Archive for the ‘Compensation’ Category

Compensation for land resumption: valuation where a restriction on use has been abandoned

December 19, 2017

In Cheermark Investment Ltd v Director of Lands ([2017] HKEC 2536 (CA)) the Court of Appeal had to consider appeals from the Director of Lands concerning the basis on which compensation was payable in respect of two shops, the ownership of which had been resumed by the Government.

The shops were held on Government Leases that included restrictions on use which were contravened by the use of the property as shops. The Lands Tribunal found that the Government had abandoned the restrictive covenant.

The Director of Lands appealed against this finding. The Director also argued that section 12 of the Lands Resumption Ordinance (‘LRO’) meant that any abandonment was irrelevant to the valuation exercise to be carried out. The compensation payable would be much lower if the valuation had to take account of the restrictive covenant.

The Government leases on which the shops were held contained a covenant that the lessee would not allow the land to be used other than for ‘dwelling houses workshops factories or godowns or similar purposes’ (‘the user covenant’).

The Court of Appeal (Kwan JA giving the main judgment), reversing the Lands Tribunal on this point, held that the use of the property as shops was a breach of the user covenant.

The Lands Tribunal found that the Government had abandoned the user covenant on the basis of ‘the open and notorious breaches over a lengthy period without enforcement action’. The Court of Appeal said that whether the facts are capable of establishing the abandonment of a covenant ‘is primarily a matter for the fact finding tribunal’ ([69]). There was no basis, in this case, to interfere with the Lands Tribunal’s judgment.

Did section 12 of the LRO mean that the abandonment was irrelevant when it came to calculating the compensation payable? The section provides, among other things, that, ‘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’.

The use of the properties as shops was not in accordance with the terms of the Government lease unless the court could take account of the fact that the Government had abandoned the user covenant.

The owners were entitled to fair compensation following the resumption; this is the principle of equivalence which would operate even in the absence of article 105 of the Basic Law ([106]). Further, ‘the principle against doubtful penalisation imports a presumption against the imposition of a statutory detriment to a person’s property or other economic interests without clear language’ ([107]).

Through the abandonment, the Government had disposed of the right to enforce the restrictive covenant. It could no longer charge a premium for a change of use to that of a shop. The owners’ interest in the shop was to be valued in such a way as to reflect this: ‘compensation is required to be paid for the interest resumed’ ([108]).

Michael Lower



Compensation paid on the resumption of land is not ‘land’ for the purposes of section 13 of the New Territories Ordinance

March 25, 2015

In Lok Tin Choi v Lai Kwai Lin ([2015] HKEC 389, CA) a mother held land in the New Territories on trust for her son. The land included two lots that had been resumed by the Government. The mother claimed to have an interest in the compensation money. This was on the basis of Chinese law and custom requiring her son to maintain his mother for her life and to provide dowries (if applicable) for the two unmarried daughters.

Cheung JA gave the principal judgment. Section 13 of the New Territories Ordinance allows the court to recognise and enforce any Chinese custom or customary right affecting land in the New Territories. The definition of ‘land’ in section 2 of the Ordinance does not cover compensation received on the resumption of land and so the court had no power to enforce any Chinese custom or customary right said to affect the compensation money. The cases that held that compensation received in respect of Tong land remained subject to the trust were not authority for the proposition that the compensation was equivalent to land. Cheung JA refrained from comment on the Chinese law and custom that had been invoked.

Michael Lower

Compensation on resumption: can the likely increase in value due to a variation of lease restrictions be taken into account?

October 18, 2012

In Dragon House Investment Ltd v Secretary for Transport ([2005] 4 HKLRD 480, CFA) the Government resumed land in the New Territories for the purposes of building the West Rail Line. The dispute concerned the amount of the compensation to be paid. The Government leases contained restrictions that prevented building but the land was zoned for residential development. The Government argued that the valuation for compensation purposes should reflect an assumption that the land could not be used for building. The claimants argued that there should be additional compensation to reflect the zoning and the hope that the premium charged by the Government for lifting the restrictions would not capture the full increase in value attributable to the lifting of the restriction.

The claimants failed. Although they were entitled to be paid the open market value (section 12(d) of the Lands Resumption Ordinance) and this would reflect the prospect of being able to build, section 12(d) was subject to section 12(c) which provided that there was to be no compensation in respect of an increase in value attributable to the possibility that a lease restriction might be lifted. The best comparables, therefore, were those for similar land that could not be built upon.

Zoning for residential purposes, on its own, had no value if the operative assumption was that the land could not be built upon.

Compensation for loss of marine rights

August 5, 2011

Penny’s Bay Investment Co Ltd v Director of Lands (2010) 13 HKCFAR 287, CFA) concerned the method of calculating compensation for loss of ‘marine rights’ (right of access to the sea) under the Foreshore and Sea-bed (Reclamations) Ordinance (Cap. 127). PBIL owned a Government Lease of land at Lantau. In 1995 the Government published a notice of its proposed reclamation of the land as it was to be part of a scheme to build two container terminals. In fact, PBIL continued to use the land for its ship-building and repairing business (for which marine rights were essential) until 2001. The Government then paid it to surrender the lease. In the meantime, the Government had abandoned its proposed scheme for the container terminals and the reclaimed land was used for Hong Kong Disneyland. The question was whether events subsequent to 1995 affected the calculation of compensation for loss of marine rights or whether the sum payable crystallised as at the date of the 1995 notice. The CFA (Lord Hoffman NPJ giving the main judgment) decided that the amount payable crystallised in 1995. The scheme of the Ordinance (especially section 12) made it clear that the amount payable could be determined as at the date of the notice. The compensation was the difference between the Open Market Value of the land with the marine rights and without those rights. The case was remitted to the Lands Tribunal for it to consider the amount payable in the light of this guidance. In doing so, it should bear in mind that buyers and sellers in the market for the land in 1995 might have attached little importance to marine rights when valuing the land because their valuations might well have reflected other uses for which marine rights would be irrelevant.

Resumption authority has a duty to disclose relevant factual evidence in its possession

July 5, 2011

Kaisilk Development Ltd v Director of Lands ([2011] HKEC 677, LT) concerned the amount of compensation payable under section 10(2) of the Lands Resumption Ordinance (Cap 124). Most of the judgment is concerned with technical valuation matters. At paragraph 24, however, Deputy Judge Lui reminds the resumption authority that the factual data about location chracateristics that  it has gathered concerning a site (such as photographs) do not enjoy any kind of privilege and should be disclosed. Its expert, like all experts, has an overriding duty to assist the Tribunal to deal with the matter in a fair and informed manner. Such materials should be disclosed to owners who apply for determination of compensation.

Calculation of loss of income for purposes of ‘disturbance payment’ under the Railways Ordinance

April 2, 2011

Lingrade Development Ltd v Secretary for the Environment ([2011] HKEC 307, CFA) concerned an appeal from a decision of the Lands Tribunal. The Kowloon-Canton Railway Corporation used its statutory powers to take occupation of a strip of Lindale’s land to allow it to carry out work in connection with the West Rail line. The result was to stop work on Lingrade’s development of an apartment complex for a substantial period of time. The Lands Tribunal had to assess the amount of the ‘disturbance payment’ due to Lingrade under the Railways Ordinance (Cap 519). One question was the amount of income lost by Lingrade as a result of the scheme. The Lands Tribunal had to compare the sale proceeds actually received with the proceeds that would have been received had it not been for the delay. It took the actual sale proceeds as the best comparable and adjusted them using an index of price movements in the New Territories. On appeal, the Secretary for the Environment contended that the Lands Tribunal was not entitled to take this approach. It should, it was argued, have asked for the developer’s forecasts of the sales prices likely to be achieved and used these. Lord Hoffman NPJ rejected this. The Lands Tribunal’s approach of looking at prices actually achieved was a much firmer and more realistic basis on which to make the calculations required of it.