Lee Chun v. Director of Lands
Read the full judgment text of LDLR 9/1983 on BabelCite. This Lands Tribunal judgment was delivered on 7 October 1981.
1. This is an application for compensation pursuant to Section 8(2) of the Crown Lands Resumption Ordinance, Cap. 124, arising from the resumption by the Crown for river training works of certain land occupied by the applicant situate at Lo Wu, New Territories, being portions of Lots 339, 340, 341, Lot 343, Lot 345, and portion of Lots 346 and 389 in Demarcation District No. 89.
Cited by 1 case
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LDLR000009/1983 Crown Lands resumption - compensation - leasehold interest - fish ponds erected over land leased for varying periods - value of leasehold interest - capital investment - lessees fixtures - disturbance - severance - different dates for assessing value of leasehold interest and disturbance - Sections 6, 10, 11, 12 and 17 Crown Lands Resumption Ordinance, Cap. 124; Section 121(2)(f) Landlord and Tenant (Consolidation) Ordinance, Cap. 7 IN THE LANDS TRIBUNAL OF HONG KONG Crown Lands Reference No. 9.of 1983
Coram: TRIBUNAL: His Honour Judge Cruden, Presiding Officer and M.W. Phillips, Esq., Member. Date: 25th day of November, 1983 ------------------------ J U D G M E N T ------------------------ 1. This is an application for compensation pursuant to Section 8(2) of the Crown Lands Resumption Ordinance, Cap. 124, arising from the resumption by the Crown for river training works of certain land occupied by the applicant situate at Lo Wu, New Territories, being portions of Lots 339, 340, 341, Lot 343, Lot 345, and portion of Lots 346 and 389 in Demarcation District No. 89. 2. The resumed land is contiguous to the Ng Tung Ho River and the proposed river training works alter and improve the river's present meandering course. Notice of the resumption of the land together with other adjacent land dated the 7th day of October 1981 was published in No. 42 Volume CXXIII 'The Hong Kong Government Gazette' 3634 on the 16th day of October 1981. On the 19th day of October 1981 copies of the notice in English and Chinese were also duly affixed to the land in compliance with Section 4(2). The land reverted to the Crown on the 20th day of January 1982. 3. The land resumed from the applicant formed part of two large fresh-water fish ponds at which he carried on his principal business as a fresh-water fish farmer. The applicant's notice of application claimed $356,816.40 compensation but at the hearing he reduced the claim to $332,968.60. The respondent offers $138,620.20 in full settlement. 4. Before going on to consider the claim we will refer to two preliminary matters. First, pursuant to Rule 24 of the Lands Tribunal Rules, Cap. 17 by leave, we allowed the applicant's son, Mr. M.C. Lee, to represent his father in these proceedings. Secondly, it was common ground that the applicant did not have a registered estate or interst in the resumed land in terms of Section 2 of the Crown Lands Resumption Ordinance immediately before reversion. However, although having no registered estate or interest we are satisfied the applicant was lawfully in possession of the resumed land immediately before reversion. 5. The applicant had constructed two large fish ponds on the land which is delineated on the plan numbered NDR 23B referred to in the notice published in the "Gazette" a copy of which plan was produced by the respondent at the hearing as Exhibit R.2(A). In addition, a further more detailed plan produced by the respondent as Exhibit R.2(D) drawn to a much larger scale, showed the resumed and adjoining land together with the position of four fish ponds. The two larger fish ponds designated on Exhibit R.2(D) as "Pond No. 3" and "Pond No. 4" are the two fish ponds owned by the applicant. 6. The applicant's estate or interest in and right to possession of the land on which the fish ponds have been constructed is founded as follows:-
The total rentals for these three pieces of private land are $8,900 per annum. 7. Both the lease from Hau Kam Wah and the tenancy from Chan Yuk also refer to a Lot 89. There is no Lot 89 on the several plans produced but all the various lots on the plans form part of Demarcation District No. 89. From our consideration of these plans, together with the other documentary evidence, we are satisfied that the lease from Hau Kam Wah is of Lot 388 in Demarcation District No. 89 and the tenancy from Chuk Yuk is of Lots 386 and 389 in Demarcation District No. 89. 8. In addition to these leased pieces of land a large part of Pond No. 3 and a small part of Pond No. 4 occupied Crown Land. The applicant asserted that the Crown Land was occupied pursuant to permission obtained from the District Office, North, Lands Department, Taipo for the purposes of fish cultivation. The respondent did not challenge the applicant's occupation of these areas of Crown Land. 9. Indeed, as will be seen shortly, the respondent's offer of compensation included an amount to compensate the applicant for the termination of the applicant's occupation of this Crown Land. So far as the position of the Crown Land is concerned, for completeness it might be helpful if we refer, at this stage, to the basis on which the respondent's offer of $138,620.20 was based. Mr. C. Wong, called by the respondent, produced as part of Exhibit R.4, a document entituled "Assessment of Compensation for Fish Pond" which sets out how the respondent calculated its offer of $138,620.20. Those calculations are, inter alia, divided into separate sections for "Compensation for the resumed Crown Land portion of the pond" and "Compensation for the resumed private land portion of the pond". 10. The Crown's division not only recognises in writing that the applicant was lawfully in possession of that portion of the fish ponds built on Crown Land but confirms the applicant's own allegation that he was lawfully in possession of that land pursuant to permission duly granted by the District Office, North, Taipo. It is true that the respondent goes on to allow a lesser rate of compensation in respect of the Crown Land because of the difference in its security of tenure, compared to the tenure of the private land occupied by the applicant. The respondent recognises that the applicant's tenure of the Crown Land was sufficient for him to have been offered not only an ex-gratia payment for the private land resumed but also for the adjacent Crown Land affected by the river training works specified in the "Gazette". 11. At this stage we simply record that the applicant does not appear to have been merely a squatter on the Crown Land but to have occupied it for the purpose of fish cultivation in accordance with permission granted by the District Office, North, Taipo. Although there was no evidence of any rent or licence fee having been paid nor was any documentary evidence produced confirming the applicant's status as occupier. 12. We now go on to consider the actual location of the resumed Lots of private land specified in the 'Gazette' notice and also the Crown Land affected by the river training works and find the position of the applicant's two fish ponds to be as follows:
The applicant states that the total area of Ponds Nos. 3 and 4 is 21,100 square metres of which 6,100 square metres is affected by the river training works. This 6,100 square metres is further apportioned by the applicant as follows:-
This apportionment was not disputed by the respondent. 13. There is obviously a substantial difference between the amended claim of $332,968.60 and the respondent's offer of $138,620.20. However, this claim has been considerably simplified by the approach of the parties. The respondent's offer was calculated in accordance with the Agriculture and Fisheries Departmental Circular No. 4/80. The applicant has based his claim on the same formula set out in that Circular. 14. To understand fully that formula it is useful if we first consider briefly the historical background to the respondent's present offer. Until this year it appears that where owners or occupiers of fish ponds were affected by Crown resumptions, no componsation was paid but claims were settled by ex-gratia payments. Although the evidence was not decisive on this point, it appears that previously the Crown took the view that where land in the New Territories was resumed, compensation was only payable where the use of the land immediately before reversion complied with the permitted use under the Crown lease which, it considered, was that specified in the schedule to the appropriate block Crown lease. 15. Such leases did not generally expressly include, as permitted uses, the operation of fish ponds. However, while the Crown did not recognise a right to compensation, it had very formalised administrative procedures whereby substantial sums were paid in respect of fish ponds affected by resumptions by way of ex-gratia payments. 16. This procedure now appears to have been altered as a result of the Court of Appeal's recent decision of Attorney General v. Melhado Investment Ltd. Civil Appeal No. 79/82 in which judgment was delivered on the 13th day of March 1983. In considering permitted uses under block Crown leases in the New Territories, the Court of Appeal held that the various descriptions of farming aetivity in the Schedules to the leases were not limitations on the use of the land. The type of agricultural use particularised in the Schedules was simply the means used when leases were granted from 1898 to identify the actual use - as distinct from the permitted use - of the lands when large numbers of block Crown leases were first granted for the New Territories after the Convention of Peking concluded on the 9th day of June 1898 and consequent to Her Majesty's Order in Council of the 20th day of October 1898 whereby sovereignty over the New Territories was formally vested in Her Majesty - Winfat Enterprises (HK) Co. Ltd. v. Attorney General M.P. No. 892/82. 17. The permitted use under New Territories block leases, it was held, is that expressed in the body of the lease and not the generally more limited use, particularised as existing at the date of grant, for identification purposes only, in the schedules. Generally such leases were for "agricultural" purposes. The use of ponds constructed on such land for fresh water fish farming is clearly an agricultural use of the land. Accordingly in the instant application the respondent, contrary to his former practice recognised, in view of these developments in the law, that the applicant had the right to claim compensation instead, as in the past, of hopefully if confidently anticipating that he might be the recipient of a discretionary administrative ex-gratia payment. 18. During the period when claims were met by ex-gratia payments, they were dealt with under two different administrative procedures. The majority of claims were assessed by the Agricultural and Fisheries Department generally at the request of the then New Territories Administration or the Housing Department. Under the other procedure, which only applied to land affected by Housing Department clearances, assessments were carried out directly by the Housing Department without reference to the Agricultural and Fisheries Department. 19. Where the Agricultural and Fisheries Department was involved, assessments were made in accordance with current Departmental Standing Circulars which set out the principles and procedure to be followed. The Circulars included appendices showing the various rates payable which had previously been approved by the Finance Committee. The circular current at the date of the resumption was Departmental Standing Circular No. 4/80 dated the 4th day of March 1980. After stating the principles and procedure to be followed in assessing ex-gratia payments for fish ponds, the Circular went on to set out a "Guide to the Value of Fish Ponds" which provided that claims for ex-gratia allowances for fish ponds were to be assessed under the following heads:
In the instant case, part only of each pond, is to be resumed. The Circular also provided that the loss due to disturbance in such a case includes disturbance to the fish culture in the unresumed part of the pond. In addition, allowance was made for the reprovisioning of a bund similar to the existing bund before the land was resumed. 20. The respondent's offer of $138,620.20 was calculated in accordance with Circular No. 4/80. In addition, as we have mentioned, the applicant's claim was calculated in accordance with the same basic formula. The applicant's son Mr. M.C. Lee, who gave evidence, had prepared the details of the claim. Mr. Lee graduated in 1979 from the University of London with the degree of Master of Science in Computer Science. For 2 years to 1981 he held an appointment in computer science at Oxford University. In 1982 he returned to Hong Kong to take up an appointment at the Hang Seng Business College but has this year moved to the Chinese University, Hong Kong. In addition to his academic qualifications, Mr. Lee lived with his parents at the subject premises for several years until he left to study in England in 1975. On his return in 1982 he has spent his weekends staying with his parents. During both those periods he assisted his parents in the management and farming of the fish ponds. In particular he has been responsible for and is conversant with the accounts relating to the applicant's business. We accept his experience and expertise in these areas. 21. The appendices to Departmental Standing Circular No. 4/80 include various rates applicable to different types of fish or culture grown in the ponds; different rates for each quarter of the year; different rates for the varying depths and types of pond construction; varying expenditure and yields depending on the type of fish grown. 22. Mr. C. Wong produced Departmental Circular No. 4/80 and other statistical data on which the respondent based the assessment of the applicant's loss at $138,620.20. Mr. Wong is a Fish Culture Development Officer of the Agriculture and Fisheries Department. In 1976 he graduated from Leyden University, Holland, with a Bachelor's degree in tropical and sub-tropical agriculture before going on to Aberdeen University where he graduated Master of Science in 1977 after which he obtained a post-graduate fisheries diploma from Stirling University. He was employed in 1978 as a Fisheries Research Officer in Taiwan and later moved to Hong Kong to join the Agriculture and Fisheries Department. 23. Mr. Wong both at this hearing and when giving evidence in the earlier proceedings of Cheung Tai Hee & Ors. v. Director of Lands C.L.R. Nos. 2-8/83, relating to the resumption of red worm ponds, informed the Tribunal that the rates in the appendices were average rates obtained from an extensive survey of other fish ponds in the New Territories. In the earlier proceedings, we also had the advantage of the evidence of Mr. J.W. Cheng, the Fisheries Economic Officer of the Agriculture and Fisheries Department. Mr. Cheng graduated Bachelor of Arts in 1973 from the City University of New York and then obtained a post-graduate diploma in Development Economics from Cambridge University in England. 24. In relation to the red worm assessments he had explained in detail the wide survey conducted to obtain primary data and the statistical method employed to compile the average rates appearing in the appendices. We were then impressed with Mr. Cheng's evidence. Mr. Cheng was present during this hearing and available to give evidence but was not called. No attack was made on the statistical method adopted. We are satisfied that the average rates set out in the appendices were, on the basis of the survey, expertly arrived at in accordance with accepted statistical principles. 25. However, on this application we are concerned under Section 10 with the actual "loss or damage suffered by the applicant due to the resumption of the land ...". No matter how impeceable the Department's survey, all the appendices can produce and all they claim to produce are average New Territories rates and not the actual rates for the particular property resumed. The law is well settled that generally averaging is not a proper method of valuation. A leading judicial statement on averaging is to be found in McCathie & Ors. v. The Federal Commissioner of Taxation (1944) C.L.R. 1 where Williams J. repeated his observations in a previous judgment in these terms:
26. These observations highlight the dangers that can arise if reliance is based on averaging. They equally apply to average rates instead of actual rates being used under the formula set out in Departmental Circular No. 4/80. However, we recognise the difficulties the respondent faces in the case of many resumptions of this kind. It would appear that the majority of fresh fish pond farmers carry on small businesses without the assistance of accountants. Their own records, where they exist and are retained, are no doubt rudimentary. In these circumstances, particularly when claims were settled by way of ex-gratia payment and not by way of compensation under the Crown Lands Resumption Ordinance, the respondent may well have been placed in difficulty. On the one hand he may have been willing to pay a reasonable sum in compensation. Yet on the other hand he may have been dealing with a claimant who was either unwilling or unable to supply any documentary or other credible evidence upon which compensation could be based. In those circumstances, average figures, produced by a reliable general survey of a number of similar properties, may exceptionally have been the only acceptable basis left for the respondent to calculate payment. 27. Where actual figures in respect of resumed land are available, they clearly must be given primacy. Quite apart from authority, it would seem as a matter of principle to be axiomatic that where credible figures of actual loss or damage suffered by a particular resumed property are available, they must be both more accurate and relevant than resort, whether because of departmental practice or otherwise, merely to average rates. Particularly will this be the position where rates are produced by averaging figures obtained from a varying range of, at best, similar but not identical unresumed properties. If compensation is assessed on the basis of average rates, then in a particular case, the compensation paid will probably be either excessive or inadequate, depending on the relationship the particular resumed property bears to the notional average property, statistically created as a result of a survey. The judicial task of the Lands Tribunal under the Crown Lands Resumption Ordinance is not to award excessive or inadequate compensation but instead to determine compensation on the basis of the actual loss or damage suffered due to a resumption. 28. Any average rates which may, as in this case, have been prepared should, at most, only be of background interest. Although the respondent is certainly entitled to use them, for his own purposes, as a check on the credibility of the actual figures put forward by an applicant in respect of a resumed property. In fairness to the respondent we should at this stage make two observations. First, it may well be that initially when dealing direct with the applicant and not with his son Mr. M.C. Lee, such actual figures were not available. Secondly, Mr. Wong throughout his evidence candidly conceded that the rates used by him in his assessment were only averaged rates. However, he stated that where acceptable actual figures were available in respect of a resumed property which were in excess of the averaged rates, his practice was to forward the higher actual rates to the appropriate superior officers of his Department, for consideration. For he had no authority to calculate compensation other than in accordance with the average rates in the appendices which had been approved by the Finance Committee. 29. The applicant simply asserts that after employing the Department's own guidelines set out in Circular No. 4/80 but applying the actual figures available from his records instead of the average rates, the compensation payable is $332,968.60. He does not dispute that if the average rates are applied, the result corresponds with the respondent's offer of $138,620.20. Both parties have applied the same principles to arrive at their different figures. In summary the difference is solely due to the fact that the applicant has employed what he claims are the actual figures applicable to his property. The respondent has used the averaged rates. 30. Before proceeding to determine the compensation payable, there are two other matters we should comment upon. First, as we have already noted the respondent, in calculating his ex-gratia offer in accordance with Departmental Circular No. 4/80, has included an amount, if calculated on a lesser tenure, for those portions of the two ponds built on Crown Land. That calculation was in accordance with the Circular's guidelines and no doubt follows a very just and commendable practice. Certainly as ex-gratia payments are offered in exercise of the discretionary administrative powers of the Crown, the respondent is fully entitled to make such a payment. 31. However, under the Crown Lands Resumption Ordinance this Tribunal's powers are not only different but in this respect much more limited. Under Section 10 we only have power to award compensation in respect of the land resumed. To ascertain what land was resumed, we must return to the notice published in the 'Gazette' which describes the resumed land. On perusing that notice it is clear that the only land occupied by the applicant which has been resumed are those three pieces of private land rented from Hau Kam Wah, Chan Yuk and the Shum Chun Commune. The Crown Land he occupied is not referred to in the notice. 32. The Crown Land does not therefore form part of the resumption. In these proceedings, it follows, we have no jurisdiction to award any compensation for any loss or damage suffered as a consequence of his occupation of that Crown Land being terminated simultaneously with the resumption of the private land. Any global calculations we may therefore make in respect of the two ponds will have to be subject to an appropriate deduction excluding that portion of each pond constructed on Crown Land. 33. However, we should equally make it clear that any award of compensation we may make under the Crown Lands Resumption Ordinance in respect of the resumption of private land, does not affect or whittle down the respondent's discretion to make separately or additionally an ex-gratia payment to the applicant in respect of the termination of the applicant's use of the Crown Land. That remains an entirely separate issue to be determined by the respondent administratively, quite unaffected by these proceedings. 34. The second point is that the resumption, as we have already observed, is for part only of each of the two ponds. This means that it will be necessary to construct a new bund for each pond along their new common boundary with the resumed land. As we have alse observed Departmental Circular No. 4/80 recognises that in calculating an ex-gratia payment, provision should be made for "the reprovisioning of a bund similar to the existing one before resumption at the line of the resumption limit". At the hearing the respondent was unable to indicate if the Crown itself intended as part of the river training works to construct the new bunds. However, following our inspection of the land after the hearing, when this issue was again raised, the District Lands Officer, North, for the respondent, informed us by letter dated the 16th day of September 1983 that:-
35. Our assessment of compensation will be conditional upon new bunds being constructed at the sole expense of the Crown in terms of that letter. 36. The present resumption affects a number of owners and a number of interests in land. The applicant's various lessors will have their interests as Crown lessees or otherwise determined and be entitled to compensation under the Ordinance. The applicant is also entitled to compensation for the affect the resumption has on his interest in the land upon which he has been carrying on his business as a fish pond farmer. We will consider his present claim under these heads:
37. Dealing first with the resumption of the applicant's leasehold interest the measure of the value of that interest, in accordance with Section 12(d) of the Ordinance, is the amount which that interest: "... if sold in the open market might be expected to realise." We have already noted that the applicant occupies the resumed land under several leases. The value of his leasehold interest on the market will depend on the residue of the various terms still unexpired as at the date of the resumption. It is therefore necessary to determine those residues as at the 20th day of January 1982. Lot 388 although leased for 10 years from the 1st day of April 1976 is not affected by the resumption so may be ignored. 38. Lots 386 and 389 are held under annual leases which have continued to be renewed for the past 5 years. Only Lot 389 under that lease is affected by the resumption. At the date of resumption the current annual lease would have expired on the 9th day of July next following. We record that the termination of that lease was unaffected by Part V of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 being excluded by Section 121(2)(f). The lessor, if he had on the 20th day of January 1982 wished to terminate the lease, would have been obliged to give 1 year's notice commencing on the 10th day of July 1982. The applicant under such notice would have been obliged to vacate on the 9th day of July 1983. The period for which the applicant would have been entitled to have remained in possession would therefore have been from the 20th day of January 1982 to the 9th day of July 1983 which approximates to 1½ years. 39. The position in respect of the remaining land leased from the Shum Chun Commune is less clear. As a matter of fact rent has been paid annually. However, the uncontradicted evidence of the applicant was that he was entitled to remain in possession for so long as he wished to continue fish farming. In their offer of compensation the Crown recognised the applicant's leasehold interest in the land as falling within the longer tenure category of 3 years or more. In the light of the evidence and that concession, we find that the residue of the term of this portion of land from the date of resumption was 3 years. 40. Before going on to assess the value of the applicant's leasehold interest on this basis we would observe that this head generally corresponds with the compensation recognised by the respondent as "Loss of Net Income and Working Capital". We must now go on and determine net annual income. The applicant produced his income figures for 1982. These detailed the income for the 1982 season from February to September. Production for 1982 was not affected by the steps later taken by the applicant at the request of the respondent to reduce his production to facilitate proceeding with the resumption which will be relevant when we come to consider disturbance arising from severance. The applicant's 1982 figures were not challenged by the respondent. We find that they are accurate and adopt them for our following calculations. 41. The gross revenue for 1982 was $252,400. After commission and transportation are deducted, the net revenue is about $239,000. In 1982 fish production amounted to 26,758 catties which results in net revenue of $8.93 per catty. The total area of the fish ponds is 21,100 square metres of which 4,040 square metres represents the resumed private land. The apportioned production for the resumed land is 5,123 catties. Applying the net revenue of $8.93 per catty to the apportioned production of the resumed land produces a net revenue for the resumed land of about $45,750. 42. From that net revenue of $45,750 must be deducted the annual operating expenses in order to arrive at the net annual income. In evidence these expenses were expressed in amounts per the Chinese measurement of a dau chung. One dau chung is an area of some 674.5 square metres or 7,260 square feet. The operating expenses per dau chung were claimed to be:
43. In respect of these figures we make two comments. First, harvesting and transportation are claimed at $109 per dau chung per annum. However, transportation and commission - which represented the costs of marketing services - have already been allowed for in the net revenue assessment. This further deduction must therefore be reduced to cover harvesting only. The total area of the ponds being 21,100 square metres equals 31.1 dau chungs. The total annual sum for transportation, commission and harvesting is $15,923. The total sum separately claimed for transportation and commissions is $13,338. The operating expenses must therefore be adjusted to delete the transportation charges which leaves a balance of $2,585 for harvesting expenses which equals $83 per dau chung. Secondly, during the year the property is maintained by the applicant and his family. Additional labour is necessary during the harvesting season which is reflected in the allowance for harvesting. 44. These adjustments reduce the annual operating expenses to $1,033 per dau chung or a total of about $32,130 per annum. This sum has to be apportioned for the resumed land comprising 4,040 square metres as follows:
The annual expenses for the resumed land are therefore $6,150. The net annual income produced by the resumed land is $39,600 made up as follows:
45. Rounding up the sum of $39,600 to $40,000, we find that the value of the applicant's leasehold interest in the resumed land is the price attributable to a net income of $40,000 per annum which it could reasonably be expected to continue for the unexpired residue of the leasehold interests from the date of resumption. 46. However, this application is complicated by the fact that the several leases are for varying terms and therefore have different residues. We will have to consider each of the two relevant leases separately. The total area of resumed private land comprises:
On the basis of the estimated total annual income of $40,000 the sum of $33,500 may be apportioned to the land leased from the Shum Chun Commune, calculated as follows:
The share of the estimated annual income which may be apportioned to Lot 389 would be the balance of $6,500. 47. These sums of $33,500 and $6,500 represent future income but as payment is being made now they must be discounted at the appropriate interest rate. Allowing for the risks associated with fish culture farming and the level of current interest rates, we consider 15% per annum to be appropriate. In the case of the land leased from the Shum Chun Commune the residue of the lease is 3 years. If the yearly income of $33,500 is capitalised for 3 years at 15%, using a year's purchase of 2.2832, the resulting value is approximately $76,500. 48. The residue for Lot 389 is 1½ years. However, because of the seasonal nature of the applicant's farming business that period substantially represents two annual seasons of income. It is true that the second year's season would usually run from February to September and that the applicant's occupation would expire during July. However, the applicant would have been on 12 months notice of such expiration. In those circumstances it is reasonable to infer that in that final season he would farm more intensively and exploit the ponds to a greater extent than in a normal year. The probable greater return over the shorter season would, we find, probably equate the average return for the whole of a normal season. We propose to allow 2 seasons income on that basis. If the annual income of $6,500 is discounted on the same basis as under the other lease then, using a year's purchase of 1.6257, the discounted value is approximately $10,500. 49. We adopt these figures and find that the value of the applicant's leasehold interest in the resumed land is the total of these two sums, namely $87,000. 50. We now go on to consider the claim for loss of capital investment. We have already recorded that in calculating its offer of compensation the Crown included this head and allowance was made for the value of reprovisioning of a similar fish pond at cost. Whether an applicant lessee is entitled to be separately compensated for capital investment depends on the circumstances and the method of compensation adopted. 51. In this application we have already allowed compensation for the leasehold interest in the land based on future expected profits for the residue of the leasehold term. This is an accepted method of assessing the value of that leasehold interest where the land is used for business purposes. If an applicant were also to be paid for capital expenditure he would be compensated twice. For if the capital expenditure represents the purchase price of the leasehold interest, or the amount of capital expended to earn future income during the term of the lease, recovery will put an applicant in the same position he was in before the property was purchased. The real value of that expenditure is simply the capitalisation of future profits. If the actual profits realised are greater than the capital expenditure, he is certainly entitled to the larger amount but is not entitled to both. 52. If a property is purchased for the income it is expected to produce, the price reflects its expected earnings. If the property is immediately resumed or resold after purchase, the amount paid could be expected to be about the same as that at which it was purchased. The value of the expected profits over future years is the measure of the purchase price of any leasehold business. No owner can expect to be paid both a sum equal to the purchase price plus a sum equal to the expected profits over future years for again that would result in payment for the same interest being made twice. These two alternatives merely represent the same valuation exercise from different viewpoints. 53. Where an applicant is the owner of the freehold or a lessee entitled to compensation for improvements, then he would be entitled to compensation for the capital value of the land which would include, in this case, not the bare land but land including fish ponds constructed therein. However, any capital improvements to the land effected by a lessee such as the applicant, if existing at the expiration of his lease accrue to his lessor. 54. This is subject to the qualification that if the applicant has improved the land by bringing fixtures on to the land he would have a right to retain ownership of any lessee's fixtures by removing those fixtures before his leasehold interest expired. Where land is resumed during a lease, the lessee has the election at common law either to remove the fixtures before resumption or allow them to remain. In the latter event, the lessee is entitled to compensation from the Crown for the value of those fixtures - Gibson v. Hammersmith and City Railway Co. (1883) 32 L.J. Ch. 337. 55. However, that rule does not assist the applicant in relation to the capital cost of the ponds for they have been excavated out of the land and remain part of the land in its altered state. Unlike lessees fixtures they are not capable of being removed. If they had been constructed in removable parts, which became fixtures, then the applicant could have elected to have left them upon the land and claimed compensation, but that is not the position. 56. On the facts, the only lessee's fixtures were a sluice gate forming part of the bund and two pumps mounted on concrete bases. A third pump, on wheels, was clearly a chattel and would not form part of any claim. As far as the sluice gate was concerned, we hold it is part of the existing bund and propose to assess compensation on the basis that it will be incorporated in the new bund at the expense of the Crown. Accordingly no allowance needs to be made for it in this assessment. Similarly, it is our understanding that the Crown will relocate the two pumps at present mounted on concrete bases to appropriate positions on or near the new bund at the Crown's sole expense. Provision for these two lessee's fixtures also need not be made. If the Crown fails to complete the bund and these ancillary works on this basis, then it would be open to the applicant to claim further relief. 57. For completeness we should add that while the applicant has no separate claim for compensation for loss of the capital expenditure incurred in constructing the ponds, the value of the ponds which were created by him on the land, will be reflected in the capital value of the land. On this resumption the interest not only of the applicant but also the various lessors in the leases to the applicant were, as we noted earlier, also affected. We are not concerned with any of their claims in this application but the enhanced value of the land resulting from the construction of the ponds would be reflected in the resumption value of their reversionary interests. Those, however, are not matters that concern us in this application. 58. We should also perhaps refer to the first category of ex-gratia allowances in the "Guide to the Value of Fish Ponds" where, as we have earlier recorded, the heading includes a reference to "working capital". We would emphasise that the reference to working capital in the Guide may be misleading; it does not relate to capital expenditure. "Working capital" represents the difference between current assets and current liabilities. On the facts of this particular application there will therefore be no award in favour of the applicant for compensation for loss of capital investment. 59. The remaining head of claim to consider is for any losses due to disturbance. The resumption only affects parts of the applicant's two fish ponds and the resulting severance can be expected to cause some disturbance. We have already assessed compensation for the permanent loss of the land. In addition, the evidence establishes that the balance of the fish ponds have also been directly affected by the resumption. To enable the resumption to be completed, the Crown has to build a new bund along the new common boundary. This work necessitates the emptying of both fish ponds. After they have been emptied and the new bund constructed, the two reduced ponds will have to be refilled, restocked with fish and the farming business re-established. 60. The law is well settled that on a resumption the Crown is obliged to pay to an applicant, over and above the value of his interest in the land, compensation for disturbance. As Davies 'Law of Compulsory Purchase and Compensation (3rd Edn.) 206 states:
61. In determining the value of the applicant's leasehold interest we were only concerned with ascertaining its open market value but in the case of disturbance we are not concerned with that objective task. Instead in determining compensation for disturbance we may grant compensation for other actual costs or losses incurred by the applicant as a consequence of the resumption. This disturbance compensation will necessarily be in addition to the leasehold interest's open market value and unlike the latter is a subjective and not an objective assessment. As Davies observes, also at page 206, when we come to consider disturbance "both practice and law diverge here from free market transactions". 62. There are also other principles which apply to disturbance but not to the assessment of compensation for an applicant's interest in resumed land. Some of these are relevant to this application. First, the assessment of disturbance is made as at the date when the costs or losses are actually incurred. These may not necessarily be as at the date of resumption. On the other hand, the value of the interest in land being resumed must be ascertained as at the date of the resumption. Any earlier doubts as to when disturbance is to be assessed where removed by the House of Lords in West Midland Baptist (Trust) Association (Inc.) v. Birmingham Corporation (1970) A.C. 874. 63. Secondly, until recently there was considerable conflict over the right to claim disturbance on a subsequent resumption, by an applicant having knowledge of the intended resumption, for expenses incurred before any formal steps were taken to commence the resumption. There was authority that expenses incurred or loss suffered before a resumption were not recoverable because being earlier in time they could not be regarded as being a consequence of the resumption. On the other hand, there were wider, if obiter, statements of the position sudh as in Harvey v. Crawley Development Corporation (1957) 1 Q.B. 485 where Romer L.J., at page 494, declared:
64. There was also a strong line of Scots authority that expenses or losses incurred before the first formal steps were taken are recoverable. In Venables v. Department of Agriculture for Scotland (1932) S.C. 573 Lord Alness stated:
65. Fortunately, this previously uncertain position has recently come before the English Court of Appeal in Prasad & Anor v. Wolverhampton Borough Council (1983) 265 E.G. 1073 which expressly preferred the Scots authorities and rejected the considerable body of English decisions to the contrary. In considering the English statutory words "consequent upon" the Court accepted the following submission that the requirement that a claimant must be displaced from land in consequence of the compulsory acquisition is to be treated as a casual but not necessarily a temporal qualification:
66. Our Ordinance does not include the words "consequent upon" but employs in Section 10 the comparable words "due to". But for Prasad's Case it may have been open to the Crown to argue, by analogy, that any loss suffered or costs incurred by action taken, before a resumption, could not be due to the resumption. That interpretation of Section 10 no longer seems to be available. 67. In the light of these authorities we are satisfied that the alleged losses for 1983 and 1984, if proven, clearly as a matter of law, are losses for which the applicant is entitled to compensation under the Ordinance even if any requests to reduce the extent of the fish farming operations preceded the date of the resumption. We confirm that here the notice of resumption was dated the 7th day of October 1981; it was published in the "Gazette" on the 16th day of October 1981; it was affixed to the land on the 19th day of October 1981; and the land was resumed on the 20th day of January 1982. The Crown's request for a reduction in farming operations appears to have been made in December 1981. 68. Thirdly, the majority of disturbance claims include a claim for removal or re-establishment costs which may include surveyors fees, solicitors costs, stamp duty and the like. Where, as here, a leasehold interest is affected by a resumption, the measure of compensation may further differ from that payable where a freehold interest is resumed. There is some conflict of authority on this point. The position was considered in detail by the Ontario Court of Appeal in Re Frankel Steel Construction Ltd. v. Metropolitan Toronto (1966) 58 D.L.R. (2d.) 578 where it was held that a tenant is not entitled to his total removal costs but only for an amount to compensate him for having to meet those costs at the date of resumption, instead of later at the expiration of the tenancy. 69. In this application, while the applicant's interest is leasehold, he does not have to relocate, as his existing business will continue on the reduced ponds remaining after the severance affected by the resumption. Accordingly we do not have to consider the usual relocation expenses. 70. Loss suffered by the applicant under this head for other items is, then clearly recoverable as disturbance, if proven. The offer of compensation by the Crown, we note, included an amount for loss due to disturbance. That the applicant will suffer such loss was undisputed, so we are only concerned with quantum. In relation to the basis of assessment we remind ourselves that part of the remaining ponds are constructed on Crown Land of which the applicant is not the lessee but is nevertheless farming that land with the Crown's knowledge and acquiescence. We hold that his occupation of that land is not unlawful. Any compensation payable under this head will therefore be in respect to any loss suffered over the whole of the remaining fish pond area including those areas of the reduced ponds constructed on Crown Land which will survive the resumption. 71. The losses caused by the resumption injuriously affecting the remaining land may be divided as follows:-
Dealing first with the reduced level of farming during 1983 we accept that during 1982 the applicant at the Crown's request, took steps to limit his use of the ponds preparatory to the ponds being emptied in 1983. In compliance with the request in December 1981 the applicant added no new fish fry. The applicant estimated that 1983 income would be reduced by two-thirds due to not restocking. 72. Mr. Wong for the Crown would not accept this estimate and based his opinion on the 1982 figures which were adduced in evidence. However, those 1982 figures are not directly relevant except as an indication of a normal years income after re-stocking was carried out. The applicant was unable to adduce any detailed actual figures to support his estimate. However, we accept that from working on the farm at various periods and having access to past production figures, he is in a position to make a sound estimate. In addition, the applicant called Mr. Au Yeung as an expert on some of the matters we had to consider. Mr. Au for the past 8 years has acted as a consultant to a number of local fresh water fish farmers and earlier for 15 years had been a manager of 15 large fish ponds in China. He advises the applicant on the management of his two ponds which, it was claimed, have shown a large increase in annual yield since his expert advice has been available. We accept that he has considerable experience in these areas and is personally familiar with the applicant's ponds. Mr. Au stated that the failure to restock for 1983 had resulted in a drop in cash sales of approximately 50% but there would also, in some areas, be a reduction in fish food and other expenses which would be as high as two-thirds for some items. 73. After considering the whole of the evidence we reject the applicant's claim of a two-thirds reduction but will allow a reduction of 50%. We will use the 1982 figures as a basis for estimating the 1983 loss. For 1982 we have already calculated net revenue per catty at $8.93. The balance of the land available to the applicant until September 1983 when the season closes comprises 17,060 square metres. Total production for 1982 was 26,758 catties. We calculate 1983 production as 17,060 $------------- x 26,758 21,100 equals 21,635 catties. The 21,635 catties at $8.93 per catty produce a net revenue of about $193,000. The gross loss, being half that sum, is $96,500. 74. Operating expenses would also, as we have noted, have been reduced for 1983. The full 1982 operating expenses for the whole area of 31.3 dau chungs were previously calculated at $32,130. There was evidence on some of these reductions. The evidence was neither comprehensive or detailed but we are able to delete the amounts for fish fry. We also reduce previous expenses for food, fertiliser and harvesting. Accordingly we reduce the 1982 expenses of $950 per dau chung down to $500 per dau chung for 1983. The total expenses attributable to the balance area in 1983 are therefore $12,653 calculated as follows: 17,060 $--------------- x 500 x 31.3 equals $12,653. 21,100 75. On the basis of these very broad estimates the net income for 1983 would be the difference between $96,500 and $12,653, say $84,000. If trading conditions in 1983 had been similar to 1982, the net income for the remaining 17,000 square metres would have been in the region of $167,000. On the basis of those figures there would have been a loss of net income for 1983 of about $83,000. 76. Turning to the loss of income for disturbance during 1984 it was accepted by both parties that it was anticipated that the construction work relating to the bund and ancillary works would result in the remaining fish ponds not being available for farming during 1984. Both parties desired that compensation for this disturbance should also be determined in the present application. We confirm that the losses will relate to the same area affected by the 1983 losses, namely 17,060 square metres of the original area of 21,100 square metres. The 1984 annual losses based on the 1982 figures may similarly be estimated to be $167,000, the calculation of which may be summarised as follows:
77. We have included in this sum an allowance for the necessary costs associated with restocking. Further as payment of the loss for 1984 will be made in advance, it is proper for it to be discounted at the appropriate rate, which produces a figure of about $150,000. 78. In the result we determine the compensation payable on the application to be $320,000, made up as follows:
79. We record that interest is payable in terms of Section 17 of the Ordinance. We allow the applicant costs which we fix at $500 together with disbursements approved by the Registrar. DATED this 25th day of November, 1983.
Representation: Mr. Lee Chun, by leave, for the applicant. Mr. S.H. Franklin, Crown Counsel, Legal Department, for the respondent. |
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