Dragon House Investment Ltd v. The Secretary for Transport

CACV001284/2001

CACV 1284/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 1284 OF 2001

(ON APPEAL FROM LDMR NO. 31 OF 2000)

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Coram: Hon Le Pichon, Yeung JJA and Reyes J in Court

Date of Hearing: 9 December 2003

Date of Handing Down Judgment: 24 December 2003

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J U D G M E N T

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Hon Le Pichon JA:

1.This appeal is the third in a series of appeals from the Lands Tribunal ("the tribunal") concerning the assessment of compensation for the resumption of agricultural land in Yuen Long, New Territories. The other two appeals are View Point Development Limited v Secretary for Transport, CACV 439/2002 ("View Point") and Busy Firm Investment Limited v Secretary for Transport, CACV 64/2003 ("Busy Firm") both of which were heard by this court immediately before the present appeal. Not only is the effect of the judgment of the Court of Final Appeal of 17 January 2003 in Director of Lands v Yin Shuen Enterprises Limited and Nam Chun Investment Company Limited [2003] 2 HKC 490 central to the appeals in View Point and Busy Firm and to this appeal, identical issues arise in all three appeals. That must have been obvious to the Secretary for Transport ("the Government") who is a party in all three appeals. It should have been equally obvious that had all three appeals been heard together, it would have resulted in a saving of judicial time and resources, not to mention costs. It is to be regretted that this had not been brought to the court's attention timeously so that appropriate directions could have been given for all three appeals to be heard together.

Background facts

2.The applicant owned three lots of land at Tai Kiu, Yuen Long which had been resumed for the West Rail Project. In the claim submitted on his behalf, the applicant's valuer had adopted comparables concerning unbuilt agricultural land zoned for residential use of different intensity whilst the land resumed had only been zoned for Comprehensive Development Area (CDA) purpose. The respondent's expert challenged those comparables on the basis that development potential was embedded in them and that was prohibited by section 12(aa), (b) and (c). He adopted comparables consisting of fee paying public car parks. The applicant's claim was $3,930,000 whilst the respondent considered the resumed land to be worth only $1,208,000.

The judgment below

3.At issue was the meaning of section 12(c). The tribunal followed the reasoning of Judge Cruden in Suen Sun-yau v Director of Buildings and Lands [1991] HKDCLR 33 at 41 and held that section 12(c) had no application to the present value of the land being resumed. It further held (at page 8 of the judgment) that:

"... as section 12(aa) tells us not to take into account the CDA zoning of the Lots, we should approach the valuation process of the lot by assuming that it is a no zone world. We should then consider the location, accessibility and the surrounding environment of the Lots and find out the real present value of the lots. In the end, we are convinced that the Lots were suitable in being developed into some kind of building lots in future subject to the owner's obtaining the necessary approval for change of user."

4.The applicant's expert considered that the highest and best use of the land was as land with potential for residential development and used comparables of agricultural land that also had potential for residential development. The tribunal agreed with the applicant's approach and rejected the respondent's approach which was that development potential had to be disregarded so that the highest and best use was as a site for open car parking. The tribunal made adjustments to the 7 comparables used by the applicant's expert relating to time, accessibility, location, quantum and town plan zoning and ordered compensation in the sum of $3,225,000.

This appeal

5.In the View Point and Busy Firm appeals which immediately proceeded this appeal, very detailed submissions had been made to this court on the effect of the judgment of the Court of Final Appeal in Yin Shuen. The submissions made in the present appeal did not add anything of substance to the submissions that had already been made in the earlier appeals. But out of deference to counsel for the applicant, his submissions are summarised below. In brief, it was submitted in the present appeal that when Lord Millett NPJ referred to the 'speculative element' he was using the expression in a restricted sense, an example being that mentioned in paragraph 26 of the Court of Final Appeal's judgment in Yin Shuen, namely, of purchasers speculating on the Government charging a premium which does not fully reflect the value of the modification. It was submitted that the Court of Final Appeal did not decide that development potential was to be disregarded. In remitting the cases to the tribunal the Court of Final Appeal did not direct that the comparables used be disregarded: rather, they were to be adjusted. It was only the speculative element that had to be excluded.

6.I do not propose to repeat in this judgment what this court has decided in the earlier appeals. Suffice it to say that the Court of Final Appeal overruled Suen Sun-yau and, in this court's view, decided that section 12(c) excluded compensation for a tenant's hope or prospect of obtaining a modification of the terms of the lease under which the land is held. Put shortly, when assessing compensation for resumption of agricultural land subject to user restrictions under the Lands Resumption Ordinance, development potential cannot be taken into account. Therefore, in view of the Court of Final Appeal's judgment in Yin Shuen, the tribunal's award based on Suen Sun-yau and comparables which took into account development potential is unsustainable. It follows that the applicant's submissions on the effect of Yin Shuen fall to be rejected.

7.Mr Cheung who appeared for the applicant submitted that even in that were the case, the Court of Final Appeal's judgment should not affect the decision of the tribunal in the present case. The tribunal had found that:

"... the Lots, given their actual location, accessibility and surrounding environment at the relevant date of valuation, are suitable in being developed into some kind of building lots in the future."

Since the comparables adopted by the applicant's expert were directed at comparing like with like and there had been no allegation made in the present case that the comparables used by the tribunal had a speculative element, it was submitted there was nothing wrong with the comparables adopted by the tribunal in assessing the compensation awarded. There was therefore no basis for disturbing the tribunal's determination. The tribunal was perfectly entitled to reject the Government's comparables on the basis that they did not have "similar potential for residential development by virtue of their location and zoning."

8.To the extent that the tribunal in the present case was comparing like with like, such a comparison would establish the open market value of the lots. But it is clear from section 12 that the open market valuation arrived at under section 12(d) is subject, inter alia, to section 12(c).

9.Mr Cheung sought to uphold the tribunal's judgment on the basis that it was incumbent on the Government to show that the comparables contained a "speculative element". Since that had not even been alleged, it was submitted that the tribunal's decision should stand. But given what this court has ruled in the View Point appeal is the meaning of "speculative element" in the Court of Final Appeal's judgment in Yin Shuen, the Government's evidential burden would be discharged by showing that hope value had been embedded in the comparables used by the applicant value.

10.In his reply to the Government's Rule 20 Document, the applicant's expert said this:

"... My valuation is the value of agricultural land that has a potential of residential development ... they will still need Government's approval and probably the payment of premium before they can be developed. ..."

He then dealt with the effect of zoning in the following terms:

"... it is just too obvious that the use for which a piece of land is zoned significantly affects the value of that piece of land, for it tells the potential of the land.

Two pieces of land, which are differently zoned, certainly have different values even if they are similar in other aspects including the Government lease restrictions that they are subject to. ..."

Given this evidence, it is plain and that the Government had discharged its evidential burden. The burden of proof would then be upon the applicant to show, on a balance of probabilities, what adjustments would factor out the development potential shown to be embedded in its comparables. See paragraph 28 of the View Point appeal. The applicant in the present case never sought to make those adjustments. That being the case, the tribunal's award which was made on the basis of the unadjusted comparables, cannot stand and must be set aside.

Order

11.For these reasons, I would allow the appeal and direct that this matter be remitted to the tribunal for reassessment in the light of this judgment and this court's judgment in View Point and Busy Firm.

12.I would also make an order nisi that the costs here and below be borne by the applicant.

Hon Yeung JA:

13.I agree.

Hon Reyes J:

14.I agree.

Hon Le Pichon JA:

15.The appeal will therefore be allowed. There will be an order as set out in paragraphs 11 and 12 above.

Representation:

Mr Anthony P W Cheung and Mr Patrick Chong, instructed by Messrs K C Ho & Fong, for the Applicant/Respondent

Mr Nelson Miu, instructed by the Department of Justice,for the Respondent/Appellant