Royal Hong Kong Yacht Club v. Commissioner of Rating and Valuation

LDRA000038/1985

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Coram: His Honour Judge D. J. Leonard, Presiding Officer

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DECISION

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1. In this matter the Royal Hong Kong Yacht Club (the Appellant) appeals against a decision of the Commissioner of Rating and Valuation (The Respondent) that the rateable value of the Appellant's premises, Marine Lot 709, Hung Ning Road, Hong Kong (the tenement) be reduced from $2,184,000.00 to $2,040,000. The grounds of appeal are stated to be that "the property is valued above its proper rateable value in that the assessment is incorrect, excessive and bad in law".

2. The task faced by the Appellant was to satisfy the Tribunal on the balance of probabilities that the Commissioner had erred in arriving at a rateable value of $2,040,000.

3. Rateable value is defined in s.7(2) of the Rating Ordinance as :

4. S. 7A(4) of the Rating Ordinance provides that for a tenement in respect of which a proposal has been made:

5. The "relevant date" designated under s.11(1) of the Rating Ordinance, is 1 July 1983. [GN 2412 of 1983].

The Tenement

6. The tenement is described in detail in Valuation Reports, including photographs and a plan submitted under Rule 18 of the Lands Tribunal Rules by both parties. It is located on the north shore of Hong Kong Island, on the harbour front at Causeway Bay. The Royal Hong Kong Yacht Club's main activity is to provide boating and yachting facilities for its members and offers a wide range of ancillary facilities. The premises comprise a large area of Land mainly used for car and boat parking, with a club house and ancillary building and a swimming pool complex.

7. The total land area occupied by the Club comprises:

8. I did not make a special site visit to the tenement, having been there several times in the recent past.

Method of Valuation

9. According to the evidence, premises such as those under consideration are not to be found in the rental market. Accordingly, a rental value cannot be ascertained by reference to comparable lettings. In the circumstances, both parties to the Appeal adopted the contractor's basis. This is a five stage approach to valuation which has evolved over one hundred years since the judgment of Cave J. in R. v. School Board for London (1886) QBD 738. It was first described in the 11th Edition of Ryde on Rating (December 1982). The approach is now set out in the 13th Edition at pp. 518-520. The contractor's basis was applied by this Tribunal in The Royal Hong Hong Golf Club and The Commissioner of Rating and Valuation, (1977) HKLTLR 236. The rationale of the use of the contractor's basis is that set out in Dawkins (Valuation Officer) v. Royal Leamington Spa Corporation and Warwickshire County Council (1961) 8 R. R. C. 241 at page 251:

"The use of the contractors' basis, last resort or not, is amply supported by the authorities. In his opening the Solicitor General pointed to its logic in words we cannot hope to improve upon: "As I understand it, the argument is that the hypothetical tenant has an alternative to leasing the hereditament and paying rent for it; he can build a precisely similar building himself. He could borrow the money, on which he would have to pay interest; or use his own capital on which he would have to forgo interest to put up a similar building for his owner-occupation rather than rent it, and he will do that rather than pay what he would regard as an excessive rent-that is, a rent which is greater than the interest he forgoes by using his own capital to build the building himself. The argument is that he will therefore be unwilling to pay more as an annual rent for a hereditament than it would cost him in the way of annual interest on the capital sum necessary to build a similar hereditament. On the other hand, if the annual rent demanded is fixed marginally below what it would cost him in the way of annual interest on the capital sum necessary to build a similar hereditament, it will be in his interest to rent the hereditament rather than build it".

10. The five stages are:

11. At the hearing of the appeal I had sitting with me Mr. F. Y. Kan who was appointed under s. 9(4) of the Lands Tribunal Ordinance as an adviser. We received the evidence both oral and written of expert witnesses for both sides and heard submissions, some written and some oral, from counsel. Following the hearing, the Adviser submitted written advice, copies of which were supplied to both parties. At a later hearing, sitting again with the Adviser, I heard submissions from counsel for both parties on the advice. I have discussed those submissions with the Adviser and I will now set out my findings in relation to Stages 3, 4 and 5 of contractor's basis.

Stage 3 - Estimation of the cost of the land

12. Mr. R. G. Williams, a Fellow of the Royal Institution of Chartered Surveyors and a Fellow of the Incorporated Society of Valuers and Auctioneers, a partner in a firm of Chartered Surveyors in Hong Kong, gave evidence for the Appellant. In the absence (according to him) of appropriate comparables, he calculated the value of the lend in question by ascertaining the value of poor agricultural land in the New Territories at the relevant date and multiplying it by three. His reason for doing that was that, during the life of the 1977 valuation list, the tenement was reassessed for the purposes of an interim valuation following renovations and extensions. The land value was then agreed at $43 per square metre (m²) which was about three times the value of the base value of agricultural land ($14 per m²) in the New Territories. According to Mr. Williams, various transactions, listed in Appendix V to his valuation report submitted under rule 18, indicated a base value of $40 per m²

13. Applying his factor of 3, the result was $120, which he rounded up to $125 to take into account the "locational advantage" of the tenement. He then computed the value of the land as follows:

It will be seen from the above that Mr. Williams treated the value per m² of land under water as one half of that of land above water. Mr. Noffke, the expert witness for the Respondent, took in his report the value of land under water as about 1/3 of that above water. Both approaches appeared to be entirely arbitrary. I have adopted Mr. Noffke's approach to the calculation of the cost of submerged land for no better reason than that it is more favourable to the appellant.

14. Rounding up the figure for the sake of neatness, Mr. Williams valued the land at $2,425,000.

15. There appears to be no rational basis for applying the formula for which the Appellant contends. A matter agreed in relation to a previous interim valuation does not bind the Respondent in this appeal. This Tribunal is not bound to proceed on the basis that the figure was correct.

16. Mr. Williams testified that there were no arms length transactions in relation to what he called "recreational clubs per se", which could be looked at in order to find a land value for the tenement. His view was that there was a distinction to be drawn between use by a "recreational club" as distinct from a "proprietary club." This I found to be a false distinction. The "rebus sic stantibus" principle relates to the use of land and not to the identity of the person or body using it. A yacht club may properly be described- as a recreational club and it may be either a proprietary or a members' club, but in either case the activity carried on upon the land is the same. Mr. Noffke, the expert witness who gave evidence for the Respondent, described the existing use as "leisure or recreational use" and this was a more appropriate description then the narrower one of use as a "recreational" (meaning members') yacht club. If a piece of land available for leisure or recreational use comes onto the market, a hypothetical prospective tenant which is a members' club cannot be assumed to be competing in the market only with other members' clubs.

17. In any event, there was no evidence that a person wanting to operate a proprietary club on the land would be able and willing to pay a substantially higher price than a members' club. Mr. G. H. Moffoot, another expert witness called for the Appellant said that a members' club would have to look at what a proprietary club would be prepared to pay for the land. He thought that a proprietary club would be in a position to outbid a members' club. No evidence was given to support that view. As a matter of common sense it is impossible to say that a proprietary club must be wealthier than a members' club. Further, a members' club might be prepared to pay more because it would not need to do more than cover its costs whereas a proprietor might be thinking of his potential revenue in terms of profit, Mr. Moffoot said that if a proprietary club did outbid a members' club, it would only have to make its bid "a bit higher." Thus, the distinction suggested by Mr. Williams would make little difference, if any.

18. I would observe here that I would make a distinction between a use for outdoor recreation and use for other forms of leisure activity. Further, I would make a distinction between use for a yacht club and use for recreational activity carried out on the land because a yacht club in Hong Kong will require premises next to the sea. Mr. Williams relied on his formula and did not view transactions where the purchaser was a proprietary club as helpful, He did not produce any comparables but he did give his views on the comparables offered by the Respondent and I will now turn to Mr. Noffke's evidence on land value.

19. The expert witness called by the Respondent was Mr. Clive Noffke, Senior Valuer in charge of the Special Properties Division of the Rating and Valuation Department of the Hong Kong Government. He is a fellow of the Hong Kong Institute of Surveyors and on Associate of the New Zealand Institute of Valuers. The witness approached the task of valuation on the proper basis that the land is to be considered vacant and to let without restrictions other than statutory restrictions. He assumed that the only type of hypothetical tenant would be "a leisure club or similar."

20. The witness said that value data for such uses were extremely scarce. He made reference to three transactions indicating that sites not already occupied for leisure pursuits must be purchased on the open market at figures considerably in excess of agricultural value or any ether nominal yardstick. These transactions related to the Hilltop Country Club at Tsuen Wan, the Aberdeen Marina Club and a proposed American Club at Tai Tam. Particulars appear at Appendix E to Mr. Noffke's valuation report, filed under Rule 18. The Hilltop Country Club transaction took place in 1976 and the Aberdeen Marina Club transaction was in 1979. Mr. Noffke considered that these examples were too far removed in time from the valuation date to be of use. He had not used the American Club when he carried out his valuation because he did not know of it then, and in any event there had been a difficulty in ascertaining sufficient particulars of the consideration.

21. Mr. Noffke based his valuation upon three "controls", of which particulars appear at appendix F to his report. Of these, the second, listed in the Appendix as F2, relates to the rental of land at Tai Tam Reservoir Road for the storage of pleasure boats and for an ancillary car park. The commercial nature of the use of the land was so different from that of the tenement in question that I felt obliged to disregard it. The third "control", (listed as F3), related to the purchase of land for the "Sea Ranch" resort complex on Lantau Island. Mr. Williams pointed out that the development in question is in no way similar to the Royal Hong Kong Yacht Club. In 1979 a resort complex was built, comprising 20 blocks containing 200 residential units of which 185 were sold to private individuals. Attached in a four storey club house with swimming pool; tennis, basketball and badminton courts end a golf range. The recreational facilities are there for the use of the occupants of the apartments and were provided as an aid to marketing the residential units. The transaction listed as F3 was the purchase of some extra land for recreational use. The rent was agreed in January 1980 and by July 1983 there was a fallback in land values in the order of 80% - 90%. Mr. Noffke did not rely on this transaction as a comparable and I did not find that it afforded any guidance to the Tribunal.

22. The only remaining transaction relied upon by Mr. Noffke was his first "control", listed as F1 in Appendix F to his valuation report. This was the letting to the Royal Hong Kong Jockey Club (R. H. K. J. C.) of an area of 4977.3 ma of land adjacent to the Beas River Country Club in the New Territories, which is owned by the R. H. K. J. C. The rental per m2 was shown by Mr. Noffke as $10.76 p.a.

23. Mr. Williams said in relation to the Beas River transaction that the price was excessive because the land was needed as a paddock by the club, which had extended its club house and tennis court on land previously used as a paddock. That suggestion was refuted by Mr. Noffke who was able to show that the club already had large areas of land in use as paddock.

24. Taking the figure of $10.76 p.a. m² as an appropriate starting point, it was necessary to find an appropriate capitalization rate in order to estimate the value of the land for the purposes of stage 3. Mr. Noffke originally used a figure of 11%. Mr. Williams took a "rate of return" of 4%. The Adviser ultimately suggested 5%. Both Mr. Noffke and the Adviser were content to use for calculating the value of the land the same percentage rate which they proposed to use as the decapitalization rate for stage 4. Mr. Williams did not object in principle and I have therefore used the same rate for both stages. For reasons which appear below, my rate was 8%.

25. Mr. Noffke was asked if he relied on any comparables other than Boas River and Tai Tam Bay and he replied that he did not do so for the purpose of defending his valuation. I am in agreement with the Adviser that of the transactions which have been mentioned to this Tribunal, the only one acceptable as a basis for the valuation exercise is the Boas River letting. Mr. Noffke capitalized the Boas River rental of $10.76/m² p.a. at 11% to arrive at a capital value of $97.82/m². He rounded that up to $110/m² Using my figure of 8%, the resulting capital value is $134.5/m². Mr. Noffke, then sought to show by comparison with the Tai Tam letting that the ratio of values in the urban area to these in the rural New Territories was 4:1.

26. However, the Tai Tam transaction, relating to a commercial use, is not an acceptable comparable. Mr. Noffke also referred to the relationship between urban and rural residential values and found them to be in ratio of 4:1 (urban to rural. There was nothing to show that residential values are related to values of land for outdoor recreational use. Mr. Noffke's ratio of 4:1 has no more factual basis than has Mr. Williams's 3:1. It may reasonably be said that as a general rule, land near the main centre of population will be more in demand than land in a rural area. The question is, however, to what extent the general rule will apply when a prospective purchaser is seeking to set up a yacht club. The Adviser felt that the ratio to be applied in such a case could be 1:1.5, (rural to urban) and that is the ratio that he used in his advice. If it is based, as I believe it is on nothing but the difference between country and town, then I think it should be increased in the present case. The Beas River site is inland and the yacht club site is and must be on the seashore. Moreover, the land on which the yacht club stands is immediately adjacent to a typhoon shelter and, lying on the harbour shore, is a very convenient starting point for sailing to all parts of Hong Kong waters, as a glance at the map will show. The tenement is close to the Harbour Tunnel and thus equally accessible by road from Hong. Kong and Kowloon. These advantages must surely enhance the value of the land. On the other hand, the club (unlike the Aberdeen Marina Club) does not have a, legal title to its moorings, which are essential to its main activity. This insecurity must be a factor adversely affecting value. Taking all these matters into account, I will employ a ratio of 3:1 (urban to rural) in the particular circumstances of this case. $134.5 X 3 = $403.5/m², which is the recreational land value. Stage 3 is now complete.)

Stage 4

27. The first step is the ascertainment of the market rate.

28. Mr. Noffke and Mr. Williams had taken a figure of 13.5% based on the average of prime rates over a five year period. Both experts also selected a borrower's premium of 1.5%. Mr. Williaims said that his discussions with bankers indicated such a premium for a borrowing over 5 years, increasing to about 2% over 10 years. Both parties appeared to agree that it was better to take an average of prime rate over a period rather than the rate prevailing on a single day.

29. In the present case the parties apparently took the view that a hypothetical prospective tenant would be more likely to look at an average prime rate figure rather than that prevailing on one day, especially since he would probably be seeking to estimate inflation by taking an average calculated over preceding years. Mr. Moffoo and the Adviser both took the view that in Hong Kong one needs to look at a period of at least ten years in order to arrive at an annual inflation figure.

30. I find on the evidence that the average prime lending rate over a ten year period to 30th June 1983 was 10.3%. To that would be added the borrower's margin which the evidence indicated would be 2% in relation to a ten year loan. The market rate of interest would thus be 12.3%.

31. I now come to the question of a deduction to take account of inflation, which term is not synonymous with capital appreciation. Inflation may be described as an undue increase in the quantity of money in proportion to purchasing power. All other things being equal, inflation produces increased prices in money terms. The rationale of taking account of inflation may be found in the Valuation Officer words of Denning MR in Cardiff City Council v Willimas (Valuation Officer) [1973] RA 46, 50.

32. "The annual rent must not be fixed so as to be only "marginally below" the interest charge. It must be fixed much below it, and for this reason: By paying the interest charge on capital cost, he gets not only the use of the building for its life, but he gets the title to it, together with any appreciation in value due to inflation; whereas, by paying the annual rent, he only gets the use of the building from year to year - without any title to it whatsoever - and without any benefit from inflation." There are, of course, advantages, other than the benefit from inflation, for ownership as against a tenancy from year to year. These must be taken into account. The deduction for ownership benefits has come to be referred to as "the Cardiff deduction."

33. There was no agreement as to how the figure for appreciation due to inflation was to be assessed. The Appellant looked to the Hang Sang Consumer Index and to published figures from the Economic Services Branch of the Hong Kong Government. Having selected a period of five years for the calculation of an average prime rate arid for ascertaining the borrower's margin, the Appellant took a period of ten years for inflation and came up with a figure of about 12%.

34. Taken over ten years, the average percentage increase in consumer prices, according to the Hang Seng Consumer Price Index was 8.41%. Mr. Williams had arrived at 12.2% by averaging the figures for actual increase rather than those for percentage increase. The average percentage increase according to the Government Secretariat Economic Services Branch figures for the same period was 9.3%. The average of the two figures is 8.855%, say 8.9%.

35. If we adjust Mr. William's figures so as to compare like with like by looking at both interest and inflation over a ten year period and by taking the inflation figure shown above, his "real interest rate" would be :

36. To that must be added a further 1% (agreed by both parties) to allow for the landlord's obligation for repairs. The resulting figure is 4.4%.

37. The Adviser's figure was originally 8.2% but when it was pointed out by the parties that he was taking a prime lending rate of 13.5%, a five year average, but an inflation rate of 8.3% averaged over 10 years, he indicated to me that his prime rate should be adjusted to the 10 year average of 10.3%. With that adjustment, one arrives at the final figure of 5%.

38. Mr. Noffke, the Respondent's expert witness, disagreed with the use of the consumer price index as a valuation measurement tool. It was submitted by Mr. Feenstra, Crown Counsel for the Respondent, in his comments upon the written advice submitted by Mr. Kan, that that index cannot be used to establish what movements in property prices will be. With that I agree. Property prices, especially in Hong Kong, are affected by many factors, of which inflation is only one. The two indices I have mentioned do, however, give an indication of the effect of inflation on prices generally and do therefore give an indication of the effect which inflation would have on property prices if other relevant factors, such as supply and demand, remained constant. I think that Mr. Noffke may have been misled by a statement by Mr. Williams to the effect that  property prices and inflation in the long term go hand in hand.

39. Mr. Noffke's approach to Stage 4 was to take the same prime rate and borrower's margin as that chosen by the Appellant, arriving at a market rate of 15%. He then made a deduction of 5% for "ownership benefits" and added 1% for the landlord's repairing and insuring obligations, thus reaching a final figure of 11%.  If we adjust his figures to take the rates for a period of 10 years rather than 5 years, the result is :

40. The difference between the parties at this stage lies in their approach to the problem of adjusting the market rate to take into account ownership benefits, including appreciation in money value due to inflation. Mr. Noffke, in his valuation report, cited the following passage from the decision in Westminster City Council v. American School in London and Goodwin (Valuation Officer) [1980] RA 275 at p.287:

"It must be remembered, however, that the objective in these calculations is to arrive at a rent payable under the conditions of a hypothetical tenancy from year to year and in my judgment such a rent remains free of the wider fluctuations in market rate. Where as in today's circumstances interest rates are high, this is largely attributable to inflation; and the reduction to be applied to market rate in order to arrive at gross commercial rent must be that much the greater, since there is no protection against inflation available to a tenant from year to year."

41. According to Mr. Noffke, the fluctuations in rates referred to had been "ironed out" by adopting a five year moving average of prime lending rates. No doubt he would have used the same argument in the case of a ten year average. He went on to say "The deductions to be made fall under the benefits of ownership." This suggested that Mr. Noffke thought it unnecessary to make any deduction for appreciation due to inflation. He took the view that "given the booms and busts in the Hong Kong property market any measurement of inflation is highly, speculative."In the circumstances, Mr. Noffke had re-course to previously accepted allowances, e.g. the 2% allowed for "Cardiff reductions" in the Hong Kong Country Club Cars, (1978) HKLTLR 67 and in the Royal Hong Kong Golf Club case in 1977. However, the figure was agreed in the Country Club Case and in the Golf Club Case no justification was given in the Tribunal's decision for selecting a figure of 2%, which was not intended merely to cover appreciation due to inflation but was considered "appropriate to represent the difference between ownership and an annual tenancy". In the circumstances I do not consider myself bound to have regard to the 2% figure. Mr. Noffke's reasoning was that if in 1977 the market rate was 7.25%, a 2% deduction was a reduction of the rate by 27.6%. As he thought that inflation is higher now than it was then Mr. Noffke selected 33% as the proportion by which to reduce his market rate of 15%. . He did say, in evidence, however, that he arrived at 5% with an end result of 11% in mind. That appears to be putting the cart before the horse.

42. If we use Mr. Noffke's approach, but with a market rate based on a 10-year average, the calculation is as follows :

43. The appellant and the Adviser on the one hand were content to deduct the full (average) inflation figure, without having regard to other ownership benefits. Mr. Noffke, on the other hand, selected a purely arbitrary figure, apparently chosen in order to reach a preconceived result.

44. I think that it is wrong to deduct the full inflation figure. According to the helpful report entitled "Contractor's basis of Valuation" published in London by the Rating and Valuation Association, in October 1982, it is said, in regard to the above-quoted passage from the American School case :

"There is therefore an argument for deducting at least part of the inflation rate from the market rate to allow for inflationary factors which would not be found in an annual rent." But this was closely followed by the assertion that:

"All new rents are fixed in current inflated money terms and to eliminate all the effects of inflation from interest rates  before arriving at the decapitalisation rate would produce an unfair advantage to hereditaments valued on the contractors basis."

45. In the cases cited to this Tribunal, no "Cardiff reduction" has been explained in terms of factual evidence as to ownership benefits. Decisions have been made upon the expressions of opinion of expert witnesses or by reference to existing conventional rates per cent adopted in the past for the sake of convenience and consistency.

46. Bearing in mind the likelihood that rental value will have some built-in inflation, it is an oversimplification to deduct the full inflation rate from the commercial rate. In order to balance that built in inflation, it may be reasonable to debut about half the inflation figure, say 4.4%. A further deduction must be made for other ownership benefits. In the absence of any evidence as to what might be the value of such benefits, the best the Tribunal can do is to select a token figure of 1%. The calculation would then be as follows:

47. The figure of 5% which results from the appellant's general approach, adjusting for a ten year period, is based on a full deduction for inflation and is arrived at without taking account of other ownership benefits. I do not accept the figure of 9.2% which results from applying Mr. Noffke's method after adjusting for a ten year period, because he has failed to show any factual basis for his reduction of the commercial rate by one third and because he is in error in thinking that an averaging of interest rates makes a deduction for inflation unnecessary.

48. In Distillers Company (Bottling Services) Limited v. Fife Assessor (1983) RA 228, Lord Ross, giving judgment in the Land Valuation Appeal Court, said, at page 243:

"Suffice it to say that I agree that the findings and answers of the committee do not justify the figure of 10½% for which the assessor has contended and which the committee has accepted. However I likewise agree that the committee were entitled to discount the evidence on which the appellants relied to justify the figure of 6% for which they contended. In these circumstances, it appears to me to be reasonable to reject the two competing figures, and to fix a decapitalisation rate some way between the figure prepared by the assessor and the figure prepared by the ratepayers. Applying that familiar weapon of lawyers - the broad axe - I agree with your Lordship in the Chair that the decapitalisation rate to be applied in this case should be a net figure of 8%".

49. This case seems to call for a similar solution. My own calculation set out above resulted in a rounded up figure of 8%. That is nearer to the 9.2% resulting from Mr. Noffke's method than to the 5% resulting from the method used by Mr. Williams. It seems to me, however, to be reasonable to take as a working figure and it happens to be almost at the mid-point between the 4% and 11% originally contended for by Appellant and Respondent respectively.

50. Having now established the decapitalisation figure of 8%, I must apply it to the Effective Capital Value and to the value of the land.

51. When he came to apply the recreational land value unit rate, Mr. Noffke did so over all the accommodation area, i.e. not only over the whole of the site area but also over the extra building area over and above the ground floor. In doing that he was desirous of establishing a method which would apply to some 60 recreation clubs valued in the 1984/1985 List. The purpose of the approach is to reflect the value of densely developed sites, (such as the Aberdeen Marina Club) which, while the developed area may be small, nevertheless contain the equivalent recreation space of more spacious sites, He made no distinction between building areas and open areas, asserting that the resulting valuation rate was lower than might have been justified, had the distinction been made. Whilst it cannot be said that open land value and accommodation value are necessarily the same, I accepted that, in cases such as this one, there was an argument to which I shall later refer, for using open land value as a rule of thumb, as Mr. Noffke did, for arriving at accommodation value.

52. Mr. Noffke applied a 15% discount to the land value unit rate on the basis that the area he was dealing with was larger than the norm. The Adviser took the view that such a discount was reasonable. However, Mr. Noffke only applied the discount to the land area.

53. His final figure appears in the valuation summary at paragraph 6 on p.4 of his valuation report. I will set out my final calculation according to his scheme, but with my valuation rate of $403.5/m² and my decapitalisation rate of 8%.  I will apply the 15% discount where he has applied it.

(The figure for land covered by water is calculated as

Using a decapitalization rate of 8%, I arrive at $1,489,135.00 rounded off to $1,490,000.00. That completes Stage 4.

Stage 5

54. I now come to the "stand back and look" stage, in order to see if the figure ascertained at Stage 4 is one which the hypothetical tenant would be willing to pay as rent. I find that it is. In the report "Contractor's Basis of Valuation" to which I have earlier referred, it is suggested that, at this stage, ability to pay may be considered. I have no reason to doubt on the evidence that the Appellant could pay such a rent, but I am concerned with a hypothetical tenant and I see little point in considering ability to pay where it has not been shown that the actual tenant is the only hypothetical tenant.

55. The Respondent has urged me to look at the final figure as a yield on the landlord's investment, and to compare it with known property yields in order to see whether it is adequate from the Landlord's point of view. I am not concerned with that question. He has also sought to draw comparisons with the rents paid by clubs occupying accommodation in office buildings. For example, the Japanese Club, located on the top floor of the Hennessy Centre, overlooking the Yacht Club, pays a rent of $105.20/m², much higher than the Respondent's figure for the Yacht Club ($42/m²). In Mr. Noffke's Appendix H2 even higher rents are shown for other clubs, such as the American Club and Raffles Club. But all those clubs are in office/commercial buildings and cannot be compared with any outdoor recreation club, let alone the Royal Hong Kong Yacht Club. If one is obliged, for lack of comparable rentals, to resort to the contractor's basis, it is not helpful to look at rents paid for accommodation where the mode and character of use are so different.

56. Based on an accommodation area of 4,108m² , my figure of $1,490,000.00 represents a monthly rent per m² of approximately $30.20. It also represents a monthly contribution of approximately $41.40 for each of the 3000 members of the Appellant Club.

57. The Adviser, instead of following the Respondent's accommodation value method applied his base value per m² to the whole of the site area as if to were bare land and then sought to calculate the premium the club would have to pay to the government in order to be able to build its accommodation. The Respondent argued against this approach, and the Adviser's method of calculating the premium. I prefer the accommodation value method because it appears to be a simple and suitable one likely to produce consistency, and less speculative than the premium approach. There was evidence from Mr. Noffke which suggested to me that the Hong Kong Government's past policy towards non profit making bodies in relation to the granting of private recreational leases indicated that if a premium were being considered, a non profit making body might be treated more indulgently than would be a commercial organization, Thus, while a private members' non profit making club might have to compete with commercial organizations in the market for land, the situation might be quite different where premium was concerned. Such evidence as there was about premium related to proprietary clubs. There was no evidence as to any premium paid by a private members' recreational club. As it happens, the Adviser arrived at a figure of $1,515,400.00. My figure of $1,490,000.00 is within 2% of his. I can therefore take account of his reaction to his figure at Stage 5. He considered his figure to represent a common sense and acceptable result, assuming that it was right to use the contractor's basis.

58. The Adviser did however, tell me that he was uneasy over the resort by both parties to the contractor's basis. I was uncomfortably aware of the fact that the value of the land was found by reference to the rent reserved in one single transaction. There was a suggestion in Mr. Noffke's evidence and in the submissions made on behalf of the Respondent that if the Respondent had employed another method of valuation the result would have been less favourable to the Appellant. If the Respondent believed that there was a better method of valuation which would have produced a higher rateable value, it was his duty to use it. Since he chose to use the contractor's method, it was hardly open to him to suggest that his result should be accepted because it was too low and had been arrived at by the wrong method.

59. It was made clear to the Tribunal that this is regarded as a test case, and that the appeals of ten clubs have been adjourned pending this decision. My findings of fact, however, have been made upon the evidence, scanty as it is and there is no reason to suppose that in any future appeal the parties thereto will impose upon themselves the limitations which were agreed in this case.

60. I determine the rateable value at $1,490,000.

61. The appeal is upheld and the Collector of Rates is ordered to amend the valuation list effective from 1st April 1984 by reducing the rateable value of the subject tenement, being Marine Lot 709, Hung Ning Road, Hong Kong, to $1,490,000 and to make any refund of rates which may be necessary. Liberty to apply is reserved to both parties.

62. Dated this 23rd day of April 1986

Representation:

A. Huggins, instructed by Messrs, Deacons for the Appellant.

Mr. P. F. Feenstra, Crown Counsel, for the Respondent.