Busy Firm Investment Ltd. v. Secretary for Transport

LDRW000006/2001

LDRW 6/2001

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Railways Ordinance Application No.LDRW 6 of 2001

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Date of Judgment: 21 November 2002

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J U D G M E N T

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Background

1.This is an application by the Applicant for compensation under the Railways Ordinance, Cap.519, in respect of Lot Nos. 708(P), 716(P), 717(P), 718(P), 719(P), 720(P), 724(P), 725, 729(P), 730(P), 731, 732, 733, 734(P), 735(P), 736(P), 737(P), 740(P), 814(P), 815(P), 894(P), 906RP, 907RP(P), 934RP(P), 935, 937(P) and 939RP in Demarcation District No. 122 ("the Lots"), as shown coloured pink on the Plan No. WR-MIS-1082 at page 294 of Exhibit "AR1". The Lots were resumed under the Railways Ordinance for the purpose of the West Rail (Phase 1) Scheme.

2.The Lots were part of the land included in the West Rail (Phase 1) Scheme and were first referred to in Government Notification No. 1629 dated 27 September 1997 published in the Government Gazette on 3 and 9 October 1997. A number of amendments and corrections of the Scheme were subsequently made and gazetted. Since then, the Lots have reverted to the Government on 16 January 1999.

3.The Lots, except Lot No. 729(P), were Old Schedule agricultural lots in the New Territories held under a Block Government Lease. Lot No. 729 was a mixed lot comprising Old Schedule agricultural lot and building lot. The parties agreed that the portion of Lot No. 729 resumed had a land status of agricultural lot.

4.The Lots, together with the areas of the land respectively shown coloured yellow and coloured blue on the Plan No. WR-MIS-1082 (hereinafter respectively referred to as "the Remaining Land" and "the Contiguous Lots") were owned by the Applicant prior to the resumption.

5.The Lots, the Remaining Land and the Contiguous Lots were situated in Wing Ning Tsuen approximately 300 metres to the north of the junction of Long Tin Road and Long Ping Road in Ping Shan of Yuen Long. They jointly constituted several irregular parcels of land, interspersed with Government land, other private lots and footpaths. They were accessible by footpaths, tracks or Yung Yuen Road, a narrow village road. According to the Respondent's expert witness, Mr. Hong Kwok Hei Kenneth ("Mr. Hong"), they were either vacant or grown with crops or partially improved with temporary structures as at the resumption date. The immediate surroundings of the Lots, the Remaining Land and the Contiguous Lots remained rural, with village houses and temporary structures scattered around.

6.The site areas of the Lots and the Remaining Land were set out in page 251 of Exhibit "AR-1". They are summarised as follows: -

7.Mr. Sung summarized the areas of the Contiguous Lots in pages 303 and 304 of Exhibit "AR-1". They had a total area of 18,494 sq.m. of which 17,765.6 sq.m. were agricultural lots and 728.4 sq.m. were "house" lots.

8.The Lots, the Remaining Land and the Contiguous Lots had the following zoning under various statutory Draft Ping Shan Outline Zoning Plans and non-statutory Development Permission Area Plan, prior to the introduction of the Draft Outline Zoning Plan to the Ping Shan Area in June 1996: -

9.The Applicant acquired the Lots, the Remaining Land and the Contiguous Lots by a number of agreements for sale and purchase in 1992.

10.On 15 January 2000, the Applicant appointed Messrs. Lawson David and Sung Surveyors Limited to submit to the Respondent a compensation claim in respect of the resumption of the Lots including diminution in value of the Remaining Land due to severance, in the sum of $124,150,000 plus interests, professional fees and costs. As the parties could not reach any agreement after the expiry of 7 months from the receipt of the claim, the Applicant filed an application to the Lands Tribunal on 12 May 2001 for the determination of the amount of compensation under Section 34(7) of the Railways Ordinance.

11.Originally, the Applicant's claim lodged with the Respondent dated 15 January 2000 did not make any reference to the Contiguous Lots in the valuation, nor did the Applicant make any claim in respect of the Contiguous Lots when the Applicant filed the Notice of Application in the Lands Tribunal on 12 May 2001. Following Mr. Hong's revelation in his valuation report dated 21 September 2001 that the Applicant owned many other pieces of land contiguous to the Remaining Land, the Applicant's expert, Mr. Sung Tze Wah ("Mr. Sung"), in his supplementary report dated 5 December 2001, amended his valuation of the Applicant's claim to include the alleged diminution in value of the Contiguous Lots due to severance.

Amendment to the Applicant's claim

12.Thus, at the commencement of the trial, the Applicant applied for an amendment to its claim to include a claim for severance in relation to the Contiguous Lots. The Respondent objected to the amendment as it was made out of time. Section 33(1) of the Railways Ordinance stipulates that:-

"Subject to subsections (2) and (5), if a claim or an amendment to a claim is not served on the Secretary before the expiry of the period specified in column 4 of Part II of the Schedule for that matter, the right to claim compensation is barred."

13.Column 4 of Part II of the Schedule to the Railways Ordinance specifies that the claim must be served on the Respondent before the expiration of 1 year from the date of resumption. However, Section 33(2) of the Railways Ordinance gives the Lands Tribunal a discretion to extend the period as follows:-

"The Lands Tribunal may extend the period referred to in subsection (1) on application made to it either before or after the expiry of the period if it considers that the delay in serving the claim occurred-

(a) by mistake of fact;

(b) by mistake of any matter of law (other than the relevant provision in column 4 of Part II of the Schedule); or

(c) by any other reasonable cause."

14.Mr. Miu for the Respondent submitted that Section 33(2) applied not only to a claim but an amendment to a claim too, as the Tribunal would otherwise not be able to grant any extension in respect of an amendment to a claim. But before the Tribunal could exercise its discretion to extend the time for serving the amended claim, the Applicant had to establish that the delay occurred by mistake of fact, mistake of law or any other reasonable cause. Mr. Miu further submitted that the amendment should not be allowed because the amended claim had no merit at all.

15.In support of his first contention, Mr. Miu relied on the decision of H.H. Judge Chow in Ease Gold Development Limited v. Secretary for Transport LDMR 13 of 1999, where the Tribunal was construing a similar provision in Section 28 of the Roads (Works, Use and Compensation) Ordinance, Cap. 370, which reads as follows:-

"(1) Subject to subsections (2) and (6), if a claim or an amendment thereto is not served on the Secretary before the expiration of the period specified in the fourth column of Part II of the Schedule in respect of that matter, the right to claim compensation therefore shall be barred.

(2) The period referred to in subsection (1) may, upon application made to the Lands Tribunal either before or after the expiry of that period, be extended in accordance with this section.

(3) ...

(4) The Lands Tribunal may extend the period within which a claim must be served upon the Secretary if it considers that the delay in serving the claim was occasioned by mistake of fact or mistake of any matter of law (other than the relevant provision in the fourth column of Part II of the Schedule) or by any other reasonable cause or that the Crown is not materially prejudiced in the conduct of its case or otherwise by the delay."

16.Mr. Miu submitted that H.H. Judge Chow in the Ease Gold case had held that the word "claim" in Section 33(2) (which should be Section 28(4) of the Roads (Works, Use and Compensation) Ordinance) included an amendment to a claim. There was in fact no such ruling made by H.H. Judge Chow in the Ease Gold case. On the contrary, H.H. Judge Chow ruled that he had no jurisdiction to allow an extension of time under Section 28(1), and he was criticized by the Court of Appeal hearing the appeal in the same case (CACV 3422 of 2001) for taking such a view in the light of the wording in Section 28(2), which enabled the Tribunal to grant extensions of time after the expiry of the period referred to in Section 28(1). The Court of Appeal ruled that H.H. Judge Chow was in error and ordered that time be extended under Section 28(2) in such a manner so as to enable the amended claim to be proceeded with.

17.Mr. Miu also submitted that Sections 33(1) and (2) should be read in conjunction with Section 34(3) of the Railways Ordinance, and if they were read together, it can be seen that Section 33(2) applied to an amendment of a claim as well. Section 34(3) reads as follows:-

"The Secretary may, within 28 days of the receipt of an amended claim served before proceedings are commenced in the Lands Tribunal if the Secretary considers the amendment to be substantial, notify the claimant that he elects to treat the claim, for the purposes of this section, as if it were a new claim served under subsection (1) on the date on which the amendment was received by the Secretary, and this section applies accordingly."

18.Ms. Eu SC for the Applicant, however, submitted that Section 33(2) of the Railways Ordinance made a distinction between an amendment and putting in a new claim. The Applicant was not making a claim as such, but an amendment to the claim. There was only one resumption from which the Applicant's claim arose, and the Applicant had already made the claim. The Applicant was only making an amendment to the claim to say that the severance affected the Contiguous Lots as well. The Applicant had already served on the Respondent a written claim setting out all the particulars as required by Section 34 of the Railways Ordinance. Section 34 did not require the Applicant to provide particulars of the land affected by the severance. The question of severance only came in as the basis for calculating the compensation payable pursuant to Column 2 of Part II of the Schedule to the Railways Ordinance and Section 10(2)(c) of the Lands Resumption Ordinance. Column 2 of Part II of the Schedule to the Railways Ordinance specifies that the compensation under the Railways Ordinance is to be assessed as if the claim were made under the Lands Resumption Ordinance, Cap. 124. Section 10(2)(c) of the Lands Resumption Ordinance stipulates that the Lands Tribunal shall determine the compensation 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". Thus, the amendment related only to the basis of calculation in determining the compensation payable.

19.Ms. Eu therefore contended that Section 33(2) related only to making a fresh claim. For amendments to a claim, the Tribunal had the power and jurisdiction to grant the extension of time under Section 10(2)(d) of the Lands Tribunal Ordinance, Cap. 17, which stipulates that the Tribunal may-

"for good cause, enlarge the time, whether or not that time has already expired, fixed by any Ordinance-

(i) for the giving of any notice, either before or after any proceedings have commenced;

(ii) for the taking of any step in any proceedings; or

(iii) for the filing or lodging of any document in any proceedings."

20.Ms. Eu submitted that the Tribunal was not restricted to the considerations in Section 33(2), but would allow an amendment as in the usual case when the court allowed an amendment to any claim or any particulars of claim in all other legal proceedings, i.e. whether the Respondent would suffer any prejudice or whether the prejudice could be compensated by costs. Ms. Eu submitted that the Tribunal should allow the amendment, as the Respondent would suffer no prejudice at all.

21.We do not accept Ms. Eu's submission that Section 33(2) makes a distinction between an amendment and putting in a new claim. On the face of it, the omission of the words "or an amendment to a claim" in Section 33(2) does give rise to an interpretation that Section 33(2) applies only to the delay in serving "a claim", not "an amendment to a claim". However, it is clear that the use of the words "the claim" in Section 34(3) refers actually to "an amended claim". It seems to us that the draftsman must have used the term "the claim" loosely to include "an amended claim" or "an amendment to a claim". Moreover, the phrase "The Lands Tribunal may extend the period referred to in subsection (1)" in Section 33(2) does not confine to the period for serving "a claim" only. We find it extremely odd that the legislation would in the same section impose a time limit for serving both "a claim" and "an amendment to a claim", but give power to the Lands Tribunal to extend only the time for serving "a claim" and not the time for serving "an amendment to a claim".

22.The decision of the Court of Appeal in the Ease Gold case confirms that Section 28(2) of the Roads (Works, Use and Compensation) Ordinance gives the power and jurisdiction to the Lands Tribunal to extend the period for serving "an amended claim". Even though Section 33(2) is not exactly the same as Section 28(2), it appears to us that it is a combination of both Sections 28(2) and (4). It is therefore our view that Section 33(2) should be interpreted in the same way as what the Court of Appeal did in respect of Section 28(2) in the Ease Gold case.

23.Thus, we find that "the claim" in Section 33(2) includes "an amended claim" or "an amendment to a claim", and hence the Lands Tribunal has the power and jurisdiction under Section 33(2) to extend the time limit imposed by Section 33(1) in respect of "an amendment to a claim". We do not find it necessary to resort to Section 10(2)(d) of the Lands Tribunal Ordinance to grant the extension. Section 33(2) in fact gives a wide discretion to the Lands Tribunal to extend the time, as the extension can be granted when there is any reasonable cause for the delay.

24.Mr. Sung gave evidence on the reason why the Contiguous Lots were not included in the original claim. He explained that when he received instructions, it was only in response to the Government's resumption letter. So in the first report, he just acted on it, checked the necessary particulars and confirmed what was contained in the letter as usual. It was only when he received Mr. Hong's report, he realized that the Applicant had the Contiguous Lots. He further explained that in a big development company, everyone worked by sectors and one sector would not know what the others were doing. It was also difficult to reach or speak to the top people in the development company. So he did not know the Contiguous Lots belonged to the Applicant until he received Mr. Hong's report.

25.We accept Mr. Sung's explanation. We find that Mr. Sung was not aware of the Contiguous Lots when he prepared his first report. Although the Applicant should know that it owned the Contiguous Lots, the matter was handed over to Mr. Sung to handle and Mr. Sung had no knowledge of the ownership of the Contiguous Lots until he received Mr. Hong's report. The delay in submitting the claim in respect of the Contiguous Lots therefore occurred by the mistake of fact on the part of Mr. Sung, the Applicant's agent. We are satisfied that the Applicant has established a mistake of fact or alternatively a reasonable cause by which the delay in serving the amended claim occurred.

26.We also accept that there is no prejudice done to the Respondent when the amendment is allowed. Mr. Miu submitted that the Respondent was prejudiced because the amendment would upset the budgets and arrangements that the Respondent had already made. We do not agree with Mr. Miu. As pointed out by Ms. Eu, when a claimant put forward a claim, very often and as in the present case, the claim is just put on a without prejudice basis and at a lower figure in order to settle the matter quickly and to save costs. However, when the claim has to be proceeded with, the particulars, the amount and the basis for the compensation would become more serious, more detailed and at a higher figure. The Respondent cannot say that they have prejudice simply because the amount of compensation has increased. The Respondent should know that the amount has to be determined by the Lands Tribunal and it may not be the same as what they have assessed or what the Applicant has claimed. Even if there is any prejudice to the Respondent, we do not find that the prejudice cannot be compensated by costs. We see no reason why the budgets or the arrangements mentioned by Mr. Miu cannot be adjusted or remedied. So we find that the prejudice alleged by the Respondent, if any, is not a ground for refusing the amendment.

27.As to Mr. Miu's second contention that the amended claim had no merit at all, Mr. Miu submitted that there was no evidence to say that the green belt zoning for the Contiguous Lots was due to the resumption or had anything to do with the West Rail. So the amendment, on the face of it, was patently bad. We do not agree with Mr. Miu on this either. We agree with Ms. Eu that this is a matter for evidence, argument and submission, and we should not pre-empt the Applicant's claim at this stage by refusing the amendment.

28.In the circumstances, we are of the view that the amendment sought by the Applicant should be allowed. The amendment, as confirmed by Ms. Eu, is as per pages 9 and 10 of Mr. Sung's Comments on Supplementary Report of Respondent's Surveyor, i.e. Exhibit "A-3". We therefore order that leave be granted to the Applicant to amend its claim as per pages 9 and 10 of Exhibit "A-3" and time be extended under Section 33(2) of the Railways Ordinance in such a manner so as to enable the amended claim to be proceeded with.

Summary of the Applicant's claim and the Respondent's valuation

29.On 18 September 2001, Mr. Sung assessed in his valuation report (pages 40 to 43 of Exhibit "AR-1") that the Applicant's total claim was in the sum of $188,200,000. This included the open market value for the Lots resumed in the sum of $117,400,000 and the diminution in value of the Remaining Land due to severance in the sum of $70,800,000. At that time, Mr. Sung did not claim any diminution in value of the Contiguous Lots due to severance.

30.Subsequently, Mr. Sung filed a Supplementary Report dated 5 December 2001 (pages 304 of Exhibit "AR-1"), in which he reviewed his valuation in the light of the valuation report of Mr. Hong. He revised his assessment from $188,200,000 to $271,200,000, which included a claim for the diminution in the value of the Contiguous Lots (see Exhibit "AR-2"). On 30 January 2002, he further revised his total claim to $267,800,000 (see Exhibit "A-3"), the break-down of which was as follows: -

(1) the open market value of the Lots in the sum of $115,300,000, which was based on a revised adopted unit rate of $11,475 per sq.m. on the agreed total area of the Lots of 10,048.1 sq.m.;

(2) the diminution in the value of the Remaining Land of 15,461.5 sq.m. in the sum of $71,000,000; and

(3) the diminution in the value of Contiguous Lots of 17,765.6 sq.m. owned by the Applicant in the sum of $81,500,000.

31.Alternatively, Mr. Sung opined that if the Lots were to be used for open car parking, he assessed the open market value of the Lots at $87,200,000.

32.Mr. Hong in his Rule 20 Report dated 21 September 2001 (page 219A of Exhibit "AR-1") estimated that the compensation amount for the Lots with the benefit of vacant possession as at the resumption date was HK$8,000,000.

33.Subsequently, Mr. Hong in his report dated 21 November 2001 reviewed his valuation, and was satisfied with the approach and the basis of valuation as set out in his first report dated 21 September 2001. However, he discovered certain mathematical errors in his report. As a result, he revised his valuation of the Lots, from $8,000,000 to $8,900,000 (page 350 of Exhibit "AR-1").

34.Alternatively, Mr. Hong was of the opinion that the open market value of the Lots, assuming residential development was the best alternative use in the "no scheme" world, with the benefit of vacant possession as at the resumption date, was $11,500,000 (page 350 of Exhibit "AR-1"). During the hearing, Mr. Hong produced his second supplementary report which, in addition to giving response to the matters raised by Mr. Sung, also suggested that a further discount of 30% to his previous valuation was warranted. The discount was said to reflect the difference between the secured, designated zoning of the comparables and the different situation for the Lots, which did not enjoy the same secured zoning but at best had the probability of being re-zoned for residential use. As a result, he revised his valuation from $11,500,000 to $8,050,000, which was rounded to $8,000,000 (page 14 of Exhibit "R-8").

35.In addition, Mr. Hong opined throughout his valuations that there was no diminution in value of the Remaining Land or the Contiguous Lots and hence, no compensation was payable.

36.In summary, the Applicant claimed that the compensation for the Lots resumed, including compensation for severance of the Remaining Land and the Contiguous Lots, should be in the sum of $271.20 million; whilst the Respondent submitted that the compensation to the Applicant should only be $8.9 million, which was the highest of the Respondent's valuation on two alternative bases. For ease of reference, we tabulate the main variables used in the parties' valuations as follows: -

37.As summarized above, there were huge differences between the valuations of the two expert surveyors. They were mainly due to (i) the different assumptions as to the permitted zoning and the permitted use of the Lots, i.e., the planning permissions that would have been given to the Lots in the absence of the West Rail Scheme and the resumption thereunder, (ii) the difference in the choice of comparables which were based on the different assumptions as to their permitted zoning and uses, and (iii) whether there would be any diminution in value to the Remaining Land and the Contiguous Lots owned by the Applicant, and if so, the extents of such diminution in value. Before going through their evidence in details, we shall first set out below the few legal issues and principles behind the method of assessment of compensation for resumption of land in Hong Kong in general and in the context of this case in particular.

The statutory provisions on compensation

38.We first consider the statutory provisions on the assessment of compensation. For the resumption of the Lots, which were instituted under the Railways Ordinance, the basis on which compensation is to be assessed is set out, inter alia, in Item 1 in Part II of the Schedule to that Ordinance as follows: -

"As if the claim were made under the Lands Resumption Ordinance (Cap.124) for land resumed under that Ordinance."

39.Under the said Item 1, it is also provided that persons who may claim compensation for their respective losses are: -

"Any person who would be entitled to claim compensation for land resumed under the Lands Resumption Ordinance (Cap.124) if the land had been resumed thereunder."

40.The statutory provisions for assessment of compensation for land resumed under the Railways Ordinance are therefore set out in the Lands Resumption Ordinance. The relevant provisions in the Lands Resumption Ordinance are: -

Section 10(2)(a) -

"the value of the land resumed and any buildings erected thereon at the date of resumption".

Section 10(2)(c) -

"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".

Section 10(2)(e)(ii) -

"the amount of any costs or remuneration mentioned in sections 6(2A) and 8(4)".

Section 12(a) -

"no allowance shall be made on account of the resumption being compulsory".

Section 12(aa) -

"no account shall be taken of the fact that the land lies within or is affected by any area, zone or district reserved or set apart for the purposes specified in section 4(1)(a), (c), (d), (e), (f), (g), (h) or (i) of the Town Planning Ordinance (Cap.131)".

Section 12(b) -

"no compensation shall be given in respect of any use of the land which is not in accordance with the terms of the Government lease under which the land is held".

Section 12(c) -

"no compensation shall be given in respect of any expectancy or probability of the grant or renewal or continuance, by the Government or by any person, of any licence, permission, lease or permit whatsoever:

Provided that this paragraph shall not apply to any case in which the grant or renewal or continuance of any licence, permission, lease or permit could have been enforced as of right if the land in question had not been resumed".

Section 12(d) -

"subject to the provisions of section 11 and to the provisions of paragraphs (aa), (b) and (c) of this section, the value of the land resumed shall be taken to be the amount which the land if sold by a willing seller in the open market might be expected to realize".

41.In the Draft Ping Shan Outline Zoning Plan No. S/YL-PS/2 which was applicable at the relevant date, the Lots and the major portions of the Remaining Land were respectively zoned "Undetermined" and "Green Belt". The minor portions of the Remaining Land were zoned "Green Belt". As to the Contiguous Lots, some of them were zoned "Undetermined" and some of them were zoned "Green Belt". The two zones of "Undetermined" and "Green Belt" are the zones, specified in Section 4(1)(e) of the Town Planning Ordinance, Cap.131. Section 12(aa) of the Lands Resumption Ordinance actually requires that in assessing the compensation for the Lots, no account shall be taken of the fact that the Lots were zoned "Undetermined" as it was specified in Section 4(1)(e) of the Town Planning Ordinance. However, Section 4(1)(b) of the Town Planning Ordinance is not included in Section 12(aa) of the Lands Resumption Ordinance, so "zones or districts set apart for use for residential, commercial, industrial or other specified uses" as stipulated in Section 4(1)(b) of the Town Planning Ordinance can be taken into account.

42.Hence, we find that one of the basic assumptions we have to make is that in assessing the open market value of the Lots on the basis of the alternative highest and best use, we must ignore the then existing "Undetermined" zoning and assume that the Lots were in the "no zone" world. However, does it mean that we have to assume that there is no planning control at all in such circumstances, or that, for the purpose of assessing compensation for land resumed, the Lots must be assumed to be zoned for "residential, commercial, industrial or other specific uses"? We find the answers to both questions to be negative. Obviously, it would be illogical to assume that there is no planning control of user or density in our society. For the same reason, we do not find that the provisions of the Lands Resumption Ordinance requires us to assume the absence of planning control of user or density. Also, neither party actually submitted that because of Section 12(aa) of the Lands Resumption Ordinance, which requires the Tribunal to ignore any "Undetermined" zoning but not any residential or commercial or industrial zoning, the Tribunal must assume, by default, that the resumed Lots have a residential zoning of a particular type. Therefore, we find that after ignoring the then existing "Undetermined" zoning of the Lots, we still have to consider what the zoning of the Lots would have been in the absence of the West Rail Scheme and the resumption. More specifically, whether in the "no scheme" and the "no zone" world, the land would have been zoned residential and if so, what type of residential zoning.

Summary of case laws of recent years on the principles of compensation

43.The relevant cases establishing the basic principles of compensation for land resumption in Hong Kong, in chronological order, are as follows: -

(1). Suen Sun-yau v. Director of Buildings and Lands [1991] HKDCLR 33 where H.H. Judge Cruden held at page 41: -

"The market reality is that purchasers are prepared to buy agricultural land with non-agricultural potential and accept the risk of obtaining the necessary change of user.... I appreciate any purchaser would require to obtain Crown approval for any change of use; probably have to pay a premium; and comply with other conditions. However, I am equally satisfied that a purchaser, fully aware of those risks, would be willing to pay above bare agricultural land market value for the land, with that potentiality. Where land is compulsorily resumed, the owner is entitled to the present value of the land, including the advantage of those potentialities."

(2). Yin Shuen Enterprises Limited v. Director of Lands, unreported, LDLR 5 of 2000, 14 February 2001

(3). Dragon House Investment Limited v. The Secretary for Transport, unreported, LDMR 31 of 2000, 25 May 2001 in which Deputy Judge Tong held at page 3 of the Judgment that: -

"The Suen Sun Yau's case in our view was clear authority that section 12(c) had no application to the present value of the land being resumed...We further hold that as section 12 (aa) tells us not to take into account the CDA zoning of the Lots, we should approach the valuation process of the lot by assuming that it is a no zone world. We should then consider the location, accessibility and the surrounding environment of the Lots and find out the real present value of the lots. In the end, we are convinced that the Lots were suitable in being developed into some kind of building lots in future subject to the owner's obtaining the necessary approval for change of user. We shall bear this in mind when we embark upon the actual valuation process."

(4). Nam Chun Investment Limited v. The Director of Lands, unreported, LDLR 3 of 2000, 19 June 2001

(5). Tang Yin Kwong and Others v. The Secretary for Transport, unreported, LDMR 34 of 2000, 14 September 2001

(6). The decision of the Court of Appeal in Nam Chun Investment Limited v. The Director of Lands (the "Nam Chun Appeal") and Yin Shuen Enterprises Limited & Anor v. Director of Lands ("the Yin Shuen Appeal") and [2002] 1 HKC 304

44.In the case of Dragon House Investment Ltd., the Lands Tribunal cited with approval a passage from the judgment in Suen Sun-yau case and the decision of the Lands Tribunal in Yin Shuen Enterprises Limited v. Director of Lands. In the Nam Chung Appeal, the Court of Appeal cited the same passage (partly reproduced above) from the Judgment of H.H. Judge Cruden in the Suen Sun-yau case with approval. The Court of Appeal also upheld the Lands Tribunal decision in the Yin Shuen Enterprises Limited case.

Effect of Section 12 (c) of the Ordinance

45.In Yin Shuen Appeal, Rogers V.P. dismissed the arguments on behalf of the Director of Lands that section 12(c) of the Ordinance precluded an assessment being made which included a hope value. In the words of Rogers V.P. in the judgment of Yin Shuen Appeal [2002] 1 HKC 304 at 312, lines B to D,

" Mr. Yu SC, on behalf of the applicants, put his case on the basis that the land may have attributes which would give it a potential. That potential gave the land a value which was different in nature from an expectancy or a probability that a licence or permission may be granted. Although, it may seem a narrow distinction, as I shall endeavour to explain, it appears to me to be a real and correct one. As will become apparent, the distinction between an expectancy or a probability that an interest in land may be acquired on the one hand and the potentiality of the land on the other is one that has always been recognized in interpreting legislation relating to compensation in common law countries; it has consistently recognized and applied in Hong Kong and is not affected by anything in the Land Resumption Ordinance."

46.As a result of the decisions of the Court of Appeal in Yin Shuen Appeal and Nam Chun Appeal handed down on 5 January 2002, it is settled law that where agricultural land is compulsorily resumed, the owner is entitled to the highest and best use of the land, including the advantage of potential for residential development. The Respondent submitted that as the Tribunal was bounded by the judgement in these two appeals on the construction of section 12(c), the Tribunal should treat this issue as argued and decided against the Respondent. We hold that section 12(c) did not preclude against the valuation of the Lots by direct comparison approach using sales of comparable land as evidence of the open market value of the Lots.

Severance of the Remaining Land and the Contiguous Lots

47.We have decided earlier to grant leave to the Applicant to amend its claim as per pages 9 and 10 of Exhibit "A-3". That is, the claim of the Applicant includes the Lots, the Remaining Land and the Contiguous Lots. We find that under Section 10(2)(c) of the Lands Resumption Ordinance, the Applicant is entitled to compensation for the amount of loss or damage suffered by the Applicant due to the severance of the Lots from the Remaining Land and the Contiguous Lots. There was no dispute from the Respondent that the Remaining Land and the Contiguous Lots were contiguous or adjacent to the Lots resumed. We shall therefore determine in this Judgment the amount of compensation payable to the Applicant, due to the severance of the Remaining Land and the Contiguous Lots.

Issues before the Tribunal

48.As rightly put by the parties, we have to determine the value of the Lots on two different bases, firstly, the open market value of the Lots on the basis of its then existing use, either as a commercial open carpark as put forward by Mr. Sung, or as agricultural use as opined by Mr. Hong; and secondly, the open market value of the Lots in the "no scheme" world, on the basis of its alternative highest and best use, as envisaged by the market. The compensation payable to the Applicant shall be the higher of the two valuations.

49.The first valuation of Mr. Sung involves the investment method of valuation, which requires the assessment of the full open market rental value of the Lots for car parking use and its capitalization by an appropriate multiplier. The first valuation of Mr. Hong, on the other hand, involves the identification and choice of comparables for similar existing agricultural use and their adjustments.

50.The second valuation of the parties is the same, involving mainly the valuation of the Lots on direct comparison basis. We also have to decide what amounts of compensation, if any, would have to be paid to the Applicant, in respect of the Applicant's Remaining Land and Contiguous Lots that had been severed by the resumption.

51.The difficult question associated with the second valuation, as pointed out by Mr. Miu in his Final Submission, is whether the Lots, as perceived by the market, possessed the actual potential for residential development at the time of resumption in January 1999. In other words, we have to find out, in the eyes of the market, what the zoning of the Lots at the date of resumption would be, on the basis that the West Rail scheme and the resumption thereunder be ignored (in view of the "Pointe Gourde" principle, which was accepted by the parties to be applicable in the present case) and that the zoning of the Lots were not zoned "Undetermined" (pursuant to Section 12(aa) of the Lands Resumption Ordinance). The answer to this question is essential because it will assist us to decide which should be the best comparables for the purpose of assessing the open market value of the Lots assuming the alternative highest and best use in the "no scheme" world. More specifically, it will assist us to decide whether the comparables used by Mr. Sung, which were agricultural lots mainly zoned "R(B)" (i.e. for medium density residential) and one zoned "R(A)", or the comparables used by Mr. Hong, which were agricultural lots all zoned "R(D)" (i.e. for low density residential) should be used in the valuation on the basis of potential alternative highest and best use.

52.An additional question connected with the second valuation is whether the Lots as they stood prior to the resumption are feasible for development, as opined by Mr. Sung. More specifically, we will consider whether and how the development potential of the Lots would be affected by (i) the vehicular accessibility of the Lots, (ii) the adequacy of the existing Yung Yuen Road, (iii) the irregular shapes of the Applicant's land, comprising the Lots, the Remaining Land the Contiguous Lots and (iv) the fact that the Lots were interspersed with Government land and existing paths.

Basis of Assessment of Open Market value

53.We agree that the following principles of valuation apply for land resumption in Hong Kong, as set out by H.H. Judge Cruden in his book, Land Compensation and Valuation Law (2nd Edition, 1999) at pp. 96-102: -

(1) The potential for development will usually be affected by the necessity to obtain planning and other permissions. In some countries the valuation task is simplified by the existence of planning assumptions. There are no similar assumptions in Hong Kong. (p. 97)

(2) In the absence of any statutory assumptions, the measurement of land potential is to be made in accordance with common law principles. Se Diplock LJ's judgment in London Borough of Enfield v Lavender Garden Properties Ltd. [1968] 2 All ER 401 at 406 A-G. (p.98)

(3) The development potential must be valued in accordance with the best use of the land. The best use, of course, has to be established by evidence. (p.99)

54.We note that the following passage in Rogers V.P. Judgment of Yin Shuen Appeal [2002] 1 HKC 304 at page 313, lines D - E provides us guidance to the choice of comparables in the valuation of the Lots: -

"On the face of the matter I consider that the applicants' approach is correct. Section 10(1) requires the loss to be assessed. Section 10(2)(a) requires the compensation to be determined on the basis of the value of the land. Section 12(d) of the LRO requires the value to be taken as the amount that would be agreed between a willing buyer and a willing seller. The best way of assessing compensation in accordance with these provisions is to take the amount of comparables as the starting point for the assessment. If the comparables taken are true comparables in terms of lease conditions and town planning orders, they will produce a result which reflects the value required to be taken under s. 12(d)" (underline added)

55.Since the Lots and all the comparables considered by the parties in this case were "agricultural" lots with similar lease conditions, it is clear from the above quotation that the comparables to be taken by us as the starting point for the assessment must be true comparables in terms of town planning restrictions.

56.We also note the following passage in the Judgment of Nam Chung Appeal [2002] 1 HKC 304 at 320, line F to 321 line A, in which Rogers V.P. said: -

"The practical reality in the present cases is that although the lots of land were restricted to agricultural use under the terms of the original Crown lease, their further use as agricultural land was by no means assured. It appears that the land could have been used for open storage but that, eventually, it was more likely to be used for housing. In this context, our attention was drawn to the now formalized process for applying for exchange of land and for modification of lease conditions.

By taking the value of comparable sites which were similarly restricted, I consider that, in both cases under appeal, the Lands Tribunal approached the matter on the correct basis. The applicants were entitled to have the value of their land assessed on the basis which included recognition of the attributes which the land had. As has been said in many cases before, probably the most satisfactory way of assessing that value is to take the sales prices of comparable sites which have similar attributes: that would probably result in the most satisfactory way of assessing the various factors which need to be assessed where the land has unrealised potentialities."

57.The Applicant submitted that Mr. Sung approached the valuation by assuming that the Lots were in a "no zone" world and then considering the location, accessibility and surrounding environment of the Lots to find out their real present value. Mr. Sung used 7 comparables and made adjustments for location, accessibility, quantum, zoning, timing and site layout to arrive at the Open Market Value of the Lots. The Applicant submitted that Mr. Sung's approach was correct and that Mr. Hong's comparables should be rejected since their physical attributes were not as similar to the Lots as Mr. Sung's comparables.

58.On the contrary, Mr. Hong opined that the zonings of the comparables were of primary importance. After analysis, Mr. Hong concluded that in the absence of the West Rail Scheme and the resumption, the Lots were not suitable for residential development but would most likely be zoned for "Recreation" or "Green Belt" uses. He then identified comparables that were zoned for "Undetermined", "Green Belt" and "Open Space" for the purpose of assessing the Open Market Value of the Lots, on the basis of the then existing "agricultural" use at the date of resumption. Therefore, Mr. Hong opined that those comparables were very suitable for the valuation of the Lots on the alternative basis of "Recreation" or "Green Belt" use. Alternatively, he considered that even if we were to agree with Mr. Sung that residential development would be the best alternative use in the "no scheme" world, the best comparables would have been the sales of agricultural land with "R(D)" zoning even though they were situated in a different Planning Area and the "R(D)" zoning was not an existing zoning in the Ping Shan Outline Zoning Plan. This was because, according to Mr. Hong, residential zoning of "R(D)" type to a maximum plot ratio of 0.2 would be the highest and best use that might possibly be allowed for the Lots in the "no zone" world. Since zoning was considered to be a more important factor in determining the value of any land, Mr. Hong reckoned that the choice of comparables with zoning similar to the potential highest and best zoning for the Lots were much more relevant than choosing comparables that were similar to the Lots in terms of location and/or physical attributes.

59.In our opinion, Rogers V.P. confirmed in the Judgment of Nam Chung Appeal that the Lands Tribunal was entitled to value the agricultural lots in question by comparing them with comparable sites which were similarly restricted and the restrictions included lease conditions, town planning orders and other attributes of the land in question. We therefore consider that we have to decide which are the best comparables in the present case. That is, if there were in existence different sets of comparables of different physical attributes and different zoning attributes (actual or most probable potential zoning, in the eyes of the market), which category of comparables should be preferred?

Basis for the choice of the comparables

60.In our opinion, the vendors and purchasers of any land in the market should recognize, as a matter of paramount importance, the zoning of such land, including the actual zoning at the times of sale and purchase, the historical zoning as well as the potential zoning. This is the situation so long as the present system of planning control still exists in our society. They are invariably of over-riding importance than other attributes of the land, including their lease restrictions, physical characteristics and other attributes. In other words, the players in the market would normally have regard to the zoning issue as of number one importance. The lease modification, if necessary, becomes a matter of formality, even though it may affect the viability of the development project, entail the payment of a premium and affect the other costs of development. The physical attributes may generally affect the costs of development and the value of the completed developments. Other than that, the physical attributes, including its location, accessibility and the surrounding environment, usually have an important bearing on the zoning potential of the land.

61.As an illustration, we all know that residential building lands of a similar zoning (for example, "R(A)") at different locations may have different values on "unit area of land" basis, or on the commonly agreed "accommodation value" basis, which is the value of land per sq.m. of developable gross floor area of completed development. Similarly, agricultural lands of a similar zoning at different locations may also have different values on unit area basis. Yet, it is common knowledge in the valuation profession that the difference in value between lands (such as residential lands with similar zoning) at different locations is much less than the difference in value between lands at similar locations but of different status of lease conditions and/or planning restrictions (such as lands in the same intersection but with "residential" zoning or "green belt" zoning).

62.Although the constituency of this Tribunal is not the same as the Tribunals hearing and giving judgments in the cases quoted earlier in this Judgment, we note and agree with the Respondent that in those cases, the Tribunal faced a situation that was quite different from the present case as regards the zoning of the land in question. In Nam Chun or Yin Shuen, the land had been zoned "R(A)" in the previous OZPs before their actual resumption by the relevant authority for the building of public housing estates. In Dragon House, the land had been zoned "CDA" which permits residential and commercial development. In Tang Yin Kwong, the land had been zoned "R(C)" prior to the resumption. Hence, we find that in the above quoted cases, the Tribunals decided to use comparables of land that were of similar attributes, i.e. of similar zoning, of similar lease conditions (as both were similarly demised "agricultural" lots), and of similar physical attributes. By contrast, the Lots in the present case has never been zoned "R" in any of the OZP or any other non-statutory plans before the resumption.

63.Further, we find in the above quoted cases, the Director of Lands mainly contested those cases over the issue of whether under Section 12(c) of the Lands Resumption Ordinance, that valuation could not be carried out on the basis of direct comparison of sales of comparable land if the latter were found to contain development potential. Therefore, unlike the present case, there were no or little arguments or debates on the potentiality of zoning of the land resumed in those cases.

64.We find that there is an important difference between this case and the other cases quoted by the Applicant in that for the subject Lots, there was no history of its being zoned for residential uses, or any use permitting building development, such as "CDA". It is therefore very arguable that we should compare the Lots directly with sales of other land that have a residential zoning, such as the comparable sales quoted by Mr. Sung, unless the players in the market were generally satisfied that the Lots were as secured, as far as zoning is concerned, as the comparables which all have actual residential zoning.

65.Hence, in the present case, we have to ask ourselves, at the outset, whether sufficient evidence had been adduced that the market would accept that for the Lots, in the absence of West Rail Scheme and the resumption and in the "no zone" world, they would have been zoned for medium-density residential (i.e. "R(B)2" zoning) to a plot ratio of 1.26, as suggested by Mr. Sung, or their best zoning would be "Recreation" or "Green Belt", as suggested by Mr. Hong. We shall consider this below.

Absence of planning certificate system similar to that of England

66.Mr. Miu stated in his submission that the primary issue facing us could have been avoided if Hong Kong had a similar statuory framework as in England, U.K. Basically, in England, any aggrieved owner/claimant, whose land was compulsorily resumed could apply to obtain a planning certificate under Section 17 of the Lands Compensation Act 1961. That Certificate may certify that planning permission for residential development might reasonably have been expected to be granted in respect of the said land if the land were not proposed to be acquired by any authority (see London Borough of Enfield v. Lavender Garden Properties Ltd. [1968] 2 All ER 401 at 401D). Such a certificate would have the effect of "what would otherwise be no more than a chance may be treated as a certainty" (in the words of Diplock L.J. in London Borough of Enfield at 406D). Unfortunately, we do not have similar statutory provisions in Hong Kong.

67.Mr. Miu further submitted that "since we do not have similar provisions in Hong Kong, the possibility of residential permission being granted must always remain a chance. There is no statutory conversion of that chance into a certainty. Therein lies the first danger of comparing SS (the Lots) with land which had been zoned "R(A)" or "R(B)". For those "comparables", the residential zoning was a fact, a certainty. For the SS, it was a mere "hope"."

68.Ms. Eu emphasized in her opening that the claim made by the Applicant was not a planning application. This was agreed by Mr. Miu, who said in his submission, "what the Tribunal must do is to consider what the zoning for the SS (the Lots) would have been, how the relevant plan would have looked like in January 1999, but for the WR (West Rail) scheme."

69.However, we find that as part of the process in assessing the compensation payable to the Applicant, we are actually asked to give a determination on what should have been a planning decision. We are fully aware of the difference between determination in a planning inquiry and determination in a Lands Tribunal hearing. We are also aware of the fact that although this case involves the determination of the most probable, highest and best alternative planning use (i.e. an alternative zoning) in the "no zone" world, the parties chose not to call any planning expert. However, it is a matter of their choices as to how they wish to conduct their cases.

The Applicant's case regarding the most probable zoning for the Lots

70.Mr. Sung gave evidence that before the resumption, the Lots formed a very extensive parcel of vacant agricultural land having a total registered area of over 215 hectares (25,000 sq.m.). Such a large merged site with potential for building development in single ownership in the New Territories was extremely scarce and were eagerly sought after by the developers.

71.Mr. Sung added that the Lots were situated at Wing Ning Tsuen bounded by Long Ping Road in the southeast and a major trunk road, Long Tin Road in the southwest. As such, the Lots were situated in a very good location with easy accessibility. Sites zoned "R(A)" were found situated close to the Lots.

72.Mr. Sung pointed out that over the last 10 years or so, many infrastructure, road, drainage and development projects in the general area surrounding the Lots had been completed by the Government and the private sector. Some other projects were still continuing. As Yuen Long and Tin Shui Wai New Town were expanding, there was pressure for development on suitable sites such as the Lots, particularly as they were located adjacent to Yuen Long Town Centre. Mr. Sung admitted in his written comments at Exhibit "A-3" that the Lots were not targeted for growth under the Government's strategic growth scenario. However, Mr. Sung said that according to his opinion, the Government's Territorial Development Strategy of 1998, which provided a broad framework for preparing sub-regional and district plans and for integrating Government policies on land and infrastructure development supported his contention that it was inevitable that the Lots, being located in between Yuen Long and Tin Shui Wai New Town, "would likely become a growth area given its location, accessibility, topography and availability of infrasture nearby."

73.Mr. Sung also commented on the history of the zoning of the Lots and the effects of the West Rail Scheme, as well as the effects of the earlier proposals of the Government commissioned Railway Development Study of 1993 and the Railway Development Strategy of 1994. He opined that the then existing "Undetermined" zoning for the Lots and the extensive area surrounding the Lots in various Draft Ping Shan Outline Zoning Plans since 1996 were caused by the West Rail Scheme. As any other zoning would have adversely affected the Scheme, the West Rail Scheme could not have proceeded if the previous planning applications for the Lots were not rejected. Therefore, this was the main reason for the TPB to refuse to grant approvals to various planning applications affecting the Lots in the last few years. Other than this reason, which should be excluded in view of the "Pointe Gourde" principle, Mr. Sung opined that there was no reason that approvals for the alternative "R(B)" zoning to a maximum domestic plot ratio of 1.26, could not be forthcoming. Hence, Mr. Sung concluded that the Lots were considered suitable for a large-scale comprehensive high-class residential development. If not for the West Rail Scheme and the resumption, the Lots would have been zoned "R(B)2", with had a maximum domestic plot ratio of 1.26. This zoning would be compatible with the surrounding environment.

74.The Applicant summarized in the final submission that the attributes which gave the Lots a potential for residential development include the following:-

(1) actual location or physical boundary of the Lots;

(2) non use of the Lots for agricultural purposes;

(3) proximity of the Lots to towns and residential zones;

(4) proximity of the Lots to main roads and highways and serverage systems;

(5) accessibility of the Lots to nearby major roads, roads and highways;

(6) actual uses of land nearby to the Lots;

(7) historical 'zoning' of the Lots;

(8) zoning on the relevant plan of land nearby to the Lots;

(9) direction of possible growth of towns nearby to the Lots; all on the date of resumption.

The Respondent's case regarding the most probable zoning for the Lots

75.Mr. Hong disagreed with Mr. Sung that Yuen Long South, Au Tau-Kam Tin and Hung Shui Kiu were all strategic growth areas. Rather, from the current Ping Shan Outline Zoning Plan S/YL/PS/3 of 28 May 1999, Mr. Hong opined that future expansion of population in the Area will be concentrated in existing villages and the Hung Shui Kiu area, and along Castle Peak Road.

76.Mr. Hong also considered that the reasons for rejecting the two planning applications involving the Lots were based on the planning intentions of the Ping Shan area, and other infrastructural constraints, and were consistent with the planning objectives.

77.The Respondent rejected Mr. Sung's arguments that because of the physical attributes and the location of the Lots, they would have been zoned "R(B)2" with a plot ratio of 1.26 but for the West Rail Scheme. In the final submission, the Respondent submitted that Mr. Sung's assertion that development would have come to the Lots because it was located at the path of growth between Yuen Long and Tin Shiu Wai might have some merits if there were no town planning. It might be fair to assume that without town planning, development might take place one next to the other, in a disjointed and haphazard fashion. But town planning changed all that. Thus one of the features of town planning is to make use of Green Belt zones to define the limits of urban and sub-urban areas by natural features and to contain urban sprawl (Exhibit "AR-1", page 86, paragraph 8.12.1).

78.Regarding the provision of infrastructure and sewage, etc., the Respondent disagreed with the Applicant that the development of the Lots would not create any problem simply because the scale of any development over the Lots would be minimal when compared with the whole provision of infrastructure, etc. for the general area.

Review of territorial wide planning documents affecting the Lots

79.Although the Applicant stated in his report dated 24 September 2001 that "the nearby areas to the site including Yuen Long South, Au Tau - Kam Tin and Hung Shui Kiu were identified within the North West New Territories Broad Based Study Area as potential long-term strategic growth areas", he later agreed on 30 January 2002 that the Lots were not targeted for growth under the Government's strategic growth scenario. However, Mr. Sung maintained his opinion in his written comments at Exhibit "A-3" that the Territorial Development Strategy Review, being the highest tier in the hierarchy of plans in Hong Kong published by the Planning, Environment and Lands Branch in 1998, did provide the background support for him to reach the opinion that the alternative best zoning for the Lots in the "no zone" world would have been "R(B)2". To make his points clear, Mr. Sung referred us to a few paragraphs in the Executive Summary of the said Review, as follow:-

Paragraph 16:

"...... the time has come for bold action to be taken on a board front to set up and sustain a new long-term, urban growth strategy. The broad principles for this are seen to be as follows:

(a) to help meet short- and medium-term housing needs, make the fullest possible use of residual capacities in current plans through both the development of new site and from build-back on redevelopment;

(b) to help meet medium- and long-term housing needs, move ahead vigorously with the development of suitable supplementary sites, generally on the periphery of already planned areas that have spare infrastructural capacity and/or from which new infrastructural services can be extended.

Paragraph 19:

"......, making use of the resources and initiatives of the private sector to the fullest extent possible ...... where relatively large sites have been assembled under unified titles. Government might need to play a role in such matters as rezoning, resumption of "odd" lots within the context of current statutory powers, in-site land exchanges and the provision of off-site infrastructural"

Paragraph 54:

"- vigorous efforts with need to be made to make the fullest use of any undeveloped sites within currently approved plans;

- the feasibility of developing supplementary housing sites on the periphery of existing and planned urban areas should be investigated as a matter of priority on the basis of both public and/or private sector initiatives; ......"

80.On the other hand, Mr. Hong gave evidence that the Lots did not fall within any designated growth area in Ping Shan Area or any wider Planning Area, as shown in any published statutory or non-statutory planning documents.

81.We do not quite understand how the above broad statements of the said Strategy assisted Mr. Sung in reaching his opinion of the alternative zoning for the Lots. We do not find the territorial wide planning documents adduced by the parties to be of much use in our determination as to what the Lots would have been zoned in the "no scheme" and the "no zone" world. They were generally too broad-brush in approach. We agree with the remarks made by the Planning Appeal Board, chaired by Mr. Justice Litton (TPA No. 12/1994, unreported, 14 September 1995) on the usefulness of TDSR, which was conducted on a territory-wide strategic level. In paragraph 13, the Board observed: -

"The problem with the use of these reports is that they look at land use on a very large scale and are not focused on the planning intentions for the (relevant site, in that case) "industrial" area in the Cheung Sha Wan OZP."

Previous applications for planning permission for the Lots

82.Mr. Hong summarized the history of planning applications of the Lots in his report, as follows: -

"Two planning applications dated 9 June 1994 (the "First Planning Application") and 29 May 1996 (the "Second Planning Application") were submitted by the Applicant's agents, City Planning Consultants Limited and R & U Planning and Development Consultants Limited, respectively. The planning applications sought s.16 planning approval for permitting low density residential development on a much larger area in Wing Ning Tsuen, covering all or part of the Parent Lots. Both applications were rejected by the TPB."

83.During the hearing, much time has been spent on the details of these planning applications, including both the decisions and the minutes of these meetings.

84.The Applicant submitted that the previous application for planning permission for residential developments relied on by the Respondent in 1994 or 1996 were irrelevant or should be approached with extreme caution because the RNTPC and the Town Planning Board ("TPB") were not considering the potential of the Lots for residential developments. The Applicant said that whilst the TPB and its Rural and New Town Planning Committee were concerned with whether the proposed developments were in line with the planning intention for the zoning of their lots (as set out in the relevant plans, the Notes and Explanatory Statements), the Tribunal is bound by law to assume that the Lots were in a "no zone" world and to disregard the "U" zone and the West Rail. As such, the Applicant concluded that it was for this Tribunal to determine whether the Lots had any potential for residential development as at 16 January 1999, the date of resumption. Hence, the results of the previous planning applications for the Lots had no or extremely limited value as evidence in this case and the proceedings should not be turned into an application for planning permission for a "R(B)2" residential development on the Lots with a plot ratio of 1.26.

85.We disagree with the Applicant's submission in this regard. If we follow the Applicant's logic that the TPB's planning intention for the lots and the previous planning applications involving the Lots were both irrelevant, it would mean that we could only consider the physical, location and environmental attributes of the Lots. As we have explained earlier, the Lands Resumption Ordinance only requires us to ignore the then existing "Undetermined" zoning of the Lots, it does not enable us to say that the Lots must have a particular residential, commercial or industrial zoning. The description "no zone" world does not imply that there will be no more planning constraints in our society but it is simply an abbreviated way of stating the assumption of ignoring the then subsisting actual zoning for the Lots as well as for the other land which are affected by the scheme. In stating that we have to consider the most probable alternative zoning for the Lots in the "no zone" world, in addition to assuming that there was no West Rail Scheme and no resumption, we find that we cannot refrain from considering the planning intention of the TPB, a statutory body set up in connection with town planning matters in Hong Kong. If, however, certain planning intentions were shown to be connected with the West Rail Scheme, we are of course required by law to ignore them. Otherwise, we simply cannot brush aside all the planning intention for the Lots and all the previous planning applications and decisions as irrelevant. We therefore decide to consider these previous applications in more details below. Afterwards, we will take into account the parties' evidence and submissions on these applications.

86.The decision letter for the second application was dated 2 September 1996, only about 13 months before the publication in the Government Gazette of the West Rail (Phase 1) Scheme. We therefore think that it is particularly worthwhile to look at the grounds given by the TPB for not approving the Applicant's second application, as follows: -

"(a) the proposed development is not in line with the planning intention for the area on the approved Ping Shan Development Permission Area Plan which is to encourage agricultural and recreational uses that are generally compatible with the rural environment and are unlikely to adversely affect local communities. Low-rise, low-density residential development may be permitted provided that the proposed development is compatible with the adjacent rural environment and would have insignificant impacts on the environment, traffic and drainage of the area, but the submission has not demonstrated this;

(b) there is insufficient information to demonstrate that the proposed development would not have adverse traffic impact on the surrounding area in that the traffic impact assessment does not take into account the traffic generated from the Tin Shiu Wai Reserve Zone and no traffic signal calculations are given to support the figure of the reserve capacity of the junction of Long Tin Road/Tin Tsz Road/Tin Fuk Road;

(c) the proposed development is not in line with the long-term planning intention for the application site part of which is to define the limits of urban and sub-urban development areas by natural features and to contain urban sprawl as well as to provide passive recreational outlets and part of which would still be subject to future planning studies to finalize the landuse proposals;

(d) the proposed development is not compatible with the surrounding area which is rural in nature;

(e) the proposed development intensity is considered excessive in the rural Ping Shan area;

(f) the drainage impact assessment submitted is not satisfactory in that drainage works in the Tin Shui Wai Drainage Basin are not designed to collect discharge from the application site and the assessment cannot demonstrate that the proposed development will not cause any increase in the flooding susceptibility of the adjacent areas;

(g) and the approval of the proposed development set an undesirable precedent for other similar developments."

87.Mr. Hong cited the above reasons as his basis that in the absence of the West Rail Scheme, and therefore in the "no scheme" world, the Lots would unlikely be rezoned for "R(B)2" use at the relevant date. He was of the view that the TPB had intended to uphold the planning intentions of the Ping Shan Development Permission Area Plan ("PSDPA Plan") and had persistently disapproved residential development in Wing Ning Tsuen, including applications involving the Lots. Also, since the Lots fell outside the favourable growth area of the Ping Shan planning area, the chance for residential development was very low.

88.In addition, Mr. Hong opined that even if residential development were possible for the Lots, Mr. Sung's assumed plot ratio of 1.26 was too high and, therefore, could not be accepted. He asked us to bear in mind that in the first planning application of the Lots, the owners had only proposed a plot ratio of 0.4. Yet that application was rejected, one reason of which was that the plot ratio proposed was too high. Therefore, Mr. Hong suggested that his proposed alternative zoning of "R(D)" with a plot ratio of 0.2 was suitable for the Lots.

89.On the other hand, the Applicant in its Final Submission gave detailed analysis as to why the Respondent's approach of relying on the planning applications to the TPB was a flaw: -

(1) The Applicant said that Mr. Hong's interpretation of the law regarding the potentiality of the Lots were irrelevant following the Court of Appeal's decision in Yin Shuen Appeal and Nam Chun Appeal

(2) "Mr. Hong has ignored the fact that planning intentions may and do in fact change from time to time...Changes in the area did not stop once the West Scheme was proposed. They would have occurred even without the West Rail scheme."

(3) Both applications were considered and rejected when the DPA/YL-PS/1 Plan was in force. Hence, submitted the Applicant, "A DPA plan is only for 3 years pending further studies and is superceded by an OZP and is an interim measure only. The DPA/YL-PS/1 was not the last word on the types of land uses or on the height and density of residential developments (i.e. low-rise, low-density) permitted on the "U" zone."

(4) As far as the "Unspecified Use" ("U" zone) under the DPA plan is concerned, it was clear from the Planning Department's document that "...The "U" zone denotes areas where further detailed planning study is required to identify the future land uses of the land as the West Rail is proposed to pas through the area."

(5) "Each application for planning permission was considered on the basis of the information submitted." Therefore, in theory, an unlimited number of applications could have been made.

(6) Some of the applications were refused on technical grounds but not on the principle that residential development was objected.

(7) Since the West Rail project had already been proposed, it had a clear influence on the Town Planning Board. The Applicant therefore emphasised that "the reservation of the Lots for the West Rail was one of the reasons why development on the Lots was 'frozen'".

(8) "Mr. Hong was totally misguided in treating a rejection based on an interim period i.e. the DPA/YL-PS/1 plan and saying that this was evidence of the long term planning intention and concluding that the Lots were "not suitable for residential development in a no zone situation."

Evidence of other planning applications and approvals for land in the same OZP

90.Mr. Hong set out in his report dated 21 November 2001 (Exhibit "AR-1", pages 335) the results of planning applications for residential development within the area covered by the PSDPA Plan. There were a total of 15 applications considered by the TPB during the period from October 1993 to June 2000. The following table summarizes the results of the applications: -

91.Among the few successful applications, two of the sites were situated in the "U" zones close to Castle Peak Road whilst another site was one of the "CDA" zones of Hung Shui Kiu. The remaining site, also located close to Castle Peak Road, involved a change of use from "V" to "R". On the other hand, the latest s. 16 and s. 17 application in respect of a "U" zoned site, which was located opposite to the Lots in Wing Ning Tsuen, were rejected in November 1998 and November 1999 respectively. Mr. Hong suggested that the above results demonstrated the determination of the TPB to uphold the planning intentions of the PSDPA Plan, including the persistent disapprovals of residential developments outside the favourable growth areas of the PSDPA Plan.

92.We find that some of the Applicant's remarks on the results of the previous planning applications for the sites Lots were apparently also applicable to the previous planning applications for other sites in Ping Shan.

93.However, on balance, we accept the Respondent's submission that the results of these previous applications for other sites in Ping Shan also did not support the Applicant's case. It is plain to us that the TPB has in the last few years only approved changes of zoning for residential purposes for a few sites along Castle Peak Road. We accept that in theory, planning intention may and do in fact change from time to time; that an unlimited number of applications could have been made and that some of the applications might have been refused on technical grounds but not on the grounds of planning principle or planning intention. Nevertheless, we agree with Mr. Hong's conclusion that as far as the results of all these previous applications for the Lots as well as for other lots are concerned, they do not support the Applicant's case of an "R(B)2" zoning for the Lots at the date of resumption.

94.One of the main argument of Mr. Sung was that all the statutory and non-statutory plans for the Ping Shan Area were somewhat affected by the West Rail Scheme as well as the other Government railway strategies or studies, which dated back to as early as 1993. In that eventuality, we accept the Respondent's submission that we should look at the local plans or statements previously applicable to the Lots and the general area surrounding the Lots. We shall look at the past situation for the Lots and the Ping Shan Area below.

Zoning of the Lots prior to the Draft PSDPA Plan

95.During the hearing, Mr. Hong produced his second supplementary report dated 22 February 2002. He sought to clarify the matters raised by Mr. Sung, in particular, the alternative zoning of the Lots in the "no scheme" world. He also summarized at Appendix II of Exhibit "R-8" the zoning background of the Lots and the surrounding areas under the non-statutory plans prior to the Draft Ping Shan Outline Zoning Plan. These are extracted and reproduced below: -

96.Mr. Hong gave evidence that before the Draft Ping Shan OZP and the Draft PSDPA Plan were introduced, the planning and development of surrounding areas of Kai Shan, which included the resumed Lots, had more or less followed the planning concept of the North West New Territories - Development Plan ("NWNT-DP") of 1984 and then the Yuen Long Plain Recommended Outline Development Plan ("YLPRODP") prepared in 1994. Mr. Hong said that for the area south of Kai Shan, it had been re-zoned from "Residential Upgrading Area " to "Recreation" and "Green Belt", and then to the current zoning of "Undetermined" and "Green Belt". In terms of maximum plot ratio, it was unspecified for "Residential Upgrading Area" zone, 0.2 for "Recreation" zone and nil for "Green Belt" zone.

97.Therefore, Mr. Hong opined that from the above re-zonings over the past years, it was obvious that there was the planning intention of prohibiting building developments in the surrounding areas of Kai Shan "through the gradual elimination of building zones, except for the established villages." Mr. Hong further opined that this was because the planning intention for the Ping Shan Area in general and the surrounding areas of Kai Shan in particular was to channel growth to the designated strategic growth areas and the planned growth areas, while preserving the surrounding areas of Kai Shan as a natural open area.

98.The Respondent submitted that although the YLPRODP did not have any statutory force, the plan, together with other non-statutory plans including NWNT-DP and the North West New Territories (Yuen Long District) Development Statements Study (also described as Yuen Long Plain Development Statement, see Exhibit "R-2"), do provide useful guidance as to what the Lots might have been zoned in the "no scheme" world.

99.The Respondent went on to submit that the Yuen Long Plain Development Statement explained the logic behind the planning for the areas surrounding Kai Shan. If the West Rail Scheme had not materialized, the YLPODP would most likely have become, after public consultation, the draft PSDPA Plan and then the draft Ping Shan OZP. In this regard, the Respondent pointed out that the Applicant did lodge an objection to the TPB to the draft PSDPA but the objection was considered by TPB on 8 July 1994, heard on 8 December 1995 but rejected on 12 January 1996. The Respondent admitted that one of the reasons for rejecting the objection was the West Rail Scheme. However, submitted the Respondent, the other reasons would have remained even if there were no West Rail Scheme. Also, the Respondent submitted that if there were no West Rail, there would be no need to shift the original Recreation Zone in the YLPRODP northward and westward. So, in all probability the YLPRODP zoning for the area south of Kai Shan (i.e. including the resumed Lots) would have been adopted.

100.Regarding the provision of infrastructure, the Respondent submitted that since the YLPRODP had concluded that the Kai Shan was to be reserved as a recreation "honey pot", it was plain that no infrastructure would have been planned for the Lots beyond what might be needed for the existing use purposes.

The most probable zoning of the Lots in the absence of West Rail Scheme and the resumption

101.To recoup, the Lots were never zoned for residential purpose or other purposes permitting development before the resumption. Since the first Draft Ping Shan Outline Zoning Plan (No. S/YL-PS/1, dated 14 June 1996) came into existence, it was zoned "Undetermined". Before that, the Lots were zoned for "Unspecific" under the PSDPA Plan No. D/PA/YL-PS/2 dated 28 May 1996. Prior to the PSDPA, the zonings under the other non-statutory plans were set out in the last section.

102.We find that the history of zoning of the Lots supports Mr. Hong's opinion. This includes the district non-statutory plans and statements published before the approval of the PSDPA Plan and the various Draft Ping Shan Outline Zoning Plans, assuming that the latter Plans were all tainted with the West Rail Scheme or any other Government railway strategy or study that might have affected the planning intention for the Ping Shan Area in general and Wing Ning Tsuen, Kai Shan as well as the Lots in particular. The other evidence supporting Mr. Hong's opinion were the applications for re-zoning or planning permissions in the Ping Shan Area.

103.We do not agree with Mr. Sung that since the PSDPA Plan and the Draft Ping Shan Outline Zoning Plans were affected by the West Rail Scheme, and the non-statutory plans and statement before were too long ago, we should ignore all of them in their entirety, and just look at the physical attributes of the Lots. In that event, we will be in a vacuum position. We have already given our view that we cannot and should not decide the alternative potential zoning for the Lots by looking at their physical attributes as if they were of paramount importance. We will explain this further with respect to the Lots and their surrounding area, Kai Shan.

104.Mr. Sung opined that the Lots were very suitable for high-class residential development. One of the reasons was that they had Kai Shan at their back, thus attracting purchasers who liked living close to a hill. Even the existence of the graves so close to the Lots would not pose much problem as they could be re-sited, if necessary. On the other hand, Mr. Hong said that precisely because Kai Shan was at the back of the Lots, it was not reasonable to assume that residential development would be permitted, especially if the density of such development was as high as "R(B)2". The area including the Lots should be retained for "Recreation" or "Green Belt" uses, which uses were very desirable and very compatible with their location. They started to debate over Mr. Sung's "growth theory" of towns on the fringe of an existing town, i.e., Yuen Long Town and Mr. Hong's "buffer theory" for areas between towns. We find that either theory alone may have some merits under certain circumstances. Whether the theory applies for any particular area will obviously depend on the planning intention of the policy makers or politicians for certain areas, districts, regions and the whole geographical territory.

105.In Hong Kong, since the zoning of an area is a matter to be decided by the TPB and the Government, we opined that we have to resort to the planning documents previously published and the previous planning decisions made. In resorting to these, we are conscious that we should ignore those materials and decisions that might be affected by the Scheme and the resumption. However, we find that we cannot decide in a vacuum.

106.We also have some comments on Mr. Sung's opinion of the physical attributes of the Lots. We note that Mr. Sung produced a preliminary sketch showing how the development proposal for the Lots and the adjoining Remaining Land and the Contiguous Lots might look like. Mr. Sung gave evidence that although the configuration of the Lots was in odd shape, and the lots were not even contagious to one another at various locations, he opined that this could be taken care of by a surrender and re-grant involving the granting of extra Government land. He also said that it was common for the owner/developer to improve the access road as a condition of re-grant. He produced a number of documents (Exhibits "A-17" to "A-19") giving the details of several lots covered by New Grants in the Yuen Long Town.

107.In particular, Mr. Sung referred to Yuen Long Town Lot No. 502, a development known as Villa by the Park. The lot was located at Shui Pin Wai and was said to have a zoning for "R(A)" development. Also, the lot was given a vehicular access point at the main road, Castle Peak Road. This was said to be similar to the suggested vehicular access points at Long Ping Road for the Lots.

108.Mr. Hong in his second supplementary report commented that the situation regarding the access point for Yuen Long Town Lot No. 502 was very different from that of the Lots in the present case. The section of Castle Peak Road in front of that lot did not receive additional traffic from another highway whereas the section of Long Ping Road near the resumed Lots received heavy vehicular traffic from Yuen Long Highway. On the face of the available evidence, we agree with Mr. Hong's analysis and conclusion.

109.Also, we find that the examples quoted were all situated in Yuen Long Town whereas the Lots in this case were within the Planning Area of Ping Shan. So, it is not relevant to compare the densities of developments for sites in Yuen Long Town with the Lots. Similarly, Mr. Sung referred us to note that not far away from the Lots, a housing estate, i.e. Long Ping Estate, was found. Again, we find that this estate is located within the Yuen Long Town Planning Area.

110.In this connection, Mr. Sung gave evidence that there was in fact no "R(D)" zoning in the Ping Shan Outline Zoning Plan. In Exhibit "A-25", he compiled a schedule of residential densities for Ping Shan, Lam Tei and Yick Yuen, as well as Tong Yan San Tsuen. In all three Planning Areas, the lowest residential density zoning was "R(C)" with a plot ratio of 0.4. Therefore, he concluded that it was not reasonable for Mr. Hong to assume a density of only 0.2 for the Lots. However, we heard from Mr. Hong that it was his opinion that the Lots would have been zoned "Recreation" or "Green Belt". He opined that because of the provisions of Section 12 (aa) of the Lands Resumption Ordinance, we should decide that the Lots would have a residential zoning and the zoning would have been a low order use such as "R(D)" with a plot ratio of 0.2.

111.We also notice that after comparing the New Grant documents for various lots produced by Mr. Sung, it is apparent that in none of these cases, the lots surrendered were as scattered and as non-contiguous as the resumed Lots. While there were usually the requirements to make good the access roads, we find that the access roads were invariably located on one side of the Lots. The roads also existed before the surrender and re-grants, whereas in the present case, according to Mr. Sung, it would require the construction of a new access road using not only land owned by the Applicant but also some other lands from the Government or other private land owners. In addition, it appears to us that the road was routed in such a way as to serve specifically the Lots in question. So, we have grave reservations as to whether the Government would be obliged to accede to such a request from the Applicant or indeed from any land owner seeking a similar requirement for land for the construction of an access road serving his private development. Therefore, we find that apart from the general issue of zoning or re-zoning which would not be favourable to the Applicant, it was most unlikely that the Government would accede to the request of the Applicant for the construction of its access road. Without the access road, the proposed development as envisaged by Mr. Sung is a non-starter. Any intending purchaser would definitely have to bear in mind the site constraints as we set out above. Therefore, in the circumstances, this also serves to reinforce our conclusion that in the absence of the scheme, the Lots would not have been zoned "R(B)2" as suggested by Mr. Sung,.

112.We do not share the same opinion as the Applicant that when the owners of the Lots applied for planning permission for residential development in the past, they might have been refused because members of the TPB would consider that any approval might affect the West Rail Scheme. For example, it was alleged that even though the West Rail might not be given as the reason for rejection, the Board members might well have regard to the West Rail Scheme in making their decision. Since the law requires us to disregard the effects of West Rail Scheme, so we should also disregard the results of the previous planning applications. We find that this argument is flawed because it assumes that the Board was not discharging their statutory obligations under the Town Planning Ordinance. There is no evidence before us that the TPB did take the West Rail Scheme into account.

113.We also do not agree with Mr. Sung's opinion that the West Rail could not have proceeded if the planning application for the Lots were not rejected. Even if the planning applications were approved, we do not understand why the West Rail could not have proceeded by similar resumption as was in the present case.

114.We find that in any Outline Zoning Plan, there is a variety of zonings under which different uses are permitted as of right or can be permitted upon application and approval by the TPB. For residential zoning, there can be a range of densities. There is however no evidence that the TPB, in deciding the relevant zoning and density of a piece of land, will only consider the location, accessibility and surrounding environment of the said land.

115.We note that according to the preamble of the Town Planning Ordinance, it is enacted "to promote the health, safety, convenience and general welfare of the community by making provision for the systematic preparation and approval of plans for the lay-out of areas of Hong Kong as well as for the types of building suitable for erection therein and for the preparation and approval of plans for areas within which permission is required for development".

116.Therefore, the TPB, in reaching its decisions on zoning or re-zoning of any piece of land, should have regard to such consideration as to, for instance, the medium and long term planning intention for the planning area, social aspects of the uses, balance of growth and development, in addition to the consideration as to the physical attributes of the land in question and their accessibility.

117.On the balance of probabilities, we do not find that the Applicant had shown to our satisfaction that in the "no scheme" world, the Lots would have been zoned for medium-density residential use, i.e. "R(B)2" zoning to a plot ratio of 1.26. We therefore accept the Respondent's case that in the absence of the West Rail Scheme and the resumption, and assuming that the Lots did not have an "Undetermined" zoning, the Lots, as well as the Remaining Land and the Contiguous Lots would most probably have been zoned for "Recreation" and "Green Belt" at the date of resumption in January 1999. However, as we have explained earlier, Section 12(aa) of the Lands Resumption Ordinance requires us to adopt an assumed alternative zoning other than "Undetermined", or "Recreation" or "Green Belt" in assessing the compensation. In the circumstances, we agree with the Respondent that in the alternative, the best zoning we should adopt would be residential "R(D)" with a plot ratio of 0.2.

Valuation of the Lots by Mr. Sung on the basis of open car parking use

118.Mr. Sung found that the Subject lots were accessible to and from Yung Yuen Road and other access roads/tracks, and that adjoining sites were being used as open car parks. Mr. Sung in his supplementary report dated 5 December 2001 assessed the Open Market Value of the Lots on the alternative basis of open car parking use. Mr. Sung compiled in his report (Exhibit "AR-1", pages 326 to 328) a list of 10 open market tender results of short-term tenancies of Government land in the New Territories, all let by the Lands Department. They had the dates of award (presumably the same or close to the dates of commencement of these tenancies) between 28 April 1998 and 29 September 1999. Two of these tenancies were located in Yuen Long, six in Tuen Mun and the remaining two in Sheung Shui. The analysed unit rates ranged from $330 to $1,291 per sq.m. per annum.

119.Mr. Sung opined that the two tenancies in Yuen Long (i.e. STT 1567 and STT 1569) were very good comparables for the Lots. Mr. Sung found that "the location of these two comparables, being close to or not far away from developments on the fringe of Yuen Long town centre is better than the subject lots." He also found that the layout of the Lots was better "because of their regular shape and ample space for circulation and manoeuvring". As to the use, the Lots were much better because there were no restrictions on the type of vehicles, be they private cars, lorries, container vehicles, tractors or trailers, etc. being parked on site.

120.After making adjustments for location, layout, use, as well as time and quantum, Mr. Sung assessed the average adjusted unit rent of his two best comparables to be about $795 per sq.m. p.a. He applied this unit rate to the total area of the Lots of 10,048.1 sq.m., giving an estimate of the open market rent of $7,124,103 per annum. Based on the yield of 6.67% for a single car parking space in Kwan Lok San Tsuen, Mr. Sung considered it appropriate to add a premium of 1.5% to reflect the very good location of the subject Lots, resulting in a 8.17% as the appropriate yield for the capitalization of the open market rent of the Lots. Hence, he assessed the open market value of the Lots to be about $7,124,103 x 100 / 8.17, or $87,198,323, which was rounded to $87,200,000.

Valuation of the Lots by Mr. Hong using direct sales comparables on the basis of agricultural use

121.Mr. Hong did not attempt to assess the value of the Lots on the basis of their being used for open car parking purposes. Instead, Mr. Hong assessed in his report dated 21 September 2001 the value of the Lots on the basis of their existing agricultural use, using sales evidence of comparable agricultural land that were zoned for "Undetermined", "Green Belt" or "Open Space" uses. He identified 6 such comparables, the details of which were shown in Appendix XI of his report (page 279 of Exhibit "AR-1").

122.Mr. Hong's quoted comparables were located in Demarcation District Nos. 121 and 122 of Ping Shan. In particular, the first four comparables were all located in Wing Ning Tsuen, in close vicinity to the Lots, on either side of Long Ping Road. The other two comparables were located in Long Ping and Tong Fong.

123.After adjustments, Mr. Hong opined that his Comparable Nos. 1 to 6 had adjusted unit rates of $751, $850, $593, $1,038, $666 and $897 per sq.m. respectively. The average adjusted unit rate of all his 6 comparables was $799 per sq.m. Applying this to the total site area of the Lots of 10,048.1 sq.m., Mr. Hong calculated that the Lots had an Open Market Value of $8,029,201, which he rounded to $8,000,000.

Valuation of the Lots on existing use basis

124.Mr. Sung did not attempt to value the Open Market Value of the Lots on the basis of agricultural use. The Applicant submitted that it would be unrealistic to value the Lots on that basis. Whilst some land demised for agricultural use might have a higher alternative use, we believe that there must be sales of agricultural lots that only fetched values at a level which reflected no development potential. That is to say, there are definitely purchasers and sellers of agricultural land who do not expect any possible change for the land to a higher alternative use. Whether the land is left vacant, or whether crops or plants are actually found growing on the land, or whether the drainage of the land and the area are conducive to agricultural production are all entirely different issues. Hence, we find that it is inappropriate to brush aside as being unrealistic the valuation of the Lots on the basis of their permitted existing use, i.e. agricultural use. This is because we are precisely trying to value the Lots on the basis of their existing use as agricultural land.

125.Mr. Sung did not provide any evidence that at the date of resumption, the whole or any portion of the Lots were being used for open car parking. All we find from his evidence was his statement that the subject lots were accessible to and from Yung Yuen Road and other access roads/ tracks and that adjoining sites were being used as open car parks. The Applicant had obtained from the Planning Department a copy of a surveyed Land Use Plan (page 308 of Exhibit "AR-1") which show that at the time in 1993, a small part of the Lots was cultivated agricultural land whilst the rest were uncultivated or fallow agricultural land or vacant poultry farms and sheds. In addition, the Applicant pointed out that in 1996, the Director of Agriculture and Fisheries had commented in a planning application processed by the TPB that there was "no agricultural activity" (which included vegetable or crop farming) on the Lots (Exhibit "A10(2)", page 12). There was however no other evidence from the Applicant regarding the state of the Lots as at the resumption date.

126.Mr. Sung referred us to see the aerial photographs at Enclosure III of his report dated 5 December 2001 (pages 312 to 315 Exhibit "AR-1"). We find that the said aerial photographs were dated 7 November 1998, 5 November 1999, 14 September 2000 and 14 February 2001. We do not find the last 3 aerial photographs to be of any use because they were dated after the date of resumption in January 1999, and it was common ground of the parties that the area surrounding the Lots had since changed very much due to the construction of the West Rail. As for the aerial photograph dated 7 November 1998, we do not find that the Lots were used for open car parking on a commercial basis. We also find that the car parking sites referred to by Mr. Sung were in fact sited quite far away from the Lots, close to the intersections of the main roads. The proximity to the main roads is, we believe, one of the important pre-requisites of a commercial car park site.

127.On the other hand, we heard evidence from Mr. Hong that at the date of resumption, the Lots were either vacant or grown with crops or partially improved with temporary structures, but were not put for open car parking use. Mr. Hong also pointed out that on 7 August 1998, only about 5 months before the resumption date, the TPB rejected a Section 16 application seeking permission for temporary car park and open storage uses on an adjacent site located to the south of the Lots. According to Mr. Hong, the said site, located on the north side of Long Ping Road, was a contiguous parcel of land and enjoyed a better location than the resumed Lots. Although the said site includes Lot No. 894, which is part of the Contiguous Lots owned by the Applicant, it was observed that the proposed ingress and egress points was via the western end of the site fronting onto Yung Yuen Road but not from Lot No. 894, leading towards the current unauthorized vehicular access points at Long Ping Road. Mr. Hong also drew our attention that for this proposed temporary use, the TPB stated in its rejection letter the following reasons:

(a) the site is accessed by Yung Yuen Road which is not suitable for heavy vehicles both from the capacity and geometry points of view. There is insufficient information in the submission to demonstrate that the proposed development would not have adverse traffic impact on the area;

(b) there is insufficient information in the submissions to demonstrate that the proposed development would not have significant drainage impact on the area; and

(c) the approval of the application would set an undesirable precedent for other similar applications, which would have significant impacts on the traffic and drainage of the area.

128.Hence, Mr. Hong considered that it should not be assumed that the existing use of the Lots at the resumption date was for open car parking. He said that the optimal use of the Lots on the existing use basis as at that date should be agricultural.

129.Having regard to the evidence from the expert surveyors, the configuration and physical state of various lots comprised in the resumed Lots, their actual occupation close to the date of resumption, the location and accessibility of the Lots, and the condition of Yung Yuen Road, we find that we do not agree with Mr. Sung that the highest and best existing use of the Lots was for open car parking, as assumed in his valuation.

130.We also find that it was not correct to compare the Lots with the rents of STT Nos. 1567 and 1569, which were located within Yuen Long Town. Even if it was assumed that the open commercial car parking use was a permitted and feasible existing use, we find that entirely different comparables should have been adopted.

131.Therefore, we decide that, based on the evidence available, we should assess the existing use value of the Lots on the agricultural basis. We find that the comparables assembled and analyzed by Mr. Hong to be suitable comparables, as they were similarly leased agricultural lots with similar zoning restrictions and were located close to the Lots. We also find his adjustments to be reasonable. In the circumstances, we accept his assessment of the Open Market Value of the Lots on the existing agricultural use basis at $8,000,000.

Valuation of the Lots using direct sales comparables with potential for alternative low-density residential development

132.For the reasons set out before, we decide that the highest and best alternative potential development for the Lots would not be for "R(B)2" development. Under that circumstances, we agree with the Respondent that the alternative highest and best potential development for the Lots would only be for "R(D)" uses. Therefore, we accept that the best comparables would have to be sales of land having the same "R(D)" uses, notwithstanding that these comparable lands of "R(D)" zoning might not share the same physical attributes as the Lots. The latter are, as far as valuation is concerned, matters for which adjustments might be required.

133.We reproduce below a summary of the Mr. Hong's "R(D)" comparables and his adjustments, as set out in his valuation at page 399 of Exhibit "AR-1":-

134.Mr. Hong made adjustments to the comparables regarding various factors of time, location, accessibility and size. His total adjustments for the comparables extended to some -29% to -49%, which, we note, are quite substantial. Obviously, these adjustments reflected Mr. Hong's opinion of various factors affecting the Lots and the comparables. Unfortunately, we do not have the benefit of the evidence from Mr. Sung regarding these suggested adjustments. In the circumstances, we find that we have no sufficient ground to reject any of these adjustments or to adopt other figures instead.

135.Mr. Hong opined that his Comparable Nos. 2 and 3 should be discarded for being clearly out of line. We disagree that since these comparables are out of line with the others, they should be excluded from consideration. Even though the unit sale prices of these two comparables, with a median figure of $3,121 per sq.m., are very different from the other comparables, which cluster around a median figure of $1,141 per sq.m., we find that we should not exclude them because they were quite in line with each other. In addition, Mr. Hong said that Comparable 2 was part of a container storage depot whilst Comparable 3 appeared to have been used as a private residence. Based on the photos produced, we, like Mr. Hong, have some doubts as to whether the consideration of these two transactions reflected the actual users found on site. However, we do not have further information as to the legality of the suggested actual users.

136.In this case, we find that we are in the course of estimating the value of the Lots, being agricultural lots with a potential for residential development. Because of the uncertainties of the prospects of securing planning and other permissions for the proposed developments, we find that the comparable transactions were usually subject to higher fluctuations than what would have been the case for transactions of building lots. Therefore, it is more common to have a greater percentage difference in the adjusted unit rates of agricultural lots than that for building lots when transactions of similar agricultural lots as well as similar building lots were analyzed.

137.In addition, we also note that if these two comparables were discarded, the overall average adjusted unit rate of Mr. Hong's comparables, at $1,141 per sq.m., appeared to us to be too close to the average unit rate of agricultural land, at $888 per sq.m., which was assessed by Mr. Hong on the basis of direct comparison of sales of agricultural land, solely on the basis of their existing agricultural use. Therefore, we find it necessary and reasonable to include these two comparables.

138.Summing up, we decide that we should include all the 6 comparables zoned for "R(D)" uses, as identified and analysed by Mr. Hong. We further decide that the overall average of the adjusted unit rates of the 6 comparables, at $1,801 per sq.m. should be taken as the unit rate for the assessment of the Open Market Value of the Lots on the basis of the alternative potential low density residential use as at the relevant date. In this connection, we do not agree with Mr. Hong that a further discount of 30% should be applied to reflect the different risk element of all the 6 comparables, which already had a secured designated zoning of "R(D)" while for the Lots, it was a mere possibility, or an assumption. We will reiterate that since section 12(aa) of the Lands Resumption Ordinance requires us to impute a zoning for the Lots which were zoned "Undetermined", our assumed zoning of "R(D)" for the Lots would be, for the purpose of this valuation, as secured as the actual designated zoning of the 6 comparables.

Consideration of the sale prices of Government land auctioned in 1999/2000

139.We have stated in the beginning of this Judgment that there was a huge difference between the values adopted by Mr. Sung and Mr. Hong. Mr. Hong stated in his valuation report that the Open Market Value of the Lots as assessed by Mr. Sung, at $11,680 per sq.m. (later revised to $11,475 per sq.m.) was excessive and unrealistic when one compared the said unit rate with the results of the Government auctions held in 1999 for the land of comparable size. Mr. Hong said that there were three such sales of land. Two building lots in Tuen Mun, at a plot ratio of 1.3 and 1.34, were each sold for a unit price of around $20,000 per sq.m. of site area. A third building lot in Tai Po, at a plot ratio of 0.6, was sold for just over $10,000 per sq.m. of site area. Hence, Mr. Hong argued that Mr. Sung's valuation for the Lots, which were only agricultural lots but with a potential for residential development, was unrealistically high and could not be right.

140.The Applicant submitted that it was incorrect for the Respondent to compare the end result of Mr. Sung's valuation with the auction results of land designated for low density residential development.

141.Apart from the slight difference in the timing of the auctions and the relevant valuation date for the Lots, Mr. Hong's arguments have some merits. Given the problems facing the Lots, including the need to pay a premium for the surrender and re-grant of the land, he was quite right to point out the differentials between the actual sale prices of the auctioned building lots and Mr. Sung's estimated value for the Lots appeared to be too small to be correct. However, we find that we cannot determine the value of the Lots, which were agricultural lots in nature but coupled with the planning assumptions, by using the results of auction sales of building lots. Therefore, even if we agree with Mr. Hong's observation, the auction results are not to be relied upon in this valuation exercise.

142.We also decide that the basic issue of this case, i.e. what would have been the zoning for the Lots, should not be decided using the logic that since Mr. Sung's end valuation figure seemed to be high, we should not accept his figure and by inference, we should not accept his suggested most probable zoning for the Lots. We have already covered the Lots' zoning issue earlier in this Judgment and will add nothing more here.

Consideration of the similar sized transaction in 1999

143.Mr. Hong reported that his colleague had carried out research of all the agricultural land transactions of more than $10 million in consideration, for the period from 1995 to 2000. The findings were that the number of agricultural land transactions dropped sharply after 1997 from a total of 90 cases to 43 and 45 cases for the years 1998 and 1999 respectively, and that the total numbers of transactions in the range of $50m to $100m were 6, 5 and 4 for 1997, 1998 and 1999 respectively, whilst in the over $100m range, the respective transaction numbers were 3, 0 and 1. Mr. Hong concluded that these findings demonstrated that agricultural land transactions were popular only in a speculative market. Also, the larger the transaction sum was, the lesser the number of transactions would be. In fact, only 1 transaction of over $100m was recorded throughout the bearish market of 1998 and 1999. He further added that since a total of 6 transactions of over $100m were found in 2000, it ruled out the possibility of the lack of available sites in the preceding two years.

144.Mr. Hong further analysed the only over $100m transaction, which sale was registered on 31 July 1999. It covered a total of 45 lots in Demarcation District Nos. 107 and 109, zoned for either "Unspecified" or "Agricultural". It has a total consideration of $159,858,945 and a total site area of 68,199.8 sq.m., giving a unit transacted rate of $2,344 per sq.m. Mr. Hong added that according to the advice from the District Lands Officer, Yuen Long of the Lands Department, some of the lots of that transaction were included in an application for comprehensive development with a plot ratio of 1.2115, which was approved by the TPB on 19 October 2001. Mr. Hong calculated that, based on the transacted price and the said information from the District Lands Officer, that sale was equivalent to a unit rate, on "accommodation value" basis, of $1,935 per sq.m. As such, this is substantially lower than Mr. Hong's estimate of the open market value for the Lots, on "accommodation value" basis. Therefore, Mr. Hong said that his valuation should be considered to be "at the upper end of the market value and is an appropriate value for the Resumed Lots."

145.We agree that the quoted transaction was useful as a guide to the Open Market Value of the Lots at the relevant date for two reasons. Firstly, it is the only similar transaction of over $100m involving agricultural land in the N.T. in the year 1999. As such, it gives more weight than the sales of small lots involving much smaller sizes of land and consideration. Secondly, the lots included in the transaction were at the time of the transaction on 31 July 1999, zoned for either "Unspecified" or "Agricultural". As such, it was most probable that the said lots in that transaction were sold and purchased on the basis of its alternative highest and best use, probably for residential use. Therefore, it was quite similar to the Lots in this case. We appreciate that there was a difference in location between the lots included in that transaction and the subject Lots. However, as explained earlier in this judgment, this location factor and other physical attributes were of less importance when compared with the planning attributes. Therefore, on the whole, we consider that that transaction gives an indication of value to the value of the Lots at the relevant date.

Conclusion of value of the Lots on the basis of highest and best use including potential use for low-density residential development

146.Summing up, we have found earlier that the unit rate of the Open Market Value of the Lots, based on the direct sales comparison method, i.e., the analysis and adjustment of the "R(D)" comparables identified by Mr. Hong, was $1,801 per sq.m. This unit rate, incidentally, was supported by the overall unit rate of one comparable transaction in 1999 of another large cluster of lots. However, we have decided that we cannot arrive at any conclusion of the value for the Lots by looking at the auction results of 3 building lots (at around $10,000 and $20,000 per sq.m.) designated for residential use.

147.In the final analysis, we decide that the best estimate we can get for the Open Market Value of the Lots on the basis of their potential alternative highest and best use for low density residential development, is to multiply the total area of the Lots of 10,048.1 sq.m. with the estimated unit rate of $1,801 per sq.m. This results in the value of $18,096,628, which we round up to $18,100,000.

Estimate of compensation for severance of the Remaining Land and the Contiguous Lots

148.Mr. Sung assessed in his report dated 18 September 2001 that the compensation for severance of the Remaining Land was in the sum of $70,000,000. He distinguished between the different locations of different lots in the Remaining Land and opined that all the lots of the Remaining Land suffered from diminution in value, though to a different degree, due to their being severed from the rest of the Applicant's landholdings. The difference in the percentages of diminution for different lots of the Remaining Land depended on the locations of the said lots, their sizes, their proximity to the West Rail, the availability or otherwise of road access for the said lots, and the viability of merging with other lots to form a comprehensive development site. In the final analysis, Mr. Sung suggested the diminution in value of the lots to be in the range of 10%, 40% or 90%. Overall, Mr. Sung's estimated total diminution in value for the 15,461.7 sq.m. of the Remaining Land was about $70,800,000, which is equivalent to about $4,579 per sq.m. This is about 39% of the estimated Open Market Value of $11,680 per sq.m. for the Lots as assessed by Mr. Sung.

149.In his report dated 5 December 2001, Mr. Sung disputed with Mr. Hong over the issue of whether there would be any diminution in value to the Remaining Land. He disagreed with Mr. Hong's contention that "all the access roads/footpaths will be maintained or re-provided by the KCRC under normal circumstances and the access to the Remaining Land will not be deprived (of)". On the contrary, Mr. Sung said that since access to the Remaining Land had already been turned into part of the construction site of the West Rail, obviously there was diminution in value to the Remaining Land. In addition, Mr. Sung said that there would be restriction on any construction over the Remaining Land in future since they would be within the administrative railway route protection boundary under the Highways Department Technical Circular No. 3/2000. Towards the end of the hearing, the parties called new witnesses regarding this matter. Mr. Sung opined that there would not be any betterment to the Remaining Land and his previous assessment of the diminution in value of the Remaining Land was on the low side.

150.In addition, Mr. Sung suggested that the Contiguous Lots, which were located next to the Remaining Land but were owned by the same Applicant, would also be adversely affected by the severance caused by the resumption of the Lots. Put it simply, after the resumption, the Contiguous Lots could no longer be included in a possible development site for comprehensive development and could no longer enjoy their development potential which existed before the resumption. Hence, Mr. Sung reckoned that a diminution in value of about 40% for the Contiguous Lots was appropriate. Applying the same estimated Open Market Value of $11,680 per sq.m. to the total area of the agricultural lot portions of the Contiguous Lots of 17,765.6 sq.m., he estimated the total diminution in value of the Contiguous Lots to be in the sum of about $83,000,000.

151.Subsequently, Mr. Sung in Exhibit "A-3" revised slightly his computations on the estimation of the diminution in value of the Remaining Land and the Contiguous Lots. He similarly revised his final estimate of the Open Market Value of the Remaining Land and the Contiguous Lots, based on his revised unit rate of $11,475 per sq.m. for the Lots. Using this revised rate, he also simplified his computations by adopting an overall percentage diminution of 40% to the total areas of the Remaining Land and the Contiguous Lots. By this way, he revised his estimates of the diminution in value of the Remaining Land and the Contiguous Lots to $71,000,000 and $81,500,000 respectively. Hence, he estimated the total diminution in value to be $15,250,000. This is equivalent to a unit rate of about $4,590 per sq.m. for a total site area of 33,227.3 sq.m., which is the sum of the site areas of the Remaining Land and the Contiguous Lots.

152.On the other hand, Mr. Hong persistently gave evidence that there would not be any diminution in value to the Remaining Land or to the Contiguous Lots.

Tribunal's determination of the diminution in value of the Remaining Land and the Contiguous Lots

153.We agree with the Applicant that it is plain that there would be certain diminution in value of the Remaining Land and the Contiguous Lots due to severance from the Lots and other land owned by the Applicant. Because of the low density for the assumed "R(D)" zoning for the Lots, the Remaining Land and the Contiguous Lots, the overall diminution in value is likely to be less than the overall 40% estimated by Mr. Sung. This is because any development could be located further away from the West Rail alignment bearing in mind the low plot ratio of "R(D)" zoned land. We find that we should consider the issue of diminution in value to various portions of the Remaining Land and the Contiguous Lots according to their locations relative to the Lots resumed, the West Rail alignment, the other portions of the Remaining Land and the Contiguous Lots and the previously existing village road, Yung Yuen Road. We should also take into account the relative sizes and shapes of the said various portions of land since these would affect their chances of being included for possible development in the future.

154.We mainly divide all the Applicant's land so affected by the resumption into 4 clusters, depending on whether they were on the northeast side or the southwest side of the West Rail alignment and whether they were close to Long Ping Road. Clusters "A" & "B" are the lots located on the northeast side of the West Rail whilst Clusters "C" & "D" are the lots located on the opposite, southwest side of The West Rail. The clusters are roughly contiguous lots or lots very close to each other, separated only by a narrow strip of Government land in between. Although Clusters "A" & "D" originally formed one larger cluster, they are divided with 2 groups in our valuation since they have since the resumption been severed into 2 groups, one on each side of the West Rail. We accordingly list out the areas of the lots so divided in the table below:

* Excluding house lots.

155.As for Cluster A, we agree with the Applicant that the lots involved were adversely affected by the resumption. One factor mitigating against the loss is, as suggested by Mr. Hong, that the land remaining in Cluster A after the resumption still extends to 18,177.4 sq.m. This is even larger than the resumed Lots which have a total site area of just over 10,000 sq.m. So, Mr. Hong argued that the potential of the remaining land would not be affected. Rather, any damage or loss to the Applicant would be more than balanced off by the betterment that might be generated by the West Rail Scheme. We do not agree with Mr. Hong's opinion. In our view, it is very clear that the resumption of the Lots would obviously affect the potential of the lots included in Cluster A. We estimate the loss for the lots in Cluster A to be in the region of 20% of the estimated Open Market Value of all the lots in this Cluster.

156.Similarly, for the lots in Cluster B, they were on the same side of the West Rail as those in Cluster A. However, they were located much closer to Long Ping Road. Therefore, the pedestrian access to the lots in Cluster B from Long Ping Road would be much better than those in Cluster A. However, they were located not contiguous to the lots in Clusters A & D. On the other hand, the areas of the lots remaining in Cluster B were much smaller and the lots were isolated with each other and with the lots in other Clusters. Therefore, the chance of future development for the lots in this Cluster would be much reduced after the resumption.

157.Therefore, the percentage loss to the lots in Cluster B on account of their being severed from the remaining land holding of the Applicant, the majority of which was in Clusters A & D, would be greater than those of Clusters A and D. We decide the loss for the lots in Cluster B to be about 40% of the estimated Open Market Value of all the lots in this Cluster.

158.We find that the West Rail Scheme and the resumption had only a minimal effect for Cluster C, which consists of only one Lot (Lot 894R.P.). This lot was located close to the main road Long Ping Road. It was, before the resumption, not connected continuously with the Lots resumed or any other lots in the Remaining Land and the Contiguous Lots. In the preliminary scheme presented by Mr. Sung, we note that this Lot would be able to connect with the said Lots, the Remaining Land and the Contiguous Lots only if the Applicant managed to secure a land exchange with the Government involving the granting of Government land connecting, inter alia, this lot with the rest and the construction of an access road thereon. In summary, we find that the loss to the Applicant due to the severance of this lot with the rest of the Applicant's land holding is likely to be minimal. We assess the loss to be 5% of the estimated Open Market Value of this lot.

159.Lastly, for the lots in Cluster D, they were lying on the same side of Cluster C, though further away from Long Ping Road. Their access to the local road, Yung Yuen Road was not affected by the West Rail. In addition, they were less affected by the structure of West Rail than the lots in Cluster A since access to the lots in Cluster D did not have to go under the structure supporting the West Rail. They were also of considerable size so that their chance of realizing development was not affected as much as the lots in Cluster B. We decide that the loss for the lots in Cluster D to be about 10% of the estimated Open Market Value of all the lots in this Cluster.

160.As to the Open Market Value of the lots in the Remaining Land and the Contiguous Lots, we find that in accordance with Section 12(aa), we have to assume a zoning other than their actual existing zone of either "Undetermined" or "Green Belt". For the same reasons as for the Lots, we decide that the highest and best alternative zoning we should adopt is the "R(D)" zoning as suggested by Mr. Hong. In the circumstances, we estimate that the Open Market Value of the lots in the Remaining Land and the Contiguous Lots to be the same as for the Lots resumed, i.e. at the rate of $1,801 per sq.m. of site area.

161.Based on the above estimates of the percentage diminution in value and the estimated Open Market Value of the lots in the Remaining Land and the Contiguous Lots, we calculate the estimated diminution in value of various Clusters of lots of the Remaining Land and the Contiguous Lots as follows:-

* Excluding building lots.

Conclusion of compensation amount payable to the Applicant

162.We have determined above the compensation amount payable to the Applicant on two bases, firstly, the use of the Lots on the then existing agricultural basis; and secondly, the use of the Lots on the basis of potential alternative use for low-density residential development.

163.We estimated the value of the Lots resumed on the first basis to be $8,900,000. We also decide that there was some diminution in value to the Remaining Land and the Contiguous Lots on the first basis but the diminution was definitely lesser than the case on the second basis. We therefore find it unnecessary to make an estimate of the diminution on the first basis.

164.On the second basis, we estimated the value of the Lots resumed to be $18,100,000 and the diminution in value to the Remaining Land and the Contiguous Lots to be in the sum of $10,810,000, giving a total value of $28,910,000.

165.On the basis of these two estimates, we adopt the higher of the two figures, i.e. $28,910,000, as the compensation amount payable by the Respondent to the Applicant for the resumption of the Lots including severance of the Remaining Land and the Contiguous Lots owned by the Applicant.

Orders

166.Accordingly, we order that the Respondent do pay the Applicant compensation for the resumed Lots, including compensation for the severance of the Remaining Land and the Contiguous Lots, in the sum of $28,910,000. The matters of professional fees, interest and costs be adjourned to a date to be fixed by the Assistant Registrar, with liberty to apply for any other ancillary and consequential matters.

Representation:

Ms. Audrey EU, SC and Mr. Anthony ISMAIL, instructed by M/S Kao, Lee & Yip, for the Applicant.

Mr. Nelson MIU, instructed by the Secretary for Justice, for the Respondent.

Remarks:
Appeal by Respondent to Court of Appeal. Appeal allowed. Please refer to the appeal judgment of CACV000064/2003.