Penny's Bay Investment Co Ltd v. Director of Lands
Read the full judgment text of LDMR 23/1999 on BabelCite. This LDMR judgment was delivered on 25 May 2007.
1. Pursuant to the order of this Tribunal made on 8 February 2006, there is a trial of the following preliminary issues,
Cites 5 cases
|
LDMR 23/1999 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION Application under Foreshore and Sea-bed (Reclamations) Ordinance Application NO. LDMR 23 OF 1999 ____________ BETWEEN
____________ AND LDMR 1/2005 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION Application under Foreshore and Sea-bed (Reclamations) Ordinance Application NO. LDMR 1 OF 2005 ____________ BETWEEN
____________ (Heard together) Before: Hon Lam J, the President of the Lands Tribunal Dates of Hearing: 22 – 25 January 2007 and 2-4 April 2007 Date of Judgment: 25 May 2007 ______________ J U D G M E N T ______________ 1.Pursuant to the order of this Tribunal made on 8 February 2006, there is a trial of the following preliminary issues,
2.As the hearing progressed, it is apparent that on issue (1) the diffence between the parties is whether the compensation should be assessed on the basis of a notional tort in respect of damage occasioned to the land of the Applicant by the de jure reclamation upon the gazette notice of the same (as contended by the Respondent) or a notional purchase of the rights and interests of the Applicant extinguished by the said reclamation (as contended by the Applicant). This is the common understanding of the parties and arguments have been canvassed accordingly. It may be more accurate to describe the approach contended for by the Applicant as one based on notional purchase instead of one by reference to the principles of contract. In order to avoid confusion in the future, I shall refer to the two approaches as “notional tort” and “notional purchase” respectively. 3.Hence, issue (2) should be read as: if the correct basis is a notional purchase, whether betterment arising from the scheme relating to the 1995 Authorization can be taken into account. In other words, whether the Pointe Gourde principle has any application in the context of a claim under the FSRO. Facts relevant for the determination of the preliminary issues 4.The relevant facts are basically those set out in the Statement of Agreed Facts. There are some supplements in the course of the hearing. I shall now set out those relevant facts below. 5.In 1970, the Applicant acquired Lot 22 in DD356, Penny’s Bay, Lantau, Hong Kong [“Lot 22”] by way of an Agreement and Conditions of Exchange dated 2 January 1970 registered in Tsuen Wan Land Registry as New Grant No 4706 [“the Grant”]. Pursuant to the Grant, the Applicant was granted a Lease of Lot 22 for a term of 99 years less the last 3 days commencing 1 July 1898, the term of which was subsequently extended to 30 June 2047 by the New Territories Leases (Extension) Ordinance (Cap 150). 6.Lot 22 was about 2,010,000 sq ft (or 186,734 sq m) in area and is shown on Plan I annexed to the Grant [“Plan 1”]. The leased area was coloured red in Plan 1. It extended beyond the existing coastline at the time of the grant. In other words, the leasehold interest of the Applicant extended partly into areas which were foreshore and possibly seabed at the time of the grant. However, after the reclamation works done pursuant to clause 6, the coastline had been changed and the only parts of the leased areas that were submerged under the water were the four elongated strips between points C and D used by the Applicant as slipways and launch- ways. To that extent, the Applicant had a leasehold interest in the seabed at the time of the de jure reclamation. 7.Under clause 3(a) of the Special Conditions of the Grant, the Lot was to be used for general industrial and/or godown purposes excluding any offensive trade, and no less than 285,000 sq ft of the Lot shall be used for shipbuilding purposes only. There were also restrictions on the erection of any building on the Lot: clause 3(b) and (c). 8.Under clause 6 of the Special Conditions of the Grant, the Applicant shall form and reclaim certain areas as delineated on Plan I and shall construct and maintain, for the protection of the area after the reclamation work was completed, a seawall or rubble mound along the boundary of the new sea frontage at points A-B, B-C, C-D, and D-E as specified in Plan 1, and shall construct landing steps between points E-F as delineated on Plan 1. The Applicant shall be responsible for maintaining the seawall or rubble mound and the landing steps at its own expense and to the satisfaction of the District Commissioner, New Territories. 9.Pursuant to clause 6, the reclamation was done and a seawall was constructed along the new sea frontage. Along points C-D of the foreshore a slipway and several launch-ways were constructed and these structures extended into the foreshore and sea-bed. 10.Various landing steps were constructed along the seawall. Mooring posts were erected along the seawall. There is no specific provision in the Grant for the mooring posts. 11.The Applicant also built a jetty near point A. The Grant did not have any express provision relating to this jetty. However, the jetty was shown in the approved lay-out plan submitted pursuant to Special Condition 5. 12.The Applicant enjoyed limited right of access to the sea from its land. Clause 31 thereof provided that no access to or from the sea from or to Lot No. 22 shall be permitted except along that boundary marked A-B, B-C, C-D, D-E on Plan 1 annexed to the said Special Conditions. The approximate length of the boundary so marked was 3,150 feet. 13.By a Tenancy Agreement dated 8 December 1975, the Lot was let to Cheoy Lee Shipyards Limited for the purpose of shipbuilding and related purposes at a monthly rental of $10,000, which was increased to $40,000 with effect from 1 April 1984. 14.Throughout the period of the Applicant’s ownership, Lot 22 was not accessible by vehicles but was accessible on foot. 15.On 11 March 1994, the Director of Lands, pursuant to section 5 of the Foreshore and Seabed (Reclamations) Ordinance [“FSRO”], published a Gazette Notice No GN 847 delineating and describing a proposed reclamation of foreshore and sea-bed situated at Penny’s Bay to provide for, inter alia, land for the construction of Container Terminals 10 and 11 [CT 10 and CT 11], land for industry, back-up areas for container terminals and associated infrastructure [“the Container Terminal Scheme”]. 16.On 24 March 1995, a draft Outline Zoning Plan (OZP) No S/I-NELP/1 outlining the development plan for the Container Terminal Scheme was published. The area to be reclaimed at Penny’s Bay, including part of Lot 22, was zoned for industrial use, container terminals, container back-up area, a business park, etc. The majority area of Lot 22 was zoned for industrial use, with the rest mainly for “Government/Institution/Community”, “Other Specified Use (Service Area)” and “Road” uses. There would be a new access road linking the North Lantau Expressway with the container terminal sites. This access road would run through Lot 22. 17.On 25 April 1995, the Secretary for Transport, pursuant to section 8(2) of the Roads (Works, Use and Compensation) Ordinance (Cap 370), published in the Gazette Notice No GN 1450 a road scheme associated with the Container Terminal Scheme. The notice provided description of the general nature of the proposed road works. 18.On the same day, the then Governor in Council, pursuant to section 8(1)(c) of the FSRO, authorized a proposal to reclaim about 1260 hectares of the foreshore and sea-bed at Penny’s Bay at Lantau Island for the purpose of construction of CT10 and CT11 and associated infrastructure. The authorization was published in Gazette Notice No GN 1574 dated 5 May 1995 [“1995 Authorization”] pursuant to section 9(1)(b) of the FSRO. 19.In or about August 1999, the Government changed its plan and decided not to proceed with the Container Terminal Scheme. The road scheme, which was a necessary element of that project and which has never been implemented, was aborted. Instead, the Government decided to develop a theme park at the Penny’s Bay area. On 13 August 1999, an amended draft OZP (S/I-NEL/5) was published in which the Container Terminal Scheme was amended to a proposed Theme Park. 20.By a Gazette Notice No GN 5917 dated 15 October 1999, the Government, pursuant to section 5 of the FSRO, gave notice to delineate approximately 330 hectares of foreshore and sea-bed situated at Penny’s Bay for reclamation in order to provide approximately 290 hectares of land for development and construction of a theme park, a water recreation centre, resort hotels, railways, ferry piers, road, facilities and other associated infrastructure and the construction of about 3,500 metres of seawall. The reclamation covered a smaller area of the sea than that under the 1995 Authorization. 21.On 28 March 2000, the Chief Executive in Council withdrew the authorization of the reclamation gazetted on 5 May 1995 under the 1995 Authorization [“2000 Withdrawal”]. This decision was published in Gazette Notice No GN 2230 dated 10 April 2000. 22.Also on 28 March 2000, the Chief Executive in Council authorized further reclamation as announced by the aforesaid Gazette Notice No GN 5917 under section 8 of the Ordinance [“2000 Authorization”]. This decision was published in Gazette Notice No GN 2231 dated 14 April 2000. The 2000 Authorization extinguished whatever right, if any, of the Applicant remained over the foreshore and sea-bed that was not extinguished by the 1995 Authorization. 23.The Theme Park project envisaged the acquisition of Lot 22 from the Applicant. On 26 March 2001, Cheoy Lee Shipyards Limited surrendered its tenancy to the Applicant. By a Deed made on 3 April 2001, the Applicant surrendered Lot 22 to the Hong Kong SAR Government. The surrender was made without prejudice to the Applicant’s claim for compensation under the FSRO. 24.By a Deed of Surrender executed on 3 April 2001, Lot 22 was surrendered to the Government. 25.In 1995 and at all times thereafter until the surrender of the lease to the Government on 3 April 2001 Lot 22 was used by Cheoy Lee Shipyards Limited for shipyard purposes utilizing the marine access. 26.The only marine rights of the Applicant not extinguished by the 1995 reclamation, and so which remained to be extinguished by the 2000 reclamation, were rights in respect of the area of sea-bed included in the later but not in the earlier reclamation. Notwithstanding the extinguishment of any marine rights by the 2000 Authorization Cheoy Lee Shipyards Limited continued to gain access to the sea from Lot 22 until the surrender of 3 April 2001. 27.Upon the execution of the Deed of Surrender, the Government paid to the Applicant a sum of $1,506,098,750, of which $1,483,380,000 was paid as ex gratia payment. 28.Clause 3 of the Deed of Surrender provided that the said Surrender was on an “as is” basis. According to the Government, after obtaining vacant possession of the Lot, it has carried out decontamination works in relation to the Lot at an estimated costs of $351.5 million as of 15 August 2005. The legislative framework 29.In the statutory scheme under the FSRO, the expressions “injurious affection” or “affection” appear in several sections,
30.Hence, the amount of statutory compensation is measured by reference to injurious affection and this is reflected in Rule 48 of the Lands Tribunal Rules. Rule 48(1)(b) prescribed that at the commencement of proceedings for determination of a claim under the FSRO, a copy of the particulars of “the injurious affecting of the interest, right or easement” and of claims thereof has to be filed. 31.Mr Chang SC underscored the reference to the interest, right or easement of the claimant in or over any foreshore or sea-bed in the legislation as the subject matter of the injurious affection as opposed to the land adjacent to the foreshore or sea-bed. For reasons to be elaborated below, in a context where the use of the foreshore or sea-bed by the Applicant had always been in connection with his land adjacent to the foreshore, I do not think one can meaningfully assess the injurious affection to the foreshore or sea-bed without any consideration of the injurious affection of the land adjacent to it. 32.Counsel have taken the Tribunal through several pieces of English as well as Hong Kong legislation embodying the concept of injurious affection and cases decided thereon. I do not intend to conduct a comprehensive survey of the legislative history and the cases in this judgment. However, Mr Chang urged the Tribunal to bear in mind the scope of compensation in the precursors of the FSRO since the latter was put in place to serve the same functions as those two earlier ordinances, viz. the Foreshores and Sea Bed Ordinance 1950 and the Public Reclamations and Works Ordinance 1956. 33.Section 3(3) to (5) of the Foreshores and Sea Bed Ordinance 1950 provided for compensation to a person whose property may be injuriously affected by a Crown lease of the foreshore and sea bed “by reason of the access of such property to the sea being interfered with”. Hence, the affection that the legislature had in mind was very much tied in with the interference with the claimant’s right of access from his land to the sea. 34.Section 5 of the Public Reclamations and Works Ordinance 1956 provided for the extinguishment of rights upon publication of authorization of an undertaking involving reclamation over the foreshore and seabed. The rights were described as “all public and private rights of navigation or fishing and all public and private rights of access, user, possession or occupation, and all other public or private rights (if any) in, upon or over the Crown foreshore, seabed”. Section 6(2) dealt with the submission of “a claim for compensation in respect of the extinguishment of such private right”. Further, Section 8 made it clear that the ordinance did not recognize or create any greater right or claim to compensation than but for the ordinance would exist and enforceable by an action in the court if the Government were a private person. 35.Whilst these earlier ordinances may shed some light in case of doubts as regards the meaning of a particular part of the FSRO, the primary task of the Tribunal is to apply the FSRO and to determine the amount of compensation in respect of any interest, right or easement of the claimant in or over any foreshore or sea-bed injuriously affected by the reclamation. As I understand, Mr Barnes QC does not dispute that the interest, right or easement referred to in Section 13(4)(b) of the FSRO can encompass all the rights and interests referred in Section 3 of the Foreshores and Sea Bed Ordinance 1950 and in Section 5 of the Public Reclamations and Works Ordinance 1956. Counsel also accepted that all those rights were extinguished under Section 10(1)(a) of the FSRO. 36.The contentious issue is what is the meaning of injurious affection and this is crucial to the resolution of the first preliminary issue. The meaning of injurious affection 37.Mr Barnes put in the forefront of his submission the following dicta of Lord Hoffmann in Wildtree Hotels Ltd v Harrow LBC [2001] 2 AC 1 at p.16,
38.That case was decided under the Compulsory Purchase Act 1965 and section 10 of the Act provides for compensation in respect of land which has been taken for or injuriously affected by the execution of some public works. The land of the claimant in the case was not taken and the claim was based on injurious affection. Lord Hoffmann alluded to some basic principles at p.7 of the report. After making the distinction between a case where land has been taken and where it has not, His Lordship made the following observations regarding injurious affection at C to E,
39.Mr Barnes submitted the same principles should apply in the present instance. There must be an actionable wrong but for the statutory authorization before a claimant can ask for compensation for the injurious affection. The fair compensation to redress such affection must be the equivalence of what a claimant could have got by way of damages in respect of the notional actionable wrong. This flows from the principle of equivalence, see Horn v Sunderland Corporation [1941] 2 KB 26 at p.49 and Director of Buildings and Lands v Shun Fung [1995] 2 AC 111 at p.125. 40.Counsel contended that as the Applicant’s land was not taken under the 1995 Authorization, the pertinent question is what was the damage to the land occasioned by the same. 41.Mr Chang did not accept this is a case where there is no taking of property. He submitted that marine rights enjoyed by the Applicant and the structures built on the foreshore and seabed were proprietary in nature and notwithstanding that land was not resumed under the 1995 Authorization, there was a taking of proprietary interests and the compensation for such taking should not be measured by reference to the damage to the land. 42.This seems to me to be the fundamental issue between the parties and I propose to deal with it in the next section. Before I embark on such discussion, it is however useful to remind ourselves briefly on some basic principles regarding statutory compensation. As Mr Chang emphasized repeatedly in the course of his submission, the FSRO should be interpreted, as far as possible, in line with Article 105 of the Basic Law, viz. there must be a right to compensation for lawful deprivation of property of individuals and such compensation shall correspond to the real value of the property concerned at the time. The FSRO does give the Applicant a right to compensation for the extinguishment of its marine rights. The question is whether a measure by reference to injurious affection provides compensation corresponds to the real value of the property concerned at the time. 43.In my judgment, there is no difference in substance between the real value test laid down in Article 105 and the fair compensation generated from the principle of equivalence succinctly set out by Lord Nicholls in Director of Buildings and Lands v Shun Fung [1995] 2 AC 111 at p.125,
44.That was said in the context of the Crown Lands Resumption Ordinance. However, the ultimate touchstone with the two facets of fair compensation is equally applicable with regard to compensation for the extinguishment of marine rights. The real value of the marine rights is to be measured with reference to the real loss suffered by the Applicant, not something more nor something less. 45.At p.126, Lord Nicholls went on to refer to three conditions that must be satisfied in the assessment of a fair compensation. I think they are equally applicable in the present context.
46.The principle of equivalence was applied by the Court of Final Appeal in Director of Lands v Yin Shuen Enterprises Ltd [2003] 2 HKLRD 399. A couple of points discussed in that judgment are relevant for present purposes. First, the ultimate purpose is to arrive at a fair compensation in accordance with the principle of equivalence and there are cases where departure from a measure based on open market value is justified. Second, as Lord Millett NPJ observed at p420I, Article 105 does not require compensation to be based on the open market value but on its real value. Further down at p.420J, compensation is only required to be paid for the interest acquired. 47.This principle can be regarded as the golden thread in all legislations governing compensation. Whether under the common law approach of statutory construction or Article 105 of the Basic Law, I am of the view that this must be applicable in the construction of the FSRO. 48.Hence, the concept of injurious affection should be interpreted in a way to arrive at a fair compensation in accordance with the principle of equivalence. Unlike other statutes providing for compensation (e.g. the Roads (Works, Use and Compensation) Ordinance Cap.370), the FSRO does not give much guidance on how the compensation would be measured. It only says that it would be measured by reference to the injurious affection. I will discuss later what this means in the light of the authorities. But whatever it means, it has to be consistent with the principle of equivalence. The rights, interests and easement enjoyed by the Applicant in or over the foreshore and seabed prior to the 1995 Authorization 49.Mr Chang fairly agreed that we are not dealing with any fishing rights in the present case. There is no question of any profit in gross here. Plainly, all the rights, interests and easement enjoyed by the Applicant are appurtenant to the land on which the Applicant, or more accurately its tenant, ran its shipyard business. 50.Mr Barnes identified those rights, interests and easement as follows,
51.Mr Chang submitted the Applicant had other interests which were proprietary in nature. Counsel identified the following,
52.In my judgment, with the exception of the slipways, the other structures identified by Mr Chang do not amount to any proprietary interest in or over any foreshore or sea-bed. There was no grant of proprietary interest in or over the foreshore or sea-bed in the Grant pertaining to these structures. They were simply incidental to and necessary for the exercise of the right of access that stemmed from the grant of a piece of land adjoining the sea. Mr Chang submitted that the Applicant could sue for trespass in respect of any damages done to these structures. I am prepared to accept that the Applicant had a proprietary interest in the structures. However, it does not follow that the Applicant has acquired a proprietary interest in or over the foreshore or sea-bed. 53.Mr Chang submitted such rights are proprietary interest as if they were some kinds of incorporeal hereditaments. But incorporeal hereditament can only be conveyed by deed as it “lies in grant” (see Megarry & Wade The Law of Real Property, 6th Edn. Paras.18-002 and 18-051). There was no specific grant in respect of the jetty. Special Condition Clause 6(a) of the Grant imposed an obligation on the part of the Applicant to construct the landing steps (as in the case of the seawall or rubble mound) as part of the reclamation works and bearing in mind the natural right of access, I do not read that as a grant of an additional incorporeal hereditament to the Applicant. 54.The private right of access to the sea is not an easement. I agree with the submission of Mr Barnes that this right of access does not depend on any specific grant from the Crown. It is an inherent incidence of the leasehold interest created in the land adjoining the sea. This point was clearly expressed by Parker J in Portsmouth Borough Waterworks Co. v London Brighton & South Coast Railway (1909) 26 TLR 175 in the context of a riparian property,
55.In this regard, there is no distinction between access to tidal river and access to the sea, see AG of the Straits Settlement v Wemyss (1888) 13 App Cas 192 and Coppinger v Sheehan [1906] 1 IR 519. 56.Since the Applicant enjoyed such natural right of access as an incidence of its leasehold interest in Lot 22, there was no need for any additional incorporeal hereditament to be granted in order to permit the landing steps and the jetty to be built. Against such background, in the absence of any evidence of an intention to make a specific grant of some incorporeal hereditament, the permission given by the Crown for the construction of the jetty and the landing steps was consistent with no such incorporeal hereditament having been granted. In other words, there was no implied grant. 57.The slipways are different because the leased area identified in the Grant included the four elongated strips of sea-bed between points C and D. As explained above, the Applicant had a leasehold interest in those parts of the sea-bed. 58.More importantly in the context of injurious affection, the landing steps, jetty and slipways did not serve any useful purposes other than as facilities for the exercise of the right of access from Lot 22 to the sea or vice versa. In reality, it is difficult to see how these structures could be of any value to the Applicant independent from the use of Lot 22. It is unthinkable for someone to take an assignment of the leasehold interest regarding the slipways if he had no right to use Lot 22. As a matter of law, given the nature of the interest of the Applicant in the jetty and the landing steps, they could not be assigned in gross separately from the interest in Lot 22. 59.The right of mooring is incidental to the public right of navigation, see AG v Wright [1897] 2 QB 318 and Denaby v Anson [1911] 1 KB 171. In the former case, Lord Esher MR said this with regard to the right of mooring at p.321,
60.By the same parity of reasoning set out above in the context of the landing steps and the jetty, the permission for the erection of mooring posts cannot be interpreted as any implied grant of any incorporeal hereditament relating thereto. 61.Hence, subject to the leasehold interest over the foreshore or sea-bed pertaining to the four slipways, the other interests relied upon by Mr Chang are no more than rights incidental to the two rights identified by Mr Barnes. Had there been any “taking of property” under the 1995 Authorization and does it matter? 62.Having examined the true nature of the rights, interests of the Applicant in the foreshore and sea-bed, we can come back to the question whether there had been any taking of property under the 1995 Authorization. Mr Chang submitted that a fair compensation for the taking of a property must be measured by the market value of the property at the time of the taking. This is the fundamental premise for his contention that the notional purchase approach must be the correct one. 63.On the other hand, whilst Mr Barnes accepted that in cases of compulsory acquisition of land, the relevant legislation usually provides for compensation for the value of the land taken (as in the case of Section 10(2)(a) of the Lands Resumption Ordinance), counsel submitted that we are not dealing with such a situation because Lot 22 was not resumed under the 1995 Authorization. The Applicant still retained its leasehold interest over Lot 22. 64.Mr Barnes submitted that the concept of injurious affection embodied in Section 13(4)(b) of the FSRO provides a fair compensation for the damage caused to the Applicant. 65.Based on the above analysis, although the 1995 Authorization did take away certain rights of the Applicant (since all the rights, interests and easements were extinguished under Section 10 of the FSRO), only the leasehold interest over the seabed pertaining to the slipways can strictly be regarded as proprietary interest being taken away. More importantly, none of the rights or interests taken away had any independent value to the Applicant apart from the value derived from the exercise of such rights for the benefit of Lot 22. 66.If one adopts a wide meaning for property to include choses in action, the extinguishment of these rights of the Applicant can be regarded as the taking away of property. But for Section 10, the Applicant would be able to sue the Government for damages occasioned by the deprivation of the right of access and the right of navigation. 67.On the other hand, it can equally be said that there had not been any taking of land because Lot 22 was retained by the Applicant and it could utilize the land for purposes not requiring access to the sea. 68.In my view, the key question is not whether there had been any taking of property or taking of land. The key issues should be what measure of compensation is provided for under the FSRO and whether such measure fairly compensates the Applicant in accordance with the principle of equivalence. Notional purchase or notional tort? 69.I agree with the submission of Mr Barnes that on the authorities cited (see Ricket v Metrtopolitan Railway Co (1867) LR 2 HK 175; Metropolitan Board of Works v McCarthy (1874) LR 7 HL 243; Caledonian Railway Co v Walker’s Trustees (1882) 7 App Cas 259; Wildtree Hotels Ltd v Harrow LBC [2001] 2 AC 1), injurious affection is a concept adopted in calculating compensation by reference to damages occasioned to a claimant as a result of certain public works or public utilities authorized by statutes. In other words, the formula imports a notional tort approach in the determination of compensation. Although I would not rule out the reference to the market value of the extinguished interest as a possible way to work out the damage occasioned by the public works in an appropriate case when the damages suffered is properly crystallized on a particular date, this is not the primary approach. The tribunal has to assess the damages by asking what damages has the claimant suffered as a result of the undertakings. 70.By adopting this formula in the FSRO, the legislature must be taken to have intended the same approach to be adopted by the Lands Tribunal in determining the compensation under Section 13(4)(b). I do not discern any justification to give a different construction to the “injurious affection” referred to in that section as compared with those laid down in other compensation cases and statutes. This seems to be in line with the underlying assumption of Judge Cruden in Chan Sik Cheung v Director of Lands [1995] 3 HKC 199 at p.207 H to I. 71.In particular, I reject the submission that a different construction is called for by reason of the fact that the FSRO was meant to consolidate two earlier ordinances including the Public Reclamations and Works Ordinance 1956. I do not think the 1956 Ordinance mandated a different approach, viz. by reference to a notional purchase on the date of extinguishment. Reading Sections 6(2) and 8 of that ordinance together, I am of the view that the notional tort approach is perfectly consistent with the ordinance. 72.At this juncture, I must briefly deal with two cases decided under the 1956 Ordinance that have been cited by counsel. In Li Ling Shi v The Government of Hong Kong [1963] HKLR 595, Judge Huggins (as he then was) simply proceeded on a basis agreed by the parties in assessing compensation by reference to a notional purchase approach. But the learned judge also reiterated that the claimants were entitled to be compensated for what they are to lose --- no more and no less and one must not entirely close one’s eyes to the future. At p.605, the following was said,
73.In In re Trustees of the Estate of Tsang Hung-tim [1971] HKLR 68, the issue before the Full Court was not whether compensation should be assessed on the notional purchase or notional tort approach. Neither was the court concerned with the question whether the quantum of compensation was crystallized with reference to the state of affairs as at the date of extinguishment. The appeal on behalf of the 1st applicant was abandoned and the issue in the 2nd applicant’s appeal focused on whether he, as tenant of the godown, had a right to claim compensation. There was no dispute as regards the approach in assessing the quantum for the 2nd applicant (see p.77). The contention of the Government was set out at p.74, viz. that the 2nd applicant was caught by the exception embodied in the expression ‘apart from the uses to which any particular owner or occupier might put it’ laid down in McCarthy. This argument was rejected by Mills-Owens J on two grounds,
74.No-one can gainsay this decision. But it does not follow from that judgment that the notional purchase approach must be adopted in assessing the quantum of compensation for the taking of marine rights. I shall explain below why it might not be too useful to refer to the taking of some incorporeal rights to define what a claimant should be compensated for. It should be noted that in the Uthwatt Report cited by Mills-Owens J, the distinction is between cases where no lands are taken and where lands are taken. The taking of incorporeal rights falls within the former category. 75.The notional tort approach gives rise to a fair compensation in accordance with the principle of equivalence. What the statutory authorization took away is a right to claim against the government in respect of the damages caused to a claimant by reason of the reclamation and the notional tort approach generates exactly the same amount of compensation for a claimant as if he brings a claim for damages in court. 76.Section 13(4)(b) refers to the injurious affection of any interest, right or easement of the claimant in or over any foreshore or sea-bed. Mr Chang submitted that there is a distinction between injurious affection of the land adjacent to the seabed or foreshore and injurious affection of interest, right or easement in or over the seabed or foreshore. 77.In my judgment, whilst such distinction can be made in respect of cases where a claimant did not hold any interest in the land adjacent to the seabed or foreshore and he suffered loss occasioned by a reclamation solely by reason of his activities at the seabed or foreshore unrelated to any interest in land (as in the cases of fisheries rights or oyster farming), there is no such distinction here. As stated earlier, my finding is that the Applicant’s rights and interests over the seabed and foreshore did not have any independent value apart from the value derived from the exercise of such rights for the benefit of Lot 22. In those circumstances, for the Applicant, the injurious affection of any interest, right or easement in or over any foreshore or seabed is the same as the injurious affection of the land. In any event, I do not regard the drawing of such distinction as having much relevance in terms of assessment of a fair compensation. 78.Mr Chang submitted that what had been taken from the Applicant under the 1995 Authorization was the marine rights of the Applicant and such rights were proprietary in nature. I have analysed the Applicant’s rights that were extinguished by the 1995 Authorization. Given my conclusion that they had no independent value apart from the adverse effect on the land, it may not be particularly useful to ask whether they were proprietary in nature or otherwise. 79.In substance, the argument of counsel is based on the following premises,
80.As to (1), whilst I can see the logic of that proposition if the interest taken away is land in the physical sense, I doubt if it is correct if the interest taken away, be it proprietary as in the case of incorporeal hereditament or otherwise, is something that is appurtenant to another piece of land which is retained by the claimant. There is simply no meaningful way to measure the value of that interest without reference to the effect of the taking of that interest on the retained land. 81.Mr Chang referred to cases where an affected person does not have any interest in the land adjacent to the sea-bed or foreshore. First, we are not dealing with that sort of situation. Second, if the rights relied upon were public rights, viz. a right exercisable by a claimant as a member of the public, Judge Cruden decided in Chan Sik Cheung that no compensation could be claimed under the FSRO. Mr Chang referred to the right to sue for public nuisance if a claimant can establish ‘particular’ damage over and above other members of the public. If such a claim is viable, a claimant who can prove ‘particular’ damages will be able to obtain fair compensation under the notional tort approach under the concept of injurious affection. 82.In putting forward (2), the Applicant in fact recognized that there is no independent value for the rights and interests extinguished apart from the value derived from the exercise of such rights for the benefit of Lot 22. The approach of the Applicant involves the notional sale of Lot 22 at the time of extinguishment in order to derive the market value of the extinguished rights and interests. 83.In other words, it is built into the Applicant’s equation an underlying assumption that the effect on Lot 22 is crystallized at the time of extinguishment. If the statutory formula provides for the determination of the market value of the resumed property at the time resumption, that would be the correct. However, this is not the formula under the FSRO. Why should the Tribunal assume that the value of the damage to the land occasioned by the extinguishment of the Applicant’s interests and rights over and in the foreshore and seabed has to be crystallized when this is not the normal rule for measuring damages? 84.If a claimant has not sold the land (as in the present case) upon the reclamation or if the reclamation could not have said to have caused the sale of the land in accordance with the usual principles governing assessment of damages for tort, why should he be compensated on the basis that the loss was crystallized as if the land was sold on a particular date? More fundamentally, if a claimant retained the land and if the damages suffered by him were less than those worked out by reference to a notional purchase on a particular date, what is the justification for giving him such a windfall? To allow that would indeed be inconsistent with the principle of equivalence. Such a claimant would get more than what he has lost. 85.In my judgment, it is only when it is reasonably foreseeable that the extinguishment of the relevant rights and interests would cause the Applicant to sell its land and the Applicant had actually sold its land that the compensation could properly be assessed by reference to the approach advocated by the Applicant. In that scenario, the notional tort approach would arrive at the same result as the notional purchase approach. 86.Mr Chang relied on the statutory scheme regarding the filing of a claim to support his contention that compensation must be crystallized by reference to the date of extinguishment. I do not think that take us further. Whilst a claim has to be made within the time limit (not less than one year) specified by the Director and it has to state the sum of money that the claimant is willing to accept in full and final settlement together with particulars to substantiate the claim (Sections 9(2)(c) and 12(1) and (2) of the FSRO) and the Director has to respond within 6 months (Section 13(1) of the ordinance), there is nothing in the ordinance to suggest that the figures entered into a claim cannot be amended. The claimant and the Director have to do the best they can in assessing the claim based on their prevailing knowledge. That would be the same for every litigant involved in legal proceedings. If the parties are able to arrive at a settlement based on their prevalent knowledge and assessment, that would be the end of the matter. If the claim is not settled, the Tribunal will have to determine the claim in the same way as a court of law dealing with a claim for damages. Documents filed in the Tribunal for that purpose can be amended if necessary and no-one will suggest that the claimant is bound by the figure he previously submitted under Section 12(1) once and for all. 87.It follows that in my judgment the proper measure for compensation under the statutory formula is to work out what are the damages that the 1995 Authorization had caused to Lot 22. In other words, the answer to the first issue is that the notional tort approach should be applied. 88.Further, for reasons given, the notional tort approach provides the Applicant with a compensation that matches exactly what he would get without the intervention of the statute. Hence, it is a fair compensation. The extinguishment of the leasehold interest in respect of the slipways 89.Mr Barnes conceded that there had been a taking of property insofar as the extinguishment of the leasehold interest in respect of the slipways are concerned. According to the calculation submitted by the Applicant, the total area of the four slipways was 23,360 square feet. 90.Should the notional purchase approach be applied to the compensation for the taking of the four slipways? In my judgment, if one were to think the matter through carefully, the plain answer is that one should also apply the notional tort approach notwithstanding that there was a taking of property in respect of the four slipways. 91.The matter can be tested this way. Let us assume for one moment that the notional purchase approach is to be applied. The relevant purchase must be the purchase of the slipways as opposed to the purchase of the land adjacent to them. Once this is recognized, one would immediately face with a problem in finding a market value for the slipways. There is simply no market for the slipways alone. No-one in his right mind would purchase the slipways if he does not have any right to use the land adjacent to them. 92.Hence, the slipways had no independent market value apart from its value as ancillary facilities to the use of the land adjacent to them. This is precisely why the Applicant has to come up with a valuation by reference to the difference in the values of the land with and without the marine access, including the slipways. The Applicant cannot come up with a valuation for the slipways alone (viz. separated from the marine access). 93.In other words, the Applicant’s notional purchase approach is not a notional purchase of the slipways. Rather, it is the difference in value between the notional purchase of the land with marine access and that without marine access. In substance, it is an approach to work out the adverse effect of the taking of the marine rights (not only the slipways) on the land. I have already explained above why this approach may inherently be unfair when the Applicant had not actually been forced to sell the land and had not sold it. 94.In the present circumstances, I do not think the extinguishment of the leasehold interests relating to the slipways makes any difference in my conclusion on the proper approach. I see no basis for suggesting that the notional tort approach cannot generate a fair compensation for the Applicant in respect of the slipways. 95.In this connection, Mr Chang drew an analogy with cases where some of the land of a claimant was taken and compensation was awarded for severance and other injurious affection (Edwards v Minister of Transport [1964] 2 QB 134; Holt v Gas Light & Coke Co (1872) LR 7 QB 728; Cowper Essex v Acton Local Board (1889) 14 App Cas 153; Re Stockport, Timperley & Altrincham Railway Co (1864) 33 LJ QB 251; Cuthbert v Secretary of State for the Environment (1979) 252 EG 1178). Counsel submitted that when land is taken, compensation for injurious affection on the remaining land is assessed on a ‘before and after’ basis and it is not coextensive as a common law claim for nuisance. 96.Those cases were decided under different pieces of legislation. I doubt if the concept of severance regarding compulsory taking of part of the land can be applicable to the taking of marine rights, including the leasehold interest of the slipways in the present instance. As explained, it is meaningless to have a leasehold interest in the slipways if one cannot have the use of the land. Even assuming some reference could be made to compensation for severance, I agree with Mr Barnes that the relevant legislation (e.g. section 63 of the Lands Clauses Consolidation Act 1845, Section 7 of Compulsory Purchase Act 1965 in England and Section 10(2)(c) of the Lands Resumption Ordinance in Hong Kong) refers to compensation for “damage” or “loss or damage”. As regards the land taken, the compensation is the value of the land taken. As regards the land not taken, the compensation is assessed by reference to the loss and damage suffered. Thus, in the latter category, the compensation is not necessarily anchored to the value of the remaining land at a particular date. There has to be an enquiry as regards the actual loss or damage suffered. 97.This is supported by the second proposition set out by Lord Halsbury in Cowper Essex v Acton Local Board (1889) 14 App Cas 153 at p.161,
98.No doubt there were cases where the damage is measured by a depreciation of the value of the remaining land (as in Cowper Essex itself). But the primary inquiry is the damage that has been suffered. If there are matters which indicate that the real loss suffered by the claimant is less than that arrived at by the notional purchase approach, there is no reason why those matters should not be taken into account. None of the cases cited by Mr Chang deal with this particular issue. Taking of marine rights without compensation? 99.Mr Chang submitted that the notional tort approach would result in nil compensation for the Applicant and that is clearly unfair. Whilst I note that this is the ultimate result contended for by the Respondent in pleadings, I do not think it is correct to say this is the result of the notional tort approach. At this stage, I must confine to the issues that have been framed. I have not heard evidence nor submissions on each specific matter relied upon by the Respondent to contend that there should not be any additional compensation payable to the Applicant. 100.It is up to the parties to consider and if necessary to argue eventually whether de facto access, “betterment” occasioned by the unexecuted scheme under the 1995 Authorization, the 2000 Withdrawal and the 2000 Authorization, the Deed of Surrender of 3 April 2001, the ex gratia payment and the costs of the decontamination works should have any impact on the fair compensation by applying the principles of assessment of damages in tort. I have not heard submissions from counsel in respect of how each of these matters might fit into such an assessment and it is not appropriate for me to express any views on them. 101.It by no means follows from the adoption of the notional tort approach that the compensation payable to the Applicant must be nil. The notional tort approach seeks to compensate the Applicant for the real loss that it has suffered by reason of the loss of the marine rights. How that loss is to be measured will depend on the evidence as regards the real damages suffered by the Applicant. It is not for me to pre-empt at this stage how the parties should conduct their case in the light of my decision on the preliminary issues. If the Applicant could show a real loss in accordance with the principles for assessing damages in tort, it would receive compensation in the same amount. If it could not show a real loss, why should it be compensated? 102.Mr Chang was under the misapprehension that if the notional tort approach is adopted, the Applicant was forced to sell the land in order to generate a loss. With respect, that is a misunderstanding of the notional tort approach. If the extinguishment of the marine right would not have caused a reasonable person to sell the land, the sale of the land by the Applicant is neither here nor there. The loss occasioned by such a sale would not be fairly attributable to the taking of the marine rights. Hence, according to the principle of equivalence, there is no reason why the Applicant should be compensated for it. 103.On the other hand, even if there is no sale of the land, if the Applicant could establish that the loss of the marine rights caused it to suffer damages in terms of impediment in its business development and loss of profit, or that the land (or a portion of the land) could not be used for commercial purposes or it could only be used for a less profitable purposes than what it could have with marine rights, it can claim such loss as the real loss it has suffered. 104.Mr Chang further contended that it would be unjust if the Applicant gets no compensation for the marine rights and subsequently, when compensation was assessed for the resumption of the land (presumably under the 2000 Authorization), the compensation would only be assessed as 10% value of the land with marine rights. If the notional tort approach would result in that, I would agree that it would be unfair. However, I do not see how that could be the result. If the extinguishment of the marine rights did have such adverse effect to the land so as to render its value to drop so drastically, it must surely be reflected in some real loss suffered by the Applicant as outlined in the last paragraph. The Applicant would receive compensation for the same under the FSRO. Further, the Applicant had actually received $1,506 million odd in 2001 and this can hardly be regarded as 10% value of the land with marine rights. The Applicant’s surveyor assessed the market value of the land with marine rights between $3,333 million and $2,639 million in the report of February 1998. 105.Neither would the notional tort approach result in nil compensation by reason of the de facto access being available for a limited duration. Subject to the three conditions of Lord Nicholls being satisfied, there is no reason why there could not be loss suffered in anticipation of de facto access being terminated. An analogy can be drawn with loss in the shadow period adverted to in the Shung Fung case at p.135-139. Further, the extinguishment of marine rights must have impact into the future and the temporary de facto access could not bar a claim based on a permanent loss of marine access. Whilst there is a further complication in the present case by reason of the 2000 Authorization and the surrender in 2001. The impacts of those have yet to be explored. Mr Chang’s propositions: “The Penny’s Bay Rules” 106.Mr Chang submitted a document on 2 April 2007 inviting this Tribunal to adopt 10 propositions as formulated by the Applicant as correct. I do not propose to set them all out. Instead, I shall make a few comments on them. 107.Rules 1 and 2 are uncontroversial and they simply set out the legal analysis regarding marine rights that may be affected by the FSRO. Rule 3 sets out 6 principal scenarios where there could be injurious affection in the context of FSRO. However, in his oral submissions, Mr Chang agreed that the 6 scenarios may not be mutually exclusive and there could be overlaps. 108.Central to the issues that I have to resolve is Rules 4 to 6. Rule 4 advocates the notional purchase approach as the basic principle of compensation for cases where leasehold interest in a portion of the foreshore and sea-bed or some other private proprietary right were extinguished. Rule 5 postulates that the value of the marine right extinguished can be measured by comparing the open market value of the land immediately “before” and immediately “after” the extinguishment of the marine right. For reasons already canvassed above, whilst I accept that there could be cases where the notional purchase approach may arrive at a proper measure of the damages suffered, the primary approach is the notional tort approach. This follows directly from the principle of equivalence and the three general conditions for assessing a fair compensation set out in the judgment of Lord Nicholls in Shun Fung. 109.Rule 6 qualifies Rule 5 by reference to the rule against double recovery. The need to have such rider to Rule 5 underlines the point that the notional purchase approach is not the primary basis for assessment of compensation and the primary task is to find out what is the real loss suffered by a claimant. 110.Rule 7 deals with cases of partial extinguishment of marine rights. It has no application in the present instance and I shall not comment on the same. 111.Rule 8 touches upon the effect of the 2000 Withdrawal. I understand Mr Barnes did not dispute the proposition that the 2000 Withdrawal cannot revive the marine rights that had been extinguished under the 1995 Authorization. 112.Rule 9 provides for the capitalization of future loss in respect of damage arising out the construction or execution of works. It does not arise on the facts of the present case. 113.Rule 10 says subject to the principle against double recovery, the claim arising out of the extinguishment of marine rights does not depend on proof of damage to land arising out of the construction or execution of any reclamation works. I think this rule has to be elaborated. I agree that the damage and loss suffered by a claimant may not be confined to damage arising out of the construction or execution of any reclamation works. The Applicant may show damage and loss by reference to the loss in revenue generated from the land by reason of the loss of marine access or by reference to the impediment in the potential development of the land. Yet, there must be some real loss suffered and the compensation has to be assessed by the notional tort approach. Conclusions 114.For the above reasons, the answer to issue (1) is that the primary approach for assessing compensation under the FSRO should be the notional tort approach. Although there could be cases where the notional purchase approach may arrive at an appropriate measure of damages, the ultimate criteria is to apply the same principles for assessment of damages in tort to come up with a fair compensation in accordance with the principle of equivalence. 115.Given that answer, issues (2) and (4) do not arise. 116.It follows from my analysis that under the notional tort approach, the Applicant would receive a fair compensation for the real loss suffered by it. If that compensation is less than the figure arrived at under the notional purchase approach, it is because the notional purchase approach would over-compensate the Applicant. In particular, in the present context, the notional purchase approach may exclude some relevant developments since the date of extinguishment from consideration to generate a distorted picture regarding the real loss suffered by the Applicant. 117.Hence, assuming that Article 105 of the Basic Law is engaged, the adoption of the notional tort approach in assessing compensation under the FSRO does provide a compensation corresponds to the real loss suffered and it is also the real value of property concerned at the time of deprivation. Thus, the answer to issue (3) is that there is no infringement of Article 105. 118.Having decided the preliminary issues, I will list the matter for further directions regarding future conduct of the case. The parties are directed to file draft directions at least 7 days before the next hearing. I shall also hear parties on the issue of costs.
Mr Denis Chang, SC and Mr Johannes Chan, SC, instructed by Messrs Wilkinson & Grist, for the Applicant Mr Michael Barnes, QC and Mr Valentine Yim, instructed by the Department of Justice, for the Respondent Appeal allowed: see CACV176/2007 dated 8 January 2009 |
Cases cited in this judgment
Further hearings and rulings under LDMR 23/1999