. x 60%).

29.2Mr. Lai submitted that according to the master layout plan of a planning submission prepared by the Applicant for the rezoning of Site B, the Applicant had a proposal to have a vehicular access from Site to the new road to its north. Since the Applicant already obtained an in-principle approval to the re-zoning of Site B, he considered that an alternative access to Site B was available.

29.3However, the Applicant submitted that on the date of resumption on 22 September 2000, there was no access to Site B from the new road Kam Tai Road because "permanent galvanized iron tubes had already been embedded". The "hammer head" in Kam Tai Road was expressly stated to be a "Turning Area" on the plan at Exhibit A4 for service vehicles but not for ingress and egress. Further, the Applicant submitted that when land was to be exchanged in the future, Site A would be treated as having access and Site B would be treated as not having access and premium would be assessed accordingly. Hence, he Applicant submitted that although the resumption clearly deprived Site B of its former access to Kam Tin Road, the Respondent still failed to give any severance compensation for this deprivation.

29.4Our general comments on the lack of evidence as to the loss suffered by the Applicant on Site A applied similarly to Site B. However, for Site B, there was a very important issue for determination, namely, whether, after resumption, Site B had another access onto Kam Tai Road which compensated for its loss of access, via the Affected Lots and Site A, to Kam Tin Road.

29.5In response to the Applicant's submission that Site B could not be benefited by the existence of Kam Tai Road located on its northern edge, the Respondent submitted that the fact that the railings along Kam Tai Road were embedded did not mean that they could not be removed. Also, the Respondent suggested that the submission of the Master Layout Plan with a proposed vehicular access leading onto Kam Tai Road, coupled with the fact that it had received an in-principle approval, clearly show that, on a balance of probabilities, a vehicular access of some sort could have been made available if applied for.

29.6We take note of the Master Layout Plan prepared by the Applicant's consultant regarding a planning proposal for Site B, which had received an in-principle approval. We also find that Kam Tin Road was a new public road completed in connection with the Drainage Channel Works, taking place separate from and to the immediate north of the Kam Tin By-Pass Construction and related works. We think that it is almost inconceivable that after Government completed a new public road, which is not a highway, it would not allow vehicular access to link up a large parcel of land such as Site B, which is situated immediately next to the boundary of the road. The Applicant submitted that Kam Tai Road might serve for the servicing of the Drainage Channel. Once a road has a name, it must be a public road and not a restricted access road. We doubt very much any assertion that Kam Tai road exited solely for the purpose of servicing of the Drainage Channel and that access to and from adjoining land would not be permitted.

29.7We agree with the Respondent's submission that the existence of the fixed railings did not prove that no vehicular access would be permitted for Site B. The existence of this type of street furniture per se does not by itself lend support to the claim that there may or may not be any vehicular access from any piece of land situated next to it.

29.8On balance, we agree with the Respondent's submission that it is more likely than not that vehicular access onto Kam Tai Road would be given by the Transport Department to the Applicant, if an application were made by the Applicant after the resumption. There was no information at all as to whether the Applicant had made such an application. We decide that since the Applicant had to prove that they suffered loss for Site B as a result of resumption, and in this regard, the Applicant failed to discharge the onus of proof. In addition, as is required for Site A, the Applicant also did not produce any evidence in support of the case of Site B that they had suffered any loss, to the extent of 60% of the open market value of Site A even if they lost their access to Kam Tin Road and could not, as submitted by them, get another access elsewhere. For the above reasons, we dismiss the Applicant's claim for loss due to severance of Site B from the other lands owned by the Applicant.

30.Assessment of compensation due to severance of the Northern Portion of DD 109 Lot 260

30.1Mr. Ng stated in his Supplementary Rule 20 Report that the potential of the Northern Portion of DD 109 Lot 260 for agricultural use substantially decreased because as a result of lack of direct access via the Affected Lots and Site A to Kam Tin Road, the land because an isolated and minute piece of land. He added that "being severed from agricultural facilities such as water source for irrigation and without any footpath access, it has no potential for being put to any other profitable agricultural use." He hence opined that the value of the land depreciated in value by 40%. However, he calculated the loss to the Applicant in respect of the severance of the Northern Portion of DD 109 Lot 260 due to the resumption of the Affected Lots to be $1,232,300 (4,564 sq. ft. x $300 per sq. ft. x 90% {i.e. 50% +40%}) (Exhibit AR1, page 273). That is, in addition to allow for the depreciation in value caused by the deprivation of direct access to this lot, Mr. Ng also attributed a reduction of 50% to reflect the loss of "hope value". We cannot understand his allowance for the latter reduction since he had already set out as his basis of valuation that the value of this lot was supposed to be assessed on agricultural use without taking into account "hope value". (Exhibit AR1, page 262)

30.2Mr. Lai accepted that there was a loss in the value of the Northern Portion of DD 109 Lot 260 due to the loss of vehicular access from Kam Tin Road. He opined that a 10% reduction in value would be an appropriate assessment of the loss to the Applicant. Based on his adopted rate of $1,600 per sq. m. for the Affected Lots, he assessed the loss due to the severance of the Northern Portion of DD 109 Lot 260 to be $67,840 (424 sq. m. x $1,600 x 10%).

30.3We are not clear as to where the water source for irrigation was prior to the resumption. Also, from the plan at Lot Index Plan (Tab A of Exhibit AR2, the Illustration Bundle), the Drawing of Kam Tin Bypass (Tab U of Exhibit AR2) and the plan for PWP Item 43 CD - The Road Works Ancillary to Drainage Improvement Works to Kam Tin River from Kam Tin San Tsuen to Castle Peak Road (Exhibit A4), we note that to the east of the Northern Portion of DD 109 Lot 260, there were some other land next to it as well as a village road (marked with the word "Road" on the Lot Index Plan). This village road also leads to a much wider village road which links up between Kam Tin Shi to the south and Kam Hing Wai to the north. We roughly scaled off from the plan and find that the latter road, which was about 3 m wide, was some 60 m east of the Northern Portion of DD 119 Lot 260. We further note from the plan at Exhibit A4 that the access on to this wider village road from the road close to land neighbouring the Northern Portion of DD 119 Lot 260 fell within the project limit of the above said PWP Item 43CD, but not within the project limit of Kam Tin Bypass as shown in the plan at Tab U of Exhibit AR2.

30.4Therefore, whilst we agree with the Applicant that the resumption has severed the access of the Northern Portion of DD 109 Lot 260 from Kam Tin Road via the Affected Lots and Site A, we do not agree that the Kam Tin Bypass project and the resumption of the Affected Lots caused the deprivation of its access to the original wider village road connecting Kam Tin Shi with Kam Hing Wai. Even if the Applicant claimed that its access to that wider village road disappeared after the resumption of the Affected Lots, we find from a detailed study of the plans at Tab U of Exhibit AR2 and Exhibit A4 that this was more probably due to the works in connection with the project of PWP Item 43CD. Therefore, the deprivation of the original access from the village road close to the Northern Portion of DD 109 Lot 260 to the said wider village road and any resulting damage, if any, to the lot cannot be due to the resumption of the Affected Lots.

30.5We further find from the above said plans that the said wider village road no longer links up to Kam Tin Shi after the construction of Kam Tin Bypass; however, it continues to go in a northerly direction, goes over Kam Tai Road and the river channel and links with Kam Hing Wai. Therefore, we find that if the Northern Portion of DD 109 Lot 260 continues to have its original access towards the said wider village road, it would continue to have vehicular access in a northerly direction. Hence, we do not agree that the lot became totally land-locked as submitted by the Applicant.

30.6To conclude, whilst we disagree with the Applicant that this lot suffered a loss in value of 90%, as shown in Mr. Ng's calculation, we note Mr. Lai's agreement to a compensation equivalent to about 10% of the value of the Lot, due to the loss of access to Kam Tin Road. We also note that the Respondent submitted that we should accept Mr. Lai's estimate. Therefore, although we are not too satisfied that the loss due to the severance of this lot was about 10% of the value of the lot, we find this estimate to be much more reasonable than Mr. Ng's estimate and could be accepted, bearing in mind our finding above that the access to the wider village road was not caused by the resumption of the Affected Lots. Since we determined the open market value of the Affected Lots at the rate of $1,927- per sq. m., we find it to be not unreasonable to adopt this for the lot. Thus, we calculate the loss, at 10% of the value of this lot, in the sum of $81,705- per sq. m. (424 sq. m. x $1,927- per sq. m. x 10%)

31.Determination of compensation by the Tribunal

We estimate the total compensation payable to the Applicant in respect of its interests in the Subject Site to be as follows: -

(1) Compensation for the Affected Lots	=	$15,812,383
(2) Compensation for severance of the following lots

	(i)	Northern Portion of DD 109 Lot 260	=	$81,705
	(ii)	Site A	=	Nil
	(iii)	Site B	=	Nil
		Total	=	$15,894,088
		rounded to		$15,900,000

32.Orders

Accordingly, we order that the Respondent do pay the Applicant compensation for the Affected Lots, including compensation for the severance of the other lots owned by the Applicant (i.e. the Land Remaining), in the sum of $15,900,000 (Hong Kong Dollars Fifteen Million And Nine Hundred Thousand). There will also be an order nisi that the Respondent do pay the Applicant's costs on High Court party and party scale with certificate for counsel, to be taxed if not agreed, and to be made absolute unless application is to be made by either party within 21 days for an order in place thereof. Liberty to apply is also reserved for ancillary and consequential matters.

Representation:

The Applicant : represented by Messrs. Kao, Lee & Yip, Solicitors.

The Respondent : represented by Secretary for Justice.