CACV 339/1999 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL

NO. 339 OF 1999 (ON APPEAL FROM HCAL NO. 143 OF 1999) ______________ BETWEEN WONG TAK WOON and SECRETARY FOR PLANNING, ENVIRONMENT AND LANDS ______________ Before: Keith J.A. and Ribeiro J. in Court Date of Hearing: 29 December 1999 Date of Handing Down of Judgment: 11 January 2000 _______________ JUDGMENT _______________ Respondent Applicant

Keith J.A.: Introduction On 6 October 1999, the Applicant was informed that the Secretary for Planning, Environment and Lands (the Secretary) had

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decided to recommend to the Chief Executive that her property at 19 Cross Street, Wan Chai, should be resumed under the Lands Resumption Ordinance (Cap. 124). The Applicant applied for leave to apply for judicial review of that decision. Cheung J. refused the application, and she now appeals against that refusal.

The relevant statutory provisions The decision challenged was made under section 15(1) of the Land Development Corporation Ordinance (Cap. 15), which provides:
The [Land Development] Corporation may in the circumstances specified in subsection (2) apply in writing to the Secretary requesting him to recommend to the [Chief Executive] in Council the resumption of land under the Lands Resumption Ordinance (Cap 124).

Section 15(2)(b) provides that one of the circumstances in which such an application can be made is
. that the Corporation has been unable to acquire any land which it requires to implement a development proposal authorized under section 5(2)(b) of [the Land Development Corporation Ordinance].

The Applicant accepts that her property was on land which the Corporation required to implement such a development proposal, that it had been unable to acquire it from the Applicant, and that it was in those circumstances that it had made the request to the Secretary to recommend the resumption of the land. However, where the circumstance giving rise to the right to make the recommendation is that set out in section 15(2)(b), the Secretary is not permitted to make the recommendation unless the three conditions set out in section 15(4) have been satisfied. Section 15(4)(c) prevents the Secretary from making the recommendation

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unless he is satisfied that the Corporation has taken all reasonable steps to . acquire the land including negotiating for the purchase thereof on terms that are fair and reasonable.

The Applicants case The Applicant contends that the condition set out in section 15(4)(c) had not been satisfied. Although the Corporation had negotiated with her over the purchase of her property, the terms on which it proposed to acquire her property were not fair and reasonable. That is because the Corporations valuation of the land on which the Applicants property is was based on the value of her property in its current state, and not on the value of the property which would be built on her land under the proposed development. The judge in effect decided that if the fairness and reasonableness of the terms offered by the Corporation depended upon the correct legal basis of the valuation of the land, a decision based on the Corporations view of the correct legal basis of the valuation was not a decision suitable for challenge by way of judicial review. Thus, the judge said that if the Corporations method of valuation was incorrect, that would be exposed when the compensation for the resumption of the land came to be determined under the Lands Resumption Ordinance. The criticism of the judge is that he failed to appreciate that the statutory regime for the assessment of compensation for the resumption of the land under the Lands Resumption Ordinance requires the Lands Tribunal to
. determine the compensation (if any) payable [thereunder] on the basis of . the value of the land resumed and any buildings erected thereon at the date of resumption (section 10(2)(a) of the Lands Resumption Ordinance),

and provides that

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. 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 [one of] the purposes specified in . the Town Planning Ordinance (Cap. 131) (section 12(aa) of the Lands Resumption Ordinance).

Thus, it is said that the judge

. overlooked the fact that the Applicant would not be permitted by the terms of the Lands Resumption Ordinance to put forward her basis of valuation, whereas there is nothing in the Land Development Corporation Ordinance which would disallow her from doing so.

There is no doubt that the statutory regime for the assessment of compensation for the resumption of land under the Lands Resumption Ordinance would prevent the Applicant from advancing her basis of compensation, but it may well be the case that the words on terms that are fair and reasonable in section 15(4)(c) should be construed as referring to terms which are fair and reasonable in the light of the provisions for the assessment of compensation under the Lands Resumption Ordinance. After all, there is a clear link between section 15 of the Land Development Corporation Ordinance and the Lands Resumption Ordinance: not only does section 15(1) provide that link, but in addition section 15(6) provides:
A resumption in pursuance of a recommendation by the Secretary under this section shall be deemed to be a resumption for a public purpose within the meaning of the Lands Resumption Ordinance (Cap. 124).

Moreover, it would be odd if the Corporation was required to negotiate on the basis of terms more favourable to the owner of the land than the provisions for the assessment of compensation under the Lands Resumption Ordinance, when the consequence of a failure to agree terms would entitled the Corporation to request the Secretary to take a course which would result in compensation being assessed in accordance with the provisions of the Lands Resumption Ordinance.

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The critical question However, it is unnecessary for me to reach a conclusion as to whether it is arguable that the statutory regime for the assessment of compensation under the Lands Resumption Ordinance has not been imported into the Land Development Corporation Ordinance. Even if it is, it does not mean that leave to apply for judicial review should have been granted. The question still remains as to whether it is arguable that, leaving aside the provisions of the Lands Resumption Ordinance, the Secretary could not be satisfied that the terms offered by the Corporation were fair and reasonable. In other words, is it arguable that, in assessing the compensation for land resumed pursuant to a recommendation to the Chief Executive under the Land Development Corporation Ordinance, account may be taken of the value of such property as would be built on the land under any proposed development? In my view, the answer is contained in the advice which the Secretary sought from leading counsel as to how the value of the Applicants land should be assessed. Leading counsels view was unequivocal. I cannot improve on the language in which he unambiguously expressed his advice to the Secretary, namely
. where any increase in value is the product exclusively of the scheme which gives rise to the acquisition, that increase should not inflate the owners compensatory reward. That element in the value of the property was an element which the owner was incapable of exploiting on his own behalf. To take it into account, therefore, would be to credit the owner with a benefit which never attached to the property while it was in his hands.

It is only if it is arguable that that view of the law is wrong could it be said that the Secretary erred in law when proceeding on the advice which he got. Mr. Warren Chan S.C. for the Applicant has been unable to

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persuade me that it is even arguable that that view of the law is wrong. In my opinion, it is plainly correct.

Conclusion I have noted with interest the view expressed by Ribeiro J. (whose judgment I have read in draft) that the judge was right to regard a challenge to the fairness and reasonableness of terms offered by the Corporation as prima facie not the subject of judicial review. I have some reservations about the correctness of that view, since the statutory regime for the assessment of compensation under the Lands Resumption Ordinance only becomes relevant once the Secretary is satisfied that the terms of the offer were fair and reasonable. But it is unnecessary for me to say any more about that in view of my opinion on what I regard is the critical question which the case raises. For these reasons, therefore, I would dismiss this appeal. Since the appeal was heard ex parte, it is unnecessary for any order nisi to be made as to costs.

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Ribeiro J : I agree that the Appeal must be dismissed. The decision which the Applicant seeks to have judicially reviewed is the decision of the Secretary for Planning, Environment and Lands (the Secretary) under section 15 of the Land Development Corporation Ordinance, Cap 15 (the LDCO) to recommend to the Chief Executive in Council (CEIC) the resumption, under the Land Resumption Ordinance, Cap 124 (the LRO), of 19 Cross Street in Wan Chai (the property), which is land belonging to the Applicant. The events leading to the application and to this appeal are as follows. The property is located within a Comprehensive Development Area which is the subject of a development scheme illustrated by a Plan (No S/HF/LDC1/1) prepared by the Land Development Corporation (LDC). In accordance with the various procedural requirements of the LDCO, by October 1996, the Plan had been submitted to and obtained the approval of the Town Planning Board and the Governor in Council, thirteen objections having been received and dealt with. As indicated in an Explanatory Statement issued by the Planning Department in October 1996, the object of the development scheme is to achieve environmental improvement by promoting efficient land use, restructuring the street pattern, providing much-needed Government/Institution/Community facilities, and creating a modern commercial/residential development in the Wan Chai district. The Explanatory Statement also indicated that to implement the scheme, the LDC intended to acquire the properties within the Area

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by purchase on terms that are fair and reasonable. It also stated that land required for implementation would be granted by Government or acquired from existing owners and, if necessary, by requesting [the Secretary] to recommend resumption in accordance with section 15 of [the LDCO]. In accordance with its stated intention, the LDC made the Applicant an offer to purchase the property for $17,783,000. This amount was arrived at by taking the higher of two valuations of the property conducted respectively by two well known firms of valuers, then adding a premium of 10% upon such higher valuation. The Applicant rejected the offer. In letters written to the LDC, she attacked these valuations as wrong, in the first place, because they used a plot ratio of 4.69 which involved viewing the site as a single site with a net site area of 720 sq. ft. She argued that the higher plot ratio, put by the Applicant at 8.9333, applicable to the total site area after taking into account the entire square footage of the intended new development, ought to have been applied to her site, producing a significantly higher valuation. Indeed, it was her contention that in consequence of the promulgation of the scheme, it was positively unlawful to adopt such an approach to the valuation. Secondly, she argued that some premium ought to have been applied to take into account the strategic position of the property in the context of the development scheme. She contended that the LDC ought to have offered to purchase the property at a price of no less than $30,789,984. On 24 February 1999, the LDC responded, explaining its policy on valuation as follows:Although the Scheme Plan does require the whole of the site to be developed in accordance with the approved plan, the

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Corporation9s acquisition policy is to make offers for the purchase of properties on the basis of their existing value ignoring the effect of the scheme. This policy has been followed by the Corporation ever since it started operations and has been accepted by Government as fully complying with the requirements of the Land Development Corporation Ordinance to make offers to owners which are both fair and reasonable. The basis of making offers on the existing use value for properties follows the Government9s practice for assessing statutory compensation under the Government Land Resumption Ordinance where, again, the effect of a scheme is ignored.

A meeting was suggested, obviously with a view to seeing if a negotiated acquisition was possible, the LDC adding: ....... if you do not wish to hold a meeting the Corporation will need to rely on its application for resumption of your property. The Applicant did not accept this explanation and indicated that she was seeking the advice of Counsel. In the reply sent on the Secretarys behalf dated 21 June 1999, the Applicant was told that the LDC had requested the Secretary under s 15(1) of the LDCO to recommend to the CEIC the resumption of the property. It enclosed the legal opinion which the Government had obtained from Mr Neville Thomas QC. The advice it contained was that the Applicants contentions were misconceived in principle and contrary to well-established legal authority. In particular, it was well settled, inter alia by authorities relating to various compulsory acquisition schemes, that computation of compensation ignores the after-value of the property arising as a result of the implementation of the scheme itself. On 6 October 1999, the Applicant was informed that the Secretary had carefully considered her representations together with all other relevant information available, and that he was satisfied that the

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Corporation had taken all reasonable steps (short of applying for resumption) to acquire the land, including negotiating for its purchase on fair and reasonable terms. Accordingly, the Secretary had, under section 15 of the LDCO decided to recommend to the CEIC resumption of the property under the LRO. Section 15, so far as material, is in the following terms:(1) The Corporation may in the circumstances specified in subsection (2) apply in writing to the Secretary requesting him to recommend to the Governor in Council the resumption of land under the Lands Resumption Ordinance (Cap 124). The circumstances referred to in subsection (1) are(a) that the Corporation has been unable to acquire any land within the area of a plan which is deemed to be a draft plan by virtue of section 14(3) of this Ordinance; or that the Corporation has been unable to acquire any land which it requires to implement a development proposal authorized under section 5(2)(b) of this Ordinance.

(2)

(b)

(3)

The Secretary shall not make a recommendation in pursuance of subsection (2)(a)(a) (b) ....... unless he is satisfied that the Corporation has taken all reasonable steps to otherwise acquire the land including negotiating for the purchase thereof on terms that are fair and reasonable.

(4)

The Secretary shall not make a recommendation in pursuance of subsection (2)(b)(a) (b) ....... unless the application for accompanied by a statement(i) resumption is

setting out how the Corporation intends that the proposal will be implemented, including whether implementation will be by the Corporation alone or the Corporation in association with another person and in relation to land within the boundaries of the proposal, what portion of the land is owned or leased by the Corporation and what arrangements have

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been made or are contemplated by the Corporation for the acquisition of any land not so owned or leased; (ii) containing an assessment by the Corporation as to the likely effect of the implementation of the proposal, including, in relation to the residential accommodation of persons who will be displaced by the implementation of the proposal, an assessment as to whether or not, insofar as suitable accommodation for such persons does not already exist, arrangements can be made for the provision of such residential accommodation in advance of any such displacement which will result as the proposal is implemented; and

(c)

unless he is satisfied that the Corporation has taken all reasonable steps to otherwise acquire the land including negotiating for the purchase thereof on terms that are fair and reasonable.

(5)

For the purpose of this section, in considering whether or not the Corporation has negotiated for the purchase of the land on terms that are fair and reasonable, the Secretary may consult any person not being a public officer whom he considers may be able to assist him in forming an opinion on which to base his decision in respect of that negotiation. A resumption in pursuance of a recommendation by the Secretary under this section shall be deemed to be a resumption for a public purpose within the meaning of the Lands Resumption Ordinance (Cap 124).

(6)

The stated ground for seeking judicial review of the Secretarys decision to recommend resumption of the land is that :(The) LDC has never taken reasonable steps to otherwise acquire my land and on terms that are fair and reasonable as required by the LDCO.

On 15 November 1999, Cheung J dismissed the application after consideration of the documents. In his reasons for decision given on 16 November, Cheung J found that in the circumstances, the Applicant

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had not shown an arguable case that s 15(4)(c) had not been satisfied. He characterised the dispute as one involving a dispute about the correct method of valuing the land and concluded:Ultimately, the method of valuation is one that has to be resolved when the compensation is to be determined.

The Applicants argument on appeal The main focus of the Applicants complaint is the refusal by the LDC and the Secretary to base their offer for purchase on a valuation using a plot ratio taking into account the amalgamation of her site with other sites resulting from implementation of the development scheme. Mr Warren Chan SC, appearing for the Applicant, criticised the LDC for ignoring reality and contended that it was at least arguable that the effect of the scheme had to be taken into account in formulating the LDCs offer if it was to be on fair and reasonable terms as required by section 15. Mr Chan conceded that if the Applicants property were to be valued within the context of the LRO, the proposition that the effect of the development scheme should be taken into account would be unarguable. In my judgment, such concession was rightly made in the light of sections 10(2)(a), 12(a) and 12(aa) of the LRO. Mr Chans argument was therefore that an assessment of whether a purchase offer was fair and reasonable within the meaning of section 15 of the LDCO has to be undertaken without any reference to the approach applicable to the assessment of compensation under the LRO. The Applicants specific argument is that by failing to make an offer based on the much higher plot ratio calculated as aforesaid and/or

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in failing to reflect the strategic position of the property within the development scheme by a premium, the Secretary failed to make a fair and reasonable offer which is a pre-condition to his recommending resumption.

The effect of section 15 of the LDCO In my judgment, the Applicants argument is unsustainable in that it flies in the face of the structure and content of section 15 itself. As appears from section 15, the legislature plainly intended that the LDC and the landowner should, if possible, agree between themselves the terms on which the land within the development area is to be acquired, hence the requirement for all reasonable efforts at agreement and the making of a fair and reasonable offer. Agreed purchases are obviously desirable as a matter of policy since it is preferable for the owner to be satisfied with the terms and to part with his land on a voluntary basis. Such acquisitions are also likely to be achievable more quickly and less expensively than by using machinery for compulsory acquisition. The legislature, however, plainly also recognized in section 15 that it may not be possible to reach such agreement, however fair and reasonable the offer of purchase might be. To cater for such an inability to agree, the LDC is empowered (provided it has already made a fair and reasonable offer) to request the Secretary to recommend resumption to the CEIC. The scheme of the Ordinance is therefore for the amount of money payable to the landowner for his land to be determined if possible

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by agreement, but failing agreement, by the machinery of a compulsory acquisition under the LRO. Only by the LDC being able to have recourse to such compulsory measures can its statutory objective of effecting urban renewal be carried out without being frustrated by recalcitrant individual owners. In the present case, in its October 1996 Explanatory Statement and its letter of 24 February 1999, the LDC expressly told the Applicant that it intended to recommend a resumption if agreement could not be reached. 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. One asks rhetorically, on what basis and applying what criteria is the High Court to assess whether offers are fair and reasonable if this as an exercise unaffected by the principles laid down by the LRO? If, on the other hand, contrary to Mr Chans argument, the LRO principles do apply, then is the Lands Tribunal not obviously the proper forum, best equipped to take evidence and to assess compensation

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in line with awards made in other compulsory acquisition cases? It is no doubt with a view to achieving uniformity in compensation rates that in numerous Ordinances (apart from the LRO itself) where land is required to be acquired for public purposes, the LRO machinery including adjudication by the Lands Tribunal is called into service. Such Ordinances include the Mass Transit Railway (Land Resumption and Related Provisions) Ordinance, Cap 276; the Railways Ordinance, Cap 519; the Roads (Works, Use and Compensation) Ordinance, Cap 370; and the Land Drainage Ordinance, Cap 370. One also asks what relief the High Court can usefully grant if it considers the offer unfair and unreasonable. It cannot take over the negotiations on behalf of the LDC and cannot dictate how much should be offered. What if, upon the High Court ruling (on whatever basis) that an offer is not fair and reasonable, the LDC makes a fresh offer and the landowner still rejects it? If, at such stage, the answer is that the compulsory machinery must be invoked, it is difficult to see why the same answer should not have been given at the outset. In my view, these considerations indicate that, given the content and structure of section 15, a challenge to the fairness and reasonableness of the offer is prima facie not the proper subject for judicial review. The LDCO itself prescribes the well-developed machinery under the LRO to quantify compensation for land acquired compulsorily and it is to such machinery that the parties must look if they cannot agree on the terms of the acquisition. This appears to have been the approach adopted by Cheung J and, for my part, I would have been disposed to uphold his decision and to dismiss the appeal on that ground alone.

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The second consequence of the abovementioned approach to section 15 is specific to the challenge mounted by the Applicant in the present case. Given that the section prescribes a negotiation against the backdrop of machinery for resumption in the event that agreement cannot be reached, it is in my view clear that when formulating purchase offers intended to be fair and reasonable, it is entirely proper that the LDC should be guided by considering the level of compensation which the landowner could achieve if he were to reject that offer and compel the LDC to invoke the machinery for resumption. The LDC may, in other words, steer a fair and reasonable course by reference to what is possible under the LRO. Accordingly, in my view, Mr Chans concession that it would be unarguable in the LRO context to claim compensation based on a valuation taking into account the post-resumption effects of the scheme, makes it equally unarguable to submit that refusal to reflect such aftervalue in the LDCs offer renders that offer unfair and unreasonable within the meaning of section 15. There can be nothing unfair or unreasonable in leaving out of the LDC offer an element in the valuation which the landowner could not possibly rely on if the LRO procedure is invoked. On this alternative ground, I would also dismiss the appeal. I have had the benefit of reading in draft Keith JAs judgment and would also respectfully agree with his conclusion that, quite apart from the provisions of the LRO excluding reliance on aftervalue, the Applicants case that the Secretary could not be satisfied that the terms offered in the present case were fair and reasonable is unarguable in principle. The LDCs offer was the result of taking the higher of two independent valuations by skilled and reputable valuers, then adding 10%

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to the result, an approach equally applied to other landowners in accordance with a published and generally accepted policy, made after seeking leading counsels confirmation of its legal position. I have no doubt that the Secretary was entitled to be satisfied that all reasonable efforts were made to arrive at a consensual acquisition on terms that are fair and reasonable. The Applicant was of course entitled to reject the offer, but in so doing, she is left to take her chances as to the compensation achievable under the LRO and in the Lands Tribunal (as she had been told would be the consequence of an inability to agree). In my view, her submission, that the Secretarys decision is reviewable because the LDC offer does not credit her property with a higher value which would result entirely from implementation of the development scheme, itself offends elementary notions of fairness and reasonableness.

(Brian Keith) Justice of Appeal

(R.A.V. Ribeiro) Judge of the Court of First Instance

Mr Warren Chan SC, instructed by Messrs Ho and Tam, for the Applicant.