Re Zitta Investments Ltd

HCAL 89/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO 89 OF 2013

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Before:  Hon G Lam J in Court

Date of Hearing:  24 September 2013

Date of Decision: 11 October 2013

D E C I S I O N

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1.This is an application for leave to apply for judicial review.  Since the applicant asks in its Form 86 for an oral hearing if leave is not granted on paper, and I was not minded to grant leave on the documents alone, a hearing took place before me on 24 September 2013.

2.The Form 86, which is dated 18 May 2013, is 111 pages long but I think it is fair to say that the gist of it is an allegation that certain guidelines published by the Lands Department in relation to compensation for resumption of land are unlawful, with the result that the compensation offered to the applicant for the resumption of its property is inadequate.

3.The applicant is the former registered owner of the property situate at G/F and Cockloft, 24 San Shan Road, Kowloon, representing one-sixth of the total undivided shares in the relevant lot (“the property”).  The property falls within the area of a redevelopment project of the Urban Renewal Authority (“URA”) and was eventually resumed by Government on 15 September 2012. 

4.The correspondence between the applicant on the one hand and the URA, the Lands Department, the Development Bureau and various professional surveyors including their professional bodies on the other is voluminous.  This correspondence and the relevant events may be broadly summarised as follows.

5.From April 2010 onwards, the URA made a number of offers to the applicant to acquire the property.  The offer was originally made on the basis that the property was wholly tenanted but the URA agreed to change the status to partly tenanted (referring to the ground floor) and partly owner-occupied (referring to the cockloft).  More controversially, the offers were made on the basis of the open market value of the property on an “existing use value” basis.

6.In February 2011, as the offers made by the URA had not been accepted by the applicant, the URA, acting presumably pursuant to s. 29 of the Urban Renewal Authority Ordinance (Cap. 563), applied to the Secretary for Development (“the Secretary”) requesting him to recommend to the Chief Executive in Council the resumption of the property. 

7.On 15 June 2012, a notice of resumption was gazetted pursuant to the Lands Resumption Ordinance (Cap. 124), as a result of which the property would revert to the Government at midnight on 15 September 2012.

8.During the period before resumption, there was a substantial amount of correspondence between the applicant and the URA.  Initially, the applicant’s then surveyor also valued the property on the “existing use basis” and the differences between the parties concerned matters such as whether certain particular transactions were proper comparables.

9.Having done some research, however, the applicant raised a matter of principle in its letter to the URA dated 30 April 2012.  It contended that proper price for acquiring the property would provide adequate and proper compensation only if the offer “represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site”, quoting from Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578 at §36.  In other words, the applicant contended that, instead of the existing use basis, the property should be valued on a redevelopment basis.

10.The URA’s response, in a letter dated 2 August 2012, is that the redevelopment basis would only be adopted by the URA for property acquisition in two situations, namely, where the subject property is a building in single ownership and where it is a vacant site.  The property did not fall within either situation.  The URA says that its policy is in line with the principles on resumption compensation adopted by the Government. 

11.Those principles are set out in a pamphlet published by the Lands Department with the title “Land Resumption and Compensation in the Urban Areas – Guidelines for Owners, Occupiers and Surveyors” (the December 2011 version being the one exhibited). I shall refer to them as “the Guidelines”.  It is convenient to set out the relevant parts of the Guidelines here:

“5. ASSESSMENT OF OPEN MARKET VALUE FOR RESUMED PROPERTIES

Under the Ordinance, compensation payable to the registered owners is based on the open market value of the resumed properties at the date of resumption. Valuation principles and practices adopted by the Lands Department in assessing the value of resumed properties are outlined below:-

(a) How is open market value assessed

In assessing the open market value of resumed properties, reference is made to the market evidence of similar properties in similar locality around the date of resumption.  The assessment involves comparing the resumed properties with the sale transactions of similar properties and making necessary adjustments for various factors such as location, environment, building condition, age, accessibility, date of transaction, floor, size, orientation, facilities etc.

(b)   Existing Use Value

For properties in multiple ownership, the open market value of an individual unit is normally assessed with reference to the use as shown on the approved building plans/alterations and additions plans and the use as permitted under the lease.  Any change of use not authorised by the Building Authority even if it is permitted under the lease is normally disregarded in the assessment of statutory compensation. …

(c)   Redevelopment Value

(i) For lots in single ownership, the existing use value and redevelopment value will be assessed. The higher of the two values will be offered as a statutory compensation.  In assessing the redevelopment value, any tenants’ compensation, demolition costs and the period required to obtain vacant possession will be reflected in the assessment.

(ii) For compensation claims based on joint development with adjoining lots held under different ownership, the likelihood of joint development must be proved.  In addition, there must be evidence that (i) there is a realistic possibility of joint redevelopment; (ii) joint redevelopment value is higher; (iii) there are no obvious impediments to joint redevelopment; and (iv) the proposed scheme is compatible with the predominant redevelopments in the vicinity. Each case must be examined having regard to its own peculiar facts and circumstances.

(iii)  For compensation claims based on redevelopment or joint redevelopment, the assumed development scheme must be realistic: the size of the amalgamated site, the environment and the pattern of redevelopment in the vicinity must be taken into account when assuming a redevelopment scheme. Also the length of time estimated to effect the proposed redevelopment or joint redevelopment must be properly reflected in the redevelopment value.

…

6.2  COMMERCIAL PROPERTY

(a)   Compensation to owner-occupiers

Legal owner-occupiers of commercial properties are entitled to the existing use value of the resumed properties as at the date of reversion, plus one of the following additional payments: –

(i) an ex-gratia allowance equivalent to four times the amount of rateable value of the resumed properties prevailing as at the date of reversion and where appropriate, severance payments to employees under the Employment Ordinance, Chapter 57; or

(ii) where an owner believes that his business loss is greater than the amount of the ex-gratia offer, he has the right to claim business loss (if substantiated by documentary evidence) under section 10(2)(d) of the Lands Resumption Ordinance, removal costs under section 10(2)(e)(i) and professional fees (also see paragraph 10 below) under section 10(2)(e)(ii) of that Ordinance.

With regard to paragraph 6.2(a)(ii) above, owner-occupiers may submit statutory claims for business loss and related loss and expenses as a result of total extinguishment or removal of the business from the resumed property. The various heads of claim for statutory compensation may include :-

(I) Permanent or temporary loss of business profit;

(II) Loss on forced sale of fixtures & fittings and stock;

(III) Loss of business goodwill; and

(IV) Severance payments to employees under the Employment Ordinance, Chapter 57.

The above items may not be taken as exhaustive and each case will be considered on its own merits.

In appropriate cases where the redevelopment value for the land resumed is higher than the existing use value as at the date of reversion, the former will be offered as a statutory compensation. However, the owner-occupier is not entitled to claim compensation as referred to in paragraph 6.2 (a)(ii) above if the land resumed is assessed on redevelopment value.”

12.On 7 September 2012, shortly before the property was to be resumed, the URA made one last attempt to purchase the property from the applicant and offered the price of $14,291,000 and allowance for non-domestic property in the sum of $1,651,700, ie a total of $15,942,700. 

13.That offer not having been accepted by the applicant, the property reverted to the Government at midnight on 15 September 2012.  At that point, under s. 5 of the Lands Resumption Ordinance, all the rights of the applicant in or over the property or any part thereof “absolutely cease[d]”.

14.Pursuant to s. 6(1)(a) of the Lands Resumption Ordinance, on 5 October 2012, the Director of Lands made a written offer of compensation to the applicant in respect of the resumption of the property, in the sum of $13,980,000, together with $461,468 as compensation to facilitate removal.

15.The applicant thereafter wrote numerous letters to the Secretary to complain that the compensation offered did not reflect the open market value of the property, and asked why the redevelopment basis was not employed to assess the proper amount of compensation.

16.Numerous letters were likewise written on behalf of the Secretary in reply to the applicant.  In a letter dated 11 January 2013, the Secretary pointed out, inter alia, that the compensation arrangements for URA projects have been set out in certain Legislative Council papers and that any affected owners who do not accept the Government’s offer of compensation are entitled to file a claim with the Lands Tribunal under the Lands Resumption Ordinance.

17.By his letter dated 8 February 2013, in response to the applicant’s query about the status of the Guidelines, the Secretary referred to passages in the Guidelines based on which, the Secretary said, it is clear that the Guidelines do not replace the Lands Resumption Ordinance or restrict its scope.  Instead, the Guidelines seek to explain how the open market value is assessed, given the Lands Resumption Ordinance does not prescribe any specific method of valuation for arriving at the open market value.

18.Meanwhile, from around January 2013 onwards, the applicant had also written to various professional surveyors in an attempt to engage a firm of surveyors to provide an opinion based on the applicant’s contention.  In the end, however, the applicant’s correspondence and discussions with the various professional surveyors broke down.

19.Dissatisfied with the position, the applicant lodged its application for leave for judicial review on 18 May 2013.  The “decisions” which are the object of the applicant’s attack are as follows:

“(1) The refusal of the Secretary for Development (the “Secretary”) without reasonable cause or justification to compensate the Applicant according to Lands Resumption Ordinance (Cap 124) (“LRO”) and article 105 of Basic Law for having resumed its Property.

(2) The refusal of the Secretary to desist from relying on a policy (known as “Guidelines”) to distort LRO for the purpose of assessing compensation payable to the Applicant.

(3) The refusal of the Secretary to make an offer of compensation to the Applicant that is consistent with sections 10(2)(a), 11(1) and 12(d) of LRO and article 105 of Basic Law even though he knows independent advice on valuation is not available to the Applicant for reason of cartel-like behaviour of the profession brought about by misfeasance of the Secretary himself.

(4) The refusal of the Secretary to consider, irrespective of legality of the Guidelines, whether the Applicant should be entitled to compensation of “market value” of the Property on the ground of:

(a) legitimate expectation; or

(b) discretion in clause 6.2(a) of the Guidelines.

(5) Condoning the illegitimate purposes and intent inherent in the Guidelines, the refusal of the Secretary:

(a) to afford the Applicant a “Fair Hearing” under the Hong Kong Bill of Rights Ordinance (Cap 383, the “BORO”) or negotiation for compensation with due regard to the principles of “fairness” and “equality of arms”, contrary to article 10 of BORO.

(b) to investigate the Applicant’s complaint of the series of misrepresentation committed by Urban Renewal Authority (“URA”) in relation to its attempted acquisition of the Applicant’s Property.”

20.By way of relief, the applicant seeks the following:

“1. An order of mandamus that the Secretary shall make or cause to be made an offer of compensation to the Applicant for the Property resumed in accordance with the LRO and Basic Law, and such offer shall be based on established meaning of ‘open market value’ such as the definition laid down in the HKIS Valuation Standards 2012 Edition and RICS Valuation Standards - Global 7th edition, May 2011.

2. A declaration that part of the Guidelines (or the part therein referred to below as ‘SOMO Distinction’) is illegal and unconstitutional for being contrary to articles 6 and 105 of Basic law, or it is otherwise unreasonable, irrational, discriminatory or inconsistent with the principle of proportionality and shall be nullified and voided.

3. Alternatively to (2), a declaration that the Applicant is entitled to legitimate expectation that statutory compensation on the basis of “open market value” stipulated in LRO is payable by the Government for depriving it of the Property.

4. In the event that the offensive portion of the Guidelines is held valid and applicable, an order of mandamus that the Secretary shall consider if the Applicant’s case falls within the discretionary provision of “appropriate case” in paragraph 6.2(a) of the Guidelines; and …”

21.The substance of the applicant’s complaint is that the Guidelines are misguided, that the true principle is that the Lands Resumption Ordinance mandates compensation to be assessed on an open market value basis without restricting that value to the existing use value in the case of properties in multiple ownership, that where the relevant site has redevelopment potential, the minority owner’s interest should be valued in such a way as to reflect his “proportionate share of the redevelopment value of the whole site”: Capital Well Ltd v Bond Star Development Ltd, supra, that this is so whether or not the property in question is in single or multiple ownership, that sections 10 and 12 of the Lands Resumption Ordinance make no distinction between properties in single and multiple ownership, that it is discriminatory to minority owners not to use the redevelopment basis but to value their interests on an existing use basis, and that the Government’s approach to the assessment of compensation based on the Guidelines infringes Articles 39 and 105 of the Basic Law.

22.In the correspondence, the URA and the Government have taken the position that Capital Well Ltd v Bond Star Development Ltd, supra, is distinguishable since that case concerned the position of minority owners under the Land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545).  They relied instead on Siu Sau Kuen v Director of Lands (unreported, LDLR 1/2010, 9 March 2012), which followed an earlier decision of the Lands Tribunal in Cheung Lai-wan v Director of Lands and Survey [1977] HKLTLR 14.  There, President Power stated:

“The Tribunal agrees that In re Lucas and Chesterfield Gas & Water Board is applicable in so far as it lays down, at 31, that when a value exists for possible purchasers, such as redevelopers, ‘the owner is entitled to have this value taken into consideration’ when compensation is being assessed. ... the Tribunal is satisfied that in broad terms the test to be applied in this regard in Hong Kong is still that laid down by Fletcher Moulton L.J. when he stated, at 30: ‘The owner is to receive compensation based upon the market value of his lands as they stood before the scheme was authorized by which they are put to public purposes. Subject to that he is entitled to be paid the full price for this lands, and any or every element of value which they possess must be taken into consideration in so far as they increase the value to him .’

Mr. Kan also referred to Harding v Cardiff Corporation. Again the Tribunal accepts the applicability of this decision in so far as it established, at 886, that where ‘there might well have been several people ready to buy up properties (in a particular area) with a view to collecting a site worth redeveloping’ this factor, must, where it is established to the satisfaction of the Tribunal, be taken into consideration as a factor increasing value when compensation is being assessed. The Tribunal further agrees that the words ‘open market’ are to be given the meaning attributed to them in the cases of I.R.C. v Clay and Glass v Inland Revenue ... We respectfully hold that Swinfen Eady L.J., at 475, of the former case, correctly set out the meaning of those words when he said: ‘A value, ascertained by reference to the amount obtainable in an open market, shews an intention to include every possible purchaser. The market is to be the open market, as distinguished from an offer to a limited class only, such as the members of the family. The market is not necessarily an auction sale. The section means such amount as the land might be expected to realize if offered under conditions enabling every person desirous of purchasing to come in and make an offer, and if proper steps were taken to advertise the property and let all likely purchaser know that the land is in the market for sale.’

These authorities establish that if it is shown that a property has an added value on the open market because of the likelihood that it will be incorporated into a scheme of redevelopment then this added value must be taken into account when compensation is being assessed. However before such a value can be attributed to the property the likelihood of redevelopment must be shown. It must be established, as it was to the satisfaction of the Tribunal in Harding’s case, that ‘there might well have been several people ready to buy up properties ... with a view to collecting a site worth redevelopment.’ What the Tribunal was there saying was that they were, on the evidence before them in that claim satisfied on the balance of probabilities, of the existence of this possibility.

What the Tribunal in the present case must ask is whether or not we are so satisfied. ... Having considered the matter the Tribunal feels that the redevelopment value of the sites on the evidence as it stands is so remote that it cannot be given any real weight.”

The Guidelines appear to have proceeded on the basis that where one is concerned with the resumption of a unit in a multi-storey building in which different units are respectively owned by multiple owners, there is no such likelihood of redevelopment as to justify valuing the property and thus paying compensation for its resumption on the redevelopment basis.  The applicant takes issue with this reasoning and considers that the Guidelines are inconsistent with the statutory mandate in s. 12(d) of the Lands Resumption Ordinance to assess compensation on the basis of the open market value of the property in question.

23.It is unnecessary for me to decide or express any views on the merits of the substantive arguments the applicant has raised against the Government’s approach in assessing compensation for resumption.  This is because I am satisfied that the proper forum for the applicant to ventilate these arguments is the Lands Tribunal and not the High Court upon an application for judicial review. 

24.The property having been resumed, the applicant has no further interest in it.  Its only right and interest is in obtaining proper compensation in respect of the resumption of its property.  That right is protected by the detailed provisions of the Lands Resumption Ordinance, which give expression to the right enshrined in Art. 105 of the Basic Law to “compensation for lawful deprivation of [one’s] property” which “shall correspond to the real value of the property concerned at the time”.

25.Where the applicant and the Government cannot agree on the proper amount of compensation payable, the Lands Resumption Ordinance sets out the machinery for the compensation to be determined by the Lands Tribunal.  Thus s. 6(3) of the Lands Resumption Ordinance provides:

“(3) If-

(a) a person to whom an offer has been made under subsection (1)(a) does not accept the offer within 28 days from the date thereof;

(b) …

such person or the Authority may then refer the matter to the Lands Tribunal for determination of the amount of compensation to be paid.”

26.The statute also contains directions to the Lands Tribunal as to how the amount of compensation should be determined.  Thus s. 10 provides:

“(1) The Tribunal shall determine the amount of compensation (if any) payable in respect of a claim submitted to it under section 6(3) or 8(2) on the basis of the loss or damage suffered by the claimant due to the resumption of the land specified in the claim.

(2) The Tribunal shall determine the compensation (if any) payable under subsection (1) on the basis of-

(a) the value of the land resumed and any buildings erected thereon at the date of resumption;

(b) the value of any easement or other right in the land resumed, owned, held or enjoyed by a claimant at the date of resumption;

(c) the amount of loss or damage suffered by any claimant due to the severance of the land resumed or any building erected thereon from any other land of the claimant, or building erected thereon, contiguous or adjacent thereto;

(d) the amount of loss or damage to a business conducted by a claimant at the date of resumption on the land resumed or in any building erected thereon, due to the removal of the business from that land or building as a result of the resumption;

(e) in the case of land resumed under an order made under section 3 on or after the commencement of the Crown Lands Resumption (Amendment) Ordinance 1984 (5 of 1984)-

(i) the amount of any expenses reasonably incurred by him in moving from any premises owned or occupied by him on the land resumed to, or in connection with the acquisition of, alternative land or land and buildings, but excluding any amount to which paragraph (d) applies;

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

27.S. 12 provides:

“In the determination of the compensation to be paid under this Ordinance-

(a) no allowance shall be made on account of the resumption being compulsory;

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

(b) no compensation shall be given in respect of any use of the land which is not in accordance with the terms of the Government lease under which the land is held;

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

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

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

28.The Lands Tribunal is of course part of the Judiciary and not in any way bound or influenced by the Guidelines or the position adopted by the URA, the Secretary or the Director of Lands.  Each of the points raised by the applicant in its Form 86 against the Government’s approach as set out in the Guidelines can be raised in the Lands Tribunal against the Director of Lands in proceedings begun under s. 6(3). Instead of obtaining a order of mandamus that the Director of Lands make an offer of compensation compliant with the Lands Resumption Ordinance, the applicant will obtain the determination of the Lands Tribunal on the amount of compensation payable applying the provisions of the Ordinance.

29.It is true that the Lands Tribunal has no jurisdiction to grant relief by way of judicial review such as an order to quash the Guidelines, but the applicant has no recognisable interest in relation to the Guidelines other than as an aggrieved former owner of land who has been offered compensation on the basis of the Guidelines.  The applicant has no sufficient, separate standing to purport to act in the public interest or as a representative of owners of minority interests in land in seeking to have the Guidelines declared incorrect or unlawful by the High Court.

30.Further, after the Lands Tribunal has come to a decision, any party to the proceedings before it may appeal to the Court of Appeal on the ground that the decision is erroneous in point of law: s. 11 of the Lands Tribunal Ordinance (Cap. 17).

31.It is well established that where a comprehensive system of determination and appeals procedure exists, leave for judicial review would not be granted save in exceptional circumstances: see e.g. Berich Brokerage Ltd v Securities and Futures Commission [2005] 2 HKLRD 583, §24.  On the facts of this case, I see no scope for judicial review of the alleged failure of the Secretary or the Director of Lands to offer the applicant compensation in accordance with the Lands Resumption Ordinance. 

32.In Wong Tak Woon v Secretary for Planning, Environment and Lands (unreported, CACV 339/1999, 11 January 2000), a case where the landowner sought judicial review of the decision of the Land Development Corporation (the predecessor of the URA) to ask the Secretary for Planning, Environment and Lands to recommend the resumption of owner’s land, Ribeiro J (as he then was) stated, after analysing the then Land Development Corporation Ordinance (Cap. 15):

“In my view, the foregoing analysis indicates that the legislative intent is that any disputed property valuation, leading to the inability of the LDC and the landowner to reach agreement, should be determined by invoking the recommended resumption procedure and (assuming that resumption is ordered) by applying the principles for compensation laid down by the LRO with adjudication, if necessary, by the Lands Tribunal.

It would, in my view, be most undesirable if owners seeking to get a higher amount for their land should routinely be allowed to invoke the jurisdiction of the High Court by way of judicial review, contending that the offers of purchase made were not ‘fair and reasonable’ instead of taking their case for higher compensation to the Lands Tribunal for adjudication under the LRO as envisaged and provided for by section 15 [of the Land Development Corporation Ordinance].”

Although in that case Keith JA did not dispose of the appeal on the basis of this reasoning, it seems to me to be apposite in the present case.  Indeed, it applies a fortiori since the property here has already been resumed and the sole remaining question is the amount of compensation payable to the applicant under the Lands Resumption Ordinance. In my view, this is fatal to the applicant’s application for leave.

33.The applicant has raised two further points that I should mention.  First, the applicant says that because of the Guidelines, it has not been able to enlist any professional surveyor who is prepared to value the property on a redevelopment basis. Having examined the correspondence, however, I am not satisfied that the Guidelines have made it impossible for the applicant to engage professional surveyors to provide an opinion of the market value of the property on the basis of the applicant’s contention.  The breakdown in discussions with the surveyors seems to me more likely to have been caused by the less than tactful way in which the applicant has communicated with those professionals.  But in any event any difficulty encountered by the applicant in engaging an expert can be dealt with by the Lands Tribunal’s case management powers, such as, where appropriate, dealing with any questions of law and principle prior to the actual quantum of compensation.

34.Secondly, the applicant has complained that the Secretary and Director of Lands have failed to afford it a fair hearing, contrary to the requirements of Article 10 of the Hong Kong Bill of Rights.  There is nothing in this complaint.  Those officials are not involved in “the determination of any criminal charge against [the applicant], or of [its] rights and obligations in a suit at law”

35.The application for leave to apply for judicial review is therefore dismissed.  It is unnecessary to deal with the question of delay in the application for leave which was made some 7 months after the Director of Lands’ offer, which seems to me to be a major hurdle for the applicant even if there were grounds for judicial review.

Mr Chiu Sin Wah, Director of the company, for the applicant