Yeung Shing Land Investment Co Ltd v. The Collector of Stamp Revenue

DCSA000037/1982

Assignment of real estate property by the owner to a company (the Appellant) of which he was the major shareholder. Consideration for the transfer was deemed by the Collector of Stamp Revenue (the Respondent) to be a voluntary disposition inter vivos and additional assessment was made under the Stamp Ordinance - Appeal by way of case stated by the transferee, not on the assessment per se, but on the amount assessed.

Coram: H. Wong, District Judge in Court

Date:  30th November, 1983

--------------------------

JUDGMENT

--------------------------

1. This is an appeal by way of case stated by Yeung Shing Land Investment Co. Ltd (the appellant) against an assessment of stamp duty by the Collector of Stamp Revenue (the Respondent).

2. By a conveyance on sale dated 28/2/81 Hui Yeung Shing assigned to the Appellant, a company of which he was the major shareholder, the piece of land registered as K. I. L. No. 9385 with the building (Ritz Hotel) standing thereon, together known as No. 122 Austin Road, Kowloon (the subject property) for a consideration of  $26,964,000. The assignment was duly stamped with ad valorem duty. However, the Respondent, acting on the advice of the Commissioner of Rating and Valuation, formed the opinion that that consideration was inadequate. He thus took the view that the transfer conferred a substantial benefit on the transferee and that the assignment did not amount to "valuable consideration", but was deemed to be a conveyance operating as a voluntary disposition inter vivos within the meaning of Section 27(4) of the Stamp Ordinance, Cap. 117 (1978 Ed.) (now repealed). He therefore assessed the value of the subject property at $78,000,000. Stamp duty of $1,403,490 on the additional sum of $51,036,000 ($78,000,000 - $26,964,000) from the assessment was paid by the Appellant who now appeals against it under Section 14(1) of  the Ordinance by requiring the Respondent to state and sign a case.

3. The "Case Stated" sets out undisputed facts and the questions raised therein for the Court to answer appear, from parties' argument, to entail judicial decision on two main issues:-

Issue No. 1- (side lanes)

4. It is common ground that the subject property is composed of three areas: (i) the site proper (pink area of plan), (ii) the portion fronting Austin Road on which part of Ritz Hotel now stands (cross-hatched area of plan) and which has to be surrendered to Government for road widening in the event of re-development and (iii) the lanes of some 6 feet wide at the two sides of the building (single-hatched area of plan).

5. There is no controversy that a proposed building can only be erected on the site proper (item (i)) and that the owner's release of land stated in item (ii) should, in accordance with the Practice Note dated April 1980 from the Building Authority to Authorized Persons and Registered Structural Engineers, give rise to one of the various types of compensation to him, such as bonus to the plot ratio and site coverage. The conflict thus boils down to item (iii) which forms the subject of the question in Issue No. 1. In this connection Section 23(2)(a) of Building (Planning) Regulations, Cap. 123 says:

"In determining for the purposes of Regulations 20, 21 & 22, the area of the site on which a building is erected -

6. It should be noted that, briefly, Regulation 20 deals with permitted site coverage, Regulation 21 with permitted plot ratio and Regulation 22 with certain cases in which plot ratio and site coverage may be exceeded.

7. Testimony for the Appellant came from A. C. Hill, partner of Jones Lang & woo Hon, Chartered Surveyors and that of the Respondent was provided by T. M. Wong & D. M. Connell, Senior Surveyors of the Rating & Valuation Department and the Kowloon office of Building Ordinance office respectively.

8. According to Mr. Connell, permission had not been refused by his department, at least since 1970, to applications of developers of sites in Austin Road and neighbouring streets to take side lanes into account in the calculation of plot ratio and site coverage. For the purpose of this case, that permission can be conveniently termed "the concession". Mr. Connell added that there was such a large number of applications of that nature that a conference of the Building Ordinance Office was held in May 1983 to consider the implication of "the concession" in a case concerning a property in Hillwood Road and the meeting ended with a confirmation of the practice in question. On this aspect Mr. Wong stated that as "the concession" had not, all along and up to the date of assignment of the subject property, been challenged by the appropriate authority, he naturally included it in his valuation of the present action.

9. For his part, Mr. Hill said that although he was aware of "the concession", he would nevertheless have advised a developer of the subject property to formally apply for a grant in respect thereof. There was thus some doubt in his mind about the availability of that concession so that he omitted it in his calculation.

10. Admitted correspondence discloses that Mr. Hui Yeung Shing's architect made an inquiry to the Building Authority in 1973 as to whether "the concession" could be extended to the subject property and the official reply was in the affirmative.

11. It can be seen that in theory "the concession" would appear to run counter to Section 23(2)(a) (supra), yet in practice it has been adopted with the consequential result of a softening impact on the rigidity of the letter of the law. At any rate "the concession" had come within knowledge of professional men having to deal with the Building Ordinance Office, so much so that the notoriety involved had brought the matter within the ambit of what is known as "legitimate expectation", a doctrine originated in the judgment of Lord Denning M.R. in "Shmidt v. Secretary of State for Home Affairs" (1969) 2 Ch. 149 at 170F concerning an application for an extension of stay in the United Kingdom by an alien student. In another case, "Salemi v. Mackellar" (No. 2) (1977) 137 C.L.R. 396, 404 Barwick, C. J. (Australia) construed the word "legitimate" in the phrase "legitimate expectation" as expressing the concept of "entitlement or Recognition by law", whereas the Privy Council in "A.G. v. Ng Yuen Shiu" Appeal No. 16 of 1982 considered, at p.4, that the word "legitimate" should be read as "Reasonable". The Privy Council went on to say that:

"Accordingly "legitimate expectations" in this context are capable of including expectations which go beyond enforceable Rights, provided they have some Reasonable basis So, it was held in "Reg. v. Board of Visitors of Hull Prison, ex-parte St. Germain" (No. 2) (1979) 1 W. L. R. 1401 that a prisoner is entitled to challenge, by judicial Review, a decision by a prison board of visitors, awarding him loss of Remission of sentence, although he has no legal right to Remission, but only a Reasonable expectation of Receiving it."

It was also held in the Ng Yuen Shiu's case, at p.4, that:

"The decision of the Court of Appeal in St. Germain was approved by the House of Lords Recently in "O'Reilly v. Mackman" (1982) 3 W. L. R. 1096" The expectation may be based upon some statement or undertaking by, or on behalf of, the public authority which has the duty of making decision, if the authority has, through its officers, acted in a way that would make it unfair or inconsistent with good administration for him to be denied such an inquiry."

12. To Recapitulate, in view of (a) the tacit consent on the granting of "the concession" to sites in Austin Road area by the Building Authority, which has continued without interruption since 1970 to date, (b) the application of the doctrine of "legitimate expectation" to the present case and especially, (c) the written approval of "the concession" to the owner of the subject property by the Building Authority which, although given in 1973, has not been revoked or altered, I hold that it is fair, reasonable and proper for the two side lanes of the subject property to be taken into account for the calculation of plot ratio and site coverage.

Issue No. 2 - (Valuation)-

13. On this issue the bone of contention is on the approach to the problem by Mr. Wong and Mr. Hill, valuers on each side. These two experts shared the same view that 3 methods of valuation were available:- (a) direct consideration of sales of comparable sites at about the date of assignment of the subject property (b) comparison of accommodation value of various floors of the proposed buildings to be erected on those sites and (c) residual valuation based on the principle that land value is the residue of the value of the completed development less 'cost of construction, finance, developer's profits etc.. Mr. Wong for the Respondent adopted method (a), Mr. Hill for the Appellant preferred method (b) and both confirmed that method (c) should be used for checking purposes.

14. It is common ground that:

15. Mr. Wong, who was first in preparing a valuation on behalf of the Respondent, listed as his comparables the properties at:

but heavily relied on (1) and (2) (the Kimberley site and the Jordan site), whilst Mr. Hill made use of those references and added one at 39-39A Jordan Road.

16. At the initial stage of the hearing the Court and interested parties paid a visit to the quoted sites as well as some buildings in Austin Road and Kimberley Road. From that visual inspection and subsequent supporting evidence it became apparent and was accepted by the two opposing sides that the properties in Nathan Road and Chatham Road were much superior to the subject property for comparison purposes. That consensus of view and the resultant process of elimination had the effect of reducing the comparables to the two sites in Jordan Road and the Kimberley site. I acdorse??  that agreement and further say that the site at Nos 39-39A Jordan Road is not a good comparable be cause: (i) it is a class B site (corner site) while the other 3 sites under consideration belong to class A and lie in between other properties and (ii) it is situated at a locality which appears to be frequented by earners of low middle Wages' groups, whereas the other 3 sites seem to be located in a "luxury" residential area and a tourist/high-class commercial district.

17. An analysis of the Kimberley site and the Jordan site with the subject property reveals a marked similarity among them and particularly a few points in common between the latter, and the Jordan site concerning proximity to Nathan Road, accessibility to public transports locality in a two-way street etc ...   However, I feel that the subject property is inferior to the other two sites by a small margin.

18. It was argued by Mr. Hill that the inclusion of a basement to a building to be built on the subject site would not be a viable proposition because of the h high cost of construction thereof and the lack of retail potential at that area. He found support from the fact that, among the buildings within the stretch of Austin Road between Nathan Road and Chatham Road, only one at Nos. 102-104 had a basement. His opinion was therefore that a building of 17 floors above ground level, with the ground floor for shop and the upper floors for office, would be the best scheme of development of the subject property. On the other hand Mr. Wong considered that a structure with a basement, a ground floor and a first floor for shop, plus 14 upper floors for office would put the project to its optimum use.

19. Having examined the methods used by both valuers, including their detailed analyses of the actual sales and rent of premises in the vicinity of the subject property, and the application of those findings to their valuations –– all of which are helpful to my consideration –– I have no doubt in my mind that comparison of sales of comparables (method (a)) is the most suitable approach in the instant case end is to be preferred to other methods of valuation. I find persuasive support to my standpoint from the relevant remarks expressed by the Lands Tribunal in "Cheung Lai Wan and others v. Director of Public Works" and "Director of Lands & Survey v. Fung Ping Chung & another", both in Lands Tribunal Report of 1977 at p.14 and 37. In the Cheung Lai Wan's case the Tribunal said at p. 20:

"The Tribunal wishes to make it quite clear that it considers that valuations arrived at by the use of comparables are very much preferable to those arrived at by any other methods "

20. I have further come to the conclusion that, from different schemes put forth by the parties, the scheme involving a building with a basement and 16 upper storeys is a sound idea and would represent a development of the subject property to the best advantage. This view is also in accord with what Hui Yeung Shing, the subject property's transferor, had contemplated when he informed the Building Authority on 30/1/80 that he had the intention of erecting a 16-storey office building with one basement at the subject site. In the circumstances I adopt Mr. Wong's proposal (scheme B of Exhibit R3a) and consider that the following adjustments to it would achieve the desired aim:

21. Calculations incorporating the above variations would yield the figures set out below.

22. In the light of the foregoing I have assessed the value of the subject property at $70,400,000 which I also consider to be what a "prudent purchaser" would pay for that site on 21st February 1981, the date of assignment.

23. To recapitulate, the questions posed in the case stated for the opinion of the Court and answers thereto are:

24. Question 1 - whether the assignment is chargeable with duty as assessed by the Respondent.

25. Since it is agreed that the appeal is not on the assessment per se but on the amount assessed, the answer is "No."

26. Question 2 - If not, with what amount of duty it is chargeable.

27. The answer is that at the rate of 2.75% duty on the valuation by the Court of $70,400,000 will be $1,936,000.

28. Question 3 - by whom the costs of this should be paid.

The answer is that it will be decided after argument by Counsel has been heard.

Representation:

W. Lane, instructed by Rowdget W. Young & Co. for the Appellant.

I. Wingfield, Senior Crown Counsel, for the Respondent.