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Best Origin Ltd v Commissioner Of Rating And Valuation

Judgment Cited authorities 11 Cited in Precedent Map Related
Vincent
Judgment Date19 November 2010
Year2010
Judgement NumberCACV67/2008
Subject MatterCivil Appeal
CourtCourt of Appeal (Hong Kong)
CACV67/2008 BEST ORIGIN LTD v. COMMISSIONER OF RATING AND VALUATION

CACV 67/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 67 OF 2008

(ON APPEAL FROM LDGA NO. 14 OF 1998)

____________

BETWEEN

BEST ORIGIN LIMITED Appellant
and
COMMISSIONER OF RATING AND VALUATION Respondent

____________

Before: Hon Tang Ag CJHC, Kwan JA and A Cheung J in Court

Dates of Hearing: 4 - 8 October 2010

Date of Judgment: 19 November 2010

_______________

JUDGMENT

_______________

Hon Tang Ag CJHC:

Introduction

1. Rating law has a long history. Its foundation is the Poor Relief Act of 1601 which imposed a liability on, amongst others, occupiers of a parish to contribute a sum, assessed annually, for the relief of the poor. In 1836, the Parochial Assessment Act of 1836 was passed, as its preamble stated, because, “it is desirable to establish one uniform mode of rating … and to lessen the costs of appeal against an unfair rate”. The uniform mode adopted was the hypothesis of an annual tenancy. Lord Parmoor said in Poplar Assessment Committee v Roberts [1922] 2 AC 93 at 120:

“Prior to 1836, the same method was generally adopted in practice, although it cannot be said that this was universally the case.”

2. In Railway Assessment Authority v Southern Railway [1936] AC 266 at 273 Viscount Hailsham LC explained:

“… this method of assessing liability for rates was no doubt very suitable for the simple conditions which prevailed in the reign of Queen Elizabeth ; but when it was sought to apply it to modern conditions, and especially to the assessment of great public utility undertakings, such as railways, waterworks, gasworks and the like, whose operations might easily extend over great areas, stretching far beyond the limits of any individual parish, the greatest difficulty was found in adapting the statutory provisions to the facts of such a case.”

3. We are concerned with some of the difficulties in adapting the relevant statutory provisions to the facts of this case. The difficulties are less daunting when one recalls Lord Pearce’s observation in Dawkins (Valuation Officer) v Ash Brothers and Heaton Ltd [1969] 2 AC 366, 381H:

“Rating seeks a standard by which every hereditament in this country can be measured in relation to every other hereditament. It is not seeking to establish the true value of any particular hereditament, but rather its value in comparison with the respective values of the rest. Out of various possible standards of comparison it has chosen the annual letting value. ... So one must assume a hypothetical letting (which in many cases would never in fact occur) in order to do the best one can to form some estimate of what value should be attributed to a hereditament on the universal standard, namely a letting ‘from year to year.’”

The lease

4. The lease in respect of Inland Lot No.8874, Electric Road, Hong Kong (“the Site”) was purchased by the appellant, Best Origin Limited (“Best Origin”), at an auction.

5. The conditions of lease required Best Origin to demolish the existing building on the Site within 9 months of the Conditions of Sale, and to erect on the Site a building(s) on or before 31 December 2000 with a minimum gross floor area of 11,000 square metres. Since 6 December 2000, a 35-storey building known as 148 Electric Road has been erected on the Site.

6. The lease is an applicable lease under the Government Rent (Assessment and Collection) Ordinance, Cap. 515 (“GRACO”), and as such, Best Origin:

“(1) … is liable to pay by way of Government rent to the Commissioner in accordance with this Ordinance an annual rent of an amount equal to 3% of the rateable value of the land leased.” Section 6(1) of GRACO.

“(2) The Rating Ordinance (Cap 116) applies to the ascertainment of rateable values under this Ordinance subject to any specific provisions of this Ordinance.” Section 8(2) of GRACO

7. Sections 7(2) and 7A(2) of the Rating Ordinance, Cap. 116, are important.

8. Section 7(2) requires rates to be assessed on the basis of a hypothetical yearly tenancy and provides:

“7(2) The rateable value of a tenement shall be an amount equal to the rent at which the tenement might reasonably be expected to let, from year to year, if-

(a) the tenant undertook to pay all usual tenant's rates and taxes; and

(b) the landlord undertook to pay the Government rent, the costs of repairs and insurance and any other expenses necessary to maintain the tenement in a state to command that rent.”

9. Section 7A(2) of the Rating Ordinance embodies the rebus sic stantibus principle (“the rebus principle”), another rating principle of long standing,

“… certainly older than the Parochial Assessments Act, 1836”. per Lord Wilberforce in Dawkins at 385G.

10. Section 7A(2) provides:

“(2) The rateable value of any tenement to be included in a list prepared under section 12 shall be ascertained by reference to the relevant date on the assumption that at that date-

(a) the tenement was in the same state as at the time the list comes into force;

(b) any relevant factors affecting the mode or character of occupation were those subsisting at the time the list comes into force; and

(c) the locality in which the tenement is situated was in the same state, with regard to other premises situated in the locality, the occupation and use of those premises, the transport services and other facilities available in the locality and other matters affecting the amenities of the locality, as at the time the list comes into force.”

Agrila

11. In earlier proceedings, reported as Commissioner of Rating & Valuation v Agrila Ltd & Others (2001) 4 HKCFAR 83, Best Origin, together with owners of other sites, had challenged the Director of Lands’ assessment of rent based on a substantial rateable value. In those proceedings it was common ground that a site would not be rateable under the Rating Ordinance while under construction because it would not be regarded for rating purposes to be in rateable occupation. These owners contended that rent was not payable while their sites did not attract a liability for rates. That was the first of the preliminary points for the decision of the Court of Final Appeal.

12. That argument was rejected by the Court of Final Appeal because Regulation 2 of the Government Rent (Assessment and Collection) Regulation, Cap. 515 (“Rent Regulation”) provides:

“Where any leased land has not been developed after the commencement of the term of the applicable lease under which it is leased, the rateable value of the leased land at any time before any part of it is developed shall be ascertained as if the leased land were a tenement liable for assessment to rates under the Rating Ordinance (Cap. 116).”

13. The answer to this point (Point 1) given in Sir Anthony Mason NPJ’s judgment (with the concurrence of the other members) was:

“Answer :

(i) For the purposes of determining the amount of Government rent payable, regulation 2 deems that the leased land is “a tenement liable for assessment to rates under the Rating Ordinance”;

(ii) Thus, on a true construction of regulation 2, the non-rateability of the leased land under the Rating Ordinance is to be disregarded and the rateable value is to be ascertained on that basis in accordance with sections 7 and 7A of the Rating Ordinance.” (p. 113)

14. Another preliminary point decided in Agrila, which is important to this appeal, is Point 4:

“Point 4:

When making a valuation under s.8 of the Rent Ordinance of leased land before or during development what assumptions, whether using the contractors or another basis of valuation, the Commissioner is required or empowered by law to make as to :-

(a) the terms of the hypothetical tenancy of the land;

(b) the state of the land; and

(c) the mode or character of occupation of the land.

Answer:

(a) The terms of the hypothetical tenancy are given by s.7(2) of the Rating Ordinance.

(b) The state of each site should be taken as it was on the relevant date, having regard to all the intrinsic characteristics of each site. When determining those characteristics, the Lands Tribunal should take into account evidence as to the likelihood at the relevant date of development being carried out on each site by the hypothetical tenant amongst other relevant considerations.

(c) The evidence referred to in (b) above should be taken into account in determining the mode or category of occupation for each site at the relevant date and in particular whether the site was being occupied as a development site.” (pp. 113-114)

15. Answer (a) refers to the statutory hypothesis of a tenancy from year to year, which, as Lord Pearce has explained, has to be assumed:

“… in order to do the best one can to form some estimate of what value should be attributed to a hereditament on the universal standard, namely a letting ‘from year to year.” See para.3 above.

16. Lord Herschell LC, said, with the concurrence of the other members of the House of Lords in London County Council v Erith Parish [1893] AC 562 at 595, that the hypothesis of an annual tenancy in section 1 of the Act of 1836:

“… only provide the means of...

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