Cheung Tai Hee and Others v. Director of Lands
Read the full judgment text of LDLR 5/1983 on BabelCite. This Lands Tribunal judgment was delivered on 25 February 1983.
1. In these proceedings seven separate applications for compensation under the Crown Lands Resumption Ordinance, Cap. 124 had been consolidated. At the hearing the Tribunal was informed that the claims by the 1st, 3rd, 4th, 6th and 7th applicants had been settled. This left only the 2nd and the 5th applicants claims to be determined by the Tribunal.
|
LDLR000005/1983 Crown Lands Resumption - leasehold interest - red worm ponds - value of leasehold interest - disturbance - costs of removal - loss of production during removal - whether in case of 3 year leasehold residues full disturbance compensation payable - Sections 6, 10, 11, 12 and 17 Crown Lands Resumption Ordinance. IN THE LANDS TRIBUNAL OF HONG KONG Crown Iands References Nos. 2, 3, 4, 5, 6, 7 and 8 of 1983
TRIBUNAL: His Honour Judge Cruden, Presiding Officer and M.W. Phillips, Esq., Member. --------------------- JUDGMENT --------------------- 1. In these proceedings seven separate applications for compensation under the Crown Lands Resumption Ordinance, Cap. 124 had been consolidated. At the hearing the Tribunal was informed that the claims by the 1st, 3rd, 4th, 6th and 7th applicants had been settled. This left only the 2nd and the 5th applicants claims to be determined by the Tribunal. 2. Both claims were in respect of land situated at Sheung Shui, New Territories, Hong Kong resumed for public purposes on the 10th day of March 1982 pursuant to Notice G.M.3574 published in No. 49 Volume CXXIII 'The Hong Kong Gazette' 4417. The applicants carried on business on the land now resumed as red worm farmers. Ponds had been constructed on the land in which red worms were grown for sale as food for tropical fish. 3. At an earlier stage there had been negotiations between the parties which, by consent, were disclosed to the Tribunal. These revealed that the 2nd applicant claimed $329,910 and had rejected an ex-gratia offer by the respondent of $50,000. The 5th applicant claimed $388,360 and had similarly rejected an ex-gratia payment of $50,000. These claims were maintained by both applicants at the hearing before the Tribunal. 4. The basis of the respondent's offers is summarised in a letter from the District Lands Officer, North, to the applicants solicitors dated the 25th day of February 1983 which included the following paragraph:
5. The respondent also produced Agriculture and Fisheries Departmental Standing Circular No. 3282 which, with effect from the 21st day of June 1982, replaced Departmental Standing Circular No. 4/80. This Circular set out guide lines for the assessment of ex-gratia allowances for fish ponds and prescribes the same rate of compensation for red worm ponds which is included in the extract of the Department's letter. 6. The applicants have adopted the rate set out in the Circular and then applied it to their properties but without the ceiling of $50,000. At the hearing the respondent recognised that whatever the practice hitherto the applicants were entitled to compensation under the Crown Lands Resumption Ordinance and were not merely dependant on the payment of ex-gratia allowances. The respondent further recognised that under the Ordinance no ceiling was imposed and that the applicants were entitled to be compensated for the loss or damage suffered due to the resumption. 7. However, the respondent submitted that the rate in the Circular was excessively high and had only been used in conjunction with the relatively low ceiling of $50,000. In an attempt to arrive at a more accurate rate the Department had recently carried out a survey which produced a rate of $0.95 per square foot which is very much lower than the equivalent Circular rate of $7 per square foot. The applicants produced as Exhibit A1 a document prepared by the respondent which summarises these figures and which all parties accepted as accurate. This document included these particulars in which all measurements are given in square feet:-
8. The 2nd and 5th applicants gave evidence, described the nature of their businesses and informed us of their initial capital outlay, the various expenses incurred in carrying on their business and the income they received. However, their evidence was of a very general nature and was unsupported by any documents. No annual accounts were produced and it appeared that neither applicant compiles any annual or keeps any similar accounts. They also called another red worm farmer, Mr. Chung Ping. He stated that part of his red worm farm in Sheung Shui was resumed by the Crown in 1981. The area resumed was approximately 9,000 square feet and he was paid $74,000. 9. When Mr. Chung Wai Choi, the Senior Land Executive, District Office, North, Lands Department who was Head of the Acquisition Team responsible for this resumption was called, he agreed that before he became involved there were two cases, including Mr. Chung Ping, where compensation had been paid at the rate of $7 per square foot but without the customary ceiling of $50,000. There was no satisfactory evidence why the $50,000 ceiling was not imposed in those two cases, but the evidence is open to the inference that by mistake or inadvertence the officers acting on the resumptions at that time omitted to impose the ceiling. 10. The applicants founded their claim on the allegation that the basic rate of $7 per square foot was not in dispute. Further, while a ceiling may have been referred to in the Circular no such ceiling was applicable under the Crown Lands Resumption Ordinance. In any event, the applicants submitted, even before the respondent recognised that the applicants had a claim for compensation, the evidence established that neighbouring farmers had received ex-gratia allowances in at least two instances where no ceiling was imposed and the payments exceeded $50,000. The applicants called no expert witnesses and were content to rely on the $7 per square foot rate as both reasonable and in the circumstances equitable. 11. Mr. K.W. Cheng, Fisheries Economic Officer of the Agriculture and Fisheries Department was called to describe how the new rate of $0.95 was calculated. Mr. Cheng graduated from the City University of New York in 1973 after which he obtained a post-graduate Diploma in Development Economics from Cambridge University, England. He stated that he prepared a questionnaire which was completed by 24 red worm farms in the New Territories which comprises 28% of all red worm farms. From that survey he obtained data which he then used to arrive at the assessed rate of $0.95 per square foot. The two main elements in arriving at the assessed rate were factor input and market prices. Compensation was then calculated on the basis of 3 different factors, namely, net income; working capital; and capital investment. 12. Mr. Cheng stated that the rate of $0.95 arrived at was an average figure. In terms of the statistical survey he considered that it was a fair figure and pointed out that the sample used was very large amounting to 28% of all red worm farms. In addition, the 24 farms included in the sample covered a wide and representative range of small to large farms. We accept Mr. Chong's expert opinion that this very comprehensive survey was carried out in accordance with accepted statistical methods and that the results disclose a high degree of accuracy. 13. However, as recently pointed out in Lee Chun v. Director of Lands C.L.R. No. 9/83, we are again obliged to record that generally averaging is not a proper method of valuation. As mentioned in our previous decision, in which we referred to McCathie & Ors. v. The Federal Commissioner of Taxation (1944) C.L.R. 1, the use of average rates can potentially be unfair to an owner of resumed land and equally to the Crown. We appreciate that there are a number of reasons why in the past average rates have been nearly universally applied. First, until recently payment to red worm farmers whose businesses were affected by resumptions, was made by ex-gratia allowances and the Crown did not recognise their right to claim compensation under the Crown Lands Resumption Ordinance. However, as Mr. Chung Wai Choi, Senior Land Executive, expressly mentioned when he gave evidence, as a result of last year's Court of Appeal's decision in Attorney General v. Melhado Investment Ltd. Civil Appeal No. 79/82, the Crown recognises that such farmers may now claim compensation under the Ordinance. Secondly, the failure of many farmers to maintain records of their businesses makes it very difficult either to compile a satisfactory individual claim for a particular farm or to verify a purported claim. 14. We recognise all these problems. Indeed, the applicants evidence in this application highlights the lack of credible and detailed financial information which makes the determination of compensation both frustrating and difficult. In recent months we appreciate that the respondent and his officers, in the face of such difficulties, have also had to adjust to the fact that the law is now clear that a right of compensation exists. This change has made ceilings irrelevant and average rates of little relevance. Now that the law is tolerably clear we would hope that on all resumptions the Crown will attempt to support their offer of compensation by an individualised valuation of the particular resumed property involved in the application for compensation to the Tribunal. We would hope this practice will quickly become established. Certainly the Crown and its various departments have the resources and officers with the expertise to enable such separate valuations to be carried out. 15. In this and other recent resumptions we have been impressed with the evidence of fisheries economic and fish culture development officers of the Agriculture and Fisheries Department. There would seem to be no reason why in close association with such officers, chartered surveyors employed by the appropriate Government Department, could not also have been called to give valuation evidence on matters that fall within their professional discipline. Whatever the evidence adduced the onus of proof, of course, ever remains on an applicant. 16. Against this background we now turn to determine the compensation payable on this application. On the evidence both applicants are entitled to have compensation assessed under two separate heads. First, the value of their leasehold interest extinguished by the resumption. Compensation is expressly payable on this basis, under Section 10(2)(a) of the Ordinance. Secondly, loss due to disturbance, which is payable under the statutory circumstances set out in Section 10(2)(d):-
The value of the leasehold interests 17. Both applicants held the property resumed under various oral leases from the Crown lessees. Before these leasehold interests can be valued it is necessary to determine the length of the unexpired residue of the leases as at the date of resumption. In both cases rent was payable annually, which in the absence of other evidence, would tend to indicate that they held the property on yearly leases. We also record that both applicants had been in possession of the land and conducted their red worm farm businesses thereon for more than 5 years. If the leases had been in writing for fixed terms of 12 months, then clearly the unexpired residue would be limited to the balance of the 12 months term remaining as at the date of the resumption. Under Section 12(c) we also remind ourselves that no compensation may be given in respect of any expectancy or probability of the grant of any renewal or continuance of any tenancy unless the same could have been enforced as of right if the land had not been resumed. 18. Here the position is simplified by the fact that no question of any renewal of any expectancy or probability thereof can arise. For the applicants are not in possession for a fixed term of years. Instead they may at will remain in possession paying an annual rent until their lessors give them 12 months notice in writing of their intention to determine the tenancies. However, if notice were given the applicants could only enforce a right to remain in possession for the further period of 12 months specified in the notice. 19. However, on the evidence the applicants right to remain is longer than that mere 12 months. In the case of Chow Kun Lo he stated that while he paid rent annually his lessors had informed him that he was entitled to remain in possession for a minimum of at least 3 years. This evidence was not attacked by the respondent. In addition, the respondent, when it elevated its ex gratia offer to an offer of compensation, recognised that both applicants tenure fell within the longer category of 3 years or more. All the respondent's calculations and evidence before the Tribunal were on that basis. The hearing therefore proceeded on the undisputed basis that the applicants remaining tenure, as at the date of resumption, was for a minimum period of 3 years. In those circumstances we find that the unexpired residue of both applicants leasehold interest, as at the date of resumption, was 3 years. 20. We are disappointed that no evidence from a chartered surveyor was called by the applicants to support the claim for the value of their leasehold interests which involves a calculation of profit rent. However, as at the date of resumption the applicants were paying an annual rent fixed nearly 5 years earlier. A Court, without enquiry, may take judicial notice of the fact that there has been a general increase in the cost of living - In re Richardson (1920) S.A.S.R. 24. In that case the Full Court of South Australia based the right to take judicial notice of such an inflationary increase on the principle in Holland v. Jones (1917) 23 C.L.R. 149 namely, that where a fact is generally known the presumption arises that all persons are aware of it but such judicial notice excludes 'particular' facts as distinct from 'general' facts. This is really only an alternative expression of the notoriety principle on which judicial notice is founded. The Full Court was prepared, without evidence, to take judicial notice of general inflation during the relatively short period from the 6th day of April 1919 to the 10th day of August 1920. 21. More recently in National Trustees Executors & Agency Co. of Australasia Ltd. v. Attorney General (1973) V.A. 610 the Victoria High Court held that a Court ought now to be presumed to have judicial knowledge of an overall inflationary trend in the economy. Apart from such judicial knowledge customarily founded on notorious facts, the Court was prepared specifically to base its judicial knowledge of inflationary trends by "having regard to the material which exists on various files scattered through the archives of this Court ..." 22. We may similarly taken judicial notice of inflation and of the fact that rents generally, in part as a corollary to inflation, increased from 1977 to 1982. The evidence here is that the applicants have been in possession for nearly 5 years, at the same rentals at the date of resumption as when they first entered into possession. We are satisfied on the ground of inflation and the general increase in rents, that the actual rent at the date of resumption was less than the market rent. The difference represents an asset which has a market and pecuniary value to the applicants. 23. In the absence of contrary evidence we propose to adopt a very conservative approach. We find the profit rent, representing the difference between the actual rent and the market rent at the date of resumption, to be $2,000 per annum in the case of Kwok Muk and $2,500 in the case of Chow Kun-lo. These amounts, we note, are equivalent to an annual increase of less than 4% which is no doubt substantially lower than actual inflation rates, but accords with the conservative approach we have already indicated we are adopting. 24. If applicants wish to obtain the optimum compensation determinable under Section 10(2)(a) then preferably they should call an expert valuer to give evidence of the difference, as at the date of resumption, between the actual rent and the market rent. There are alternatives to that desirable approach which, exceptionally, can be invoked as a last resort but all are considerably inferior. Where they are used an applicant thereby unnecessarily greatly increases the risk that a claim under this head will wholly fail. In fact, it is difficult to envisage any circumstances where a difference exists between actual and market rents, where that cannot be established by a valuer giving expert evidence after analysing the market and inspecting the subject property. 25. Those annual sums of $2,000 and $2,500 respectively must be multiplied by the residues of 3 years subject to the appropriate discount. Adopting an annual interest rate of 13% we calculate the value of the applicants leasehold interests as follows:
Disturbance 26. The additional common law right to compensation for the disturbance of an applicant who thereby incurs loss or damage due to the forced removal of his business, as a result of a resumption, is as we have noted, reflected in the statutory provisions of our Section 10(2)(d). In Lee Chun v. Director of Lands we set out at length the principles that have evolved concerning disturbance and need not repeat them here. 27. On the evidence the loss or damage suffered, which is compensatable under Section 10(2)(d), was twofold. First, the applicants in removing their business elsewhere have to either construct now ponds on bare land or purchase other existing ponds. In the latter case the probabilities are that they will have to pay a sum equal to the cost of constructing new pools. Both the applicants and the respondent approached this loss on the basis that new ponds would have to be constructed. We will adopt that common approach. Secondly, during the removal there will be a loss of production which is also compensatable. 28. Kwok Muk was the owner of 5 ponds; Chow Kun-lo owned 4 ponds. Their sizes varied from 345.6 square metres to 1644.39 square metres. The majority of the ponds were in the region of 800 square metres to 1100 square metres. We will assume that in re-establishing elsewhere, ponds of about this size will be constructed. Both the applicants and the respondent recognised that there was a liability for compensation under this head. The only dispute was as to quantum. 29. Both the applicants separately calculated the cost of constructing new replacement ponds at $120,000. These costs were on the basis that the ponds would be manually constructed over a period of 6 months. This was the traditional method of construction. We are satisfied that the cheaper and now more common method is by using a bulldozer which was the basis on which the respondent made his calculations. However, we appreciate that while the manual costs are higher they are spread over a longer period and in the short term might better suit the financial circumstances of a particular farmer. We appreciate too, that because of the size of smaller ponds and particularly where access is a problem, it might not be practical to use a bulldozer. 30. However, an applicant is under a duty to take reasonable steps to mitigate his loss. In most circumstances this will involve using the generally cheaper method of employing a bulldozer or other mechanical means. On a resumption the affected party will also have available compensation, by way of lump sum, to enable him to finance bulldozing costs. If the claimed $120,000 is applied to the area of Kwok Muk's resumed ponds it produces a unit rate of $27.4 per square metre. In the case of Chow Kun-lo it produces a unit rate of $21.76 per square metre. 31. The respondent relied on the average figures produced by the Agricultural and Fisheries Department survey set out in Departmental Standing Circular No. 32/82. Those costs were calculated on the basis that a bulldozer was used. They are only average figures. They disclose a rato of $3.30 for the bare preparation of the ponds by bulldozing to which must be added labour and fertiliser costs to arrive at a comparable rate to the $27.4 per square metro and $21.76 per square metre claimed by the applicants. 32. On the basis of the evidence adduced, the Agricultural and Fisheries Department's basic rate would therefore have to be increased to include 15 baskets of fertiliser for every 1000 square feet at $15 per basket together with labour costs. This produces the following figures: Kwok Muk
Chow Kun-lo
33. These increased figures result in a unit rate of $6.79 per square metre for Kwok Muk and $6.22 per square metre for Chow Kun-lo. 34. From cur consideration of the evidence we are satisfied that the applicants rates are too high and that the respondent's rates are too low. In addition to the evidence directly adduced in relation to these resumed ponds we also have the earlier rates calculated by the Agricultural and Fisheries Department as set out in their prior Departmental Circular No. 4/80, already referred to, which was the circular current at the relevant date of resumption in Lee Chun v. Director of Lands. The latter resumption was in respect of fish ponds situated just a little further to the north of the subject ponds. 35. These are average rates approved in 1982 from a survey carried out early that year. This was a 1982 resumption but the disturbance costs will be incurred subsequent to the date of resumption and the later date is the date for the assessment of disturbance. In addition those average rates reflect circumstances where new ponds were constructed in the normal course of business. Where a farmer is forced to relocate because his property has been resumed he does so subject to an element of pressure. As a result it is commonly accepted that both the choice of his new land may not be so ideal and the construction costs of the new ponds not as reasonable, as if he were to select a property and construct new ponds in normal circumstances. 36. We have already held, as a matter of law, that the applicants are entitled to compensation for an amount equal to the cost of new ponds. In the light of the whole of the evidence and in accordance with the principles we have already adverted to we now find, as a fact, that a reasonable unit rate on which in the particular circumstances of this case, to base compensation for both applicants would be $12 per square metre. 37. This produces the following compensation,
38. The remaining disturbance issue is loss of production. In the case of both applicants, net annual income was estimated at between $5,000 and $6,000. About 9 harvests were possible each year. The removal of their business will cause a loss of at least 1 harvest, and perhaps more. We are prepared to allow compensation of $1,000 for loss of production on this basis to each applicant. 39. The total disturbance loss for Kwok Muk on these calculations would therefore be $54,000 and for Chow Kun-1o $63,000. The only remaining issue is whether those total losses should be discounted on the basis that the applicants could not enforce a right to remain in possession of the resumed property for more than 3 years after the date of resumption. There is Canadian authority, to which we have referred previously, which has held that lessees are not entitled to compensation for total loss but only for an amount to compensate them for having to meet those costs at the date of resumption instead of later at the expiration of the fixed term of years under a lease - Re Frankel Steel Construction Ltd. v. Metropolitan Toronto (1966) 58 D.L.R. (2d.)578. In the Canadian case, unlike the present position, the Court was concerned with a written lease for a fixed term of 5 years together with a right of renewal for a further 5 years. Whether that is a factual distinction which may also have legal consequences we leave open. 40. That principle does not appear to have been applied in England neither in the case of leases for fixed terms certain or otherwise. The position in England is complicated by the special provisions for short agricultural tenancies which provide for minimum compensation, equal to 4 times the annual rent. This applies even where, due to the short nature of the tenure, no other disturbance can be established - Agriculture Holdings Act 1948; Agriculture (Miscellaneous Provisions) Act 1968. These special statutory provisions were enacted to protect tenancies where the tenant's interest is no greater than 1 year or where a leasehold interest for a term of years certain, has less than 1 year to expire. They would not apply where, as here, the unexpired residue of each tenancy is 3 years. In England, the law is well settled, that such longer leasehold interests, receive disturbance compensation for total loss without any discount in accordance with the Canadian principle. 41. We have also considered the position in Australia which is complicated by different state legislation. For example, in Victoria the probability of a renewal may be taken into account in assessing compensation while in South Australia legislation, similar to our Section 12, prohibits any such probability or expectancy being taken into account. In some states a solatium may still be awarded; in others it is prohibited. In Queensland, the Land Appeal Court held that full disturbance could be paid to a monthly tenant - Brisbane City Council v. Michael (1973) Qd. R. 14. However, the Brisbane City Council appealed by way of a case stated which included questions whether a monthly tenant was entitled in law to any costs of disturbance and if he were entitled, was the Land Appeal Court right in allowing merely a monthly tenant the full cost of disturbance. Unfortunately, while that appeal twice reached the Queensland Full Court, it was twice rejected on procedural grounds. Whether the appeal was pursued on these grounds for a third time, is not clear from the reports. 42. After consideration and having heard no submissions from either Counsel inviting us to adopt the Canadian principle we propose, in this instance, to continue to follow English practice and allow, in the case of an unexpired residue of the length involved here, full disturbance compensation, without any discount. 43. In the result the applicants are entitled to the following compensation: Kwok Muk
Chow Kun-lo
44. We therefore award the 2nd applicant, Kwok Muk, $58,750 and the 5th applicant, Chow Kun-lo, $69,000. Interest on those sums will be payable in terms of Section 17 of the Ordinance. The applicants are entitled to their costs to be taxed, if not agreed, in accordance with the Supreme Court scale pursuant to Order 62 of the Rules of the Supreme Court. There will be liberty to apply in respect of the rate of interest and any other consequential matters. DATED this 30th day of January 1984.
Representation: Mr. Arthur Au, of Arthur Au & Co. Solicitors, for the applicants. Mr. S.H. Franklin, Crown Counsel, for the respondent. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||