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The Hongkong Electric Co Ltd v Commissioner Of Rating And Valuation

Judgment Cited authorities 15 Cited in Precedent Map Related
Vincent
Judgment Date21 June 2011
Year2011
Citation(2011) 14 HKCFAR 579
Judgement NumberFACV12/2010
Subject MatterFinal Appeal (Civil)
CourtCourt of Final Appeal (Hong Kong)
FACV12A/2010 THE HONGKONG ELECTRIC CO LTD v. COMMISSIONER OF RATING AND VALUATION

FACV No. 12 of 2010

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 12 OF 2010 (CIVIL)

(ON APPEAL FROM CACV NO. 27 OF 2010)

_____________________

Between:

THE HONGKONG ELECTRIC COMPANY LIMITED Appellant
- and -
COMMISSIONER OF RATING AND VALUATION Respondent

_____________________

Court: Chief Justice Ma, Mr Justice Bokhary PJ Mr Justice Ribeiro PJ, Mr Justice Litton NPJ and Lord Millett NPJ
Dates of Hearing:
Date of Judgment:		 17-20 & 23 May 2011
21 June 2011

_____________________

J U D G M E N T

_____________________

Chief Justice Ma :

1. In this appeal, issues arise as to the methodology used in the assessment of the rateable value (for the purposes of calculating the rates and government rent under, respectively, the Rating Ordinance, Cap 116 and the Government Rent (Assessment and Collection) Ordinance, Cap 515) of the tenement occupied by the appellant, the Hong Kong Electric Company Limited (“the Company”). A discrete issue also arises in relation to what has been termed by the parties the “assets under construction” issue, this point essentially going to the question whether certain assets belonging to the Company which were in the course of construction, were rateable by the respondent, the Commissioner of Rating and Valuation. The appeal is from the Court of Appeal, which in turn had heard an appeal from the decision of the Lands Tribunal.

2. For the reasons and conclusions contained in the judgments of Mr Justice Ribeiro PJ (on the “assets under construction” issue) and Lord Millett NPJ (on the methodology issue), with which I agree, the appeal should be allowed.

3. I should add here that at the conclusion of submissions, this Court left open (for further arguments and decision if necessary) the issues raised by the Company in the event the methodology issue was determined against it. These further issues were in substance those contained in the Respondent’s Notice before the Court of Appeal. As the issue of methodology has now been resolved in favour of the Company, it becomes unnecessary to deal with those Respondent’s Notice issues.

Mr Justice Bokhary PJ :

4. Lord Millett NPJ’s judgment covers everything apart from assets under construction. Such assets are covered by Mr Justice Ribeiro PJ’s judgment. I wholly agree with both of those judgments. What Mr Justice Litton NPJ says about valuation prompts me to add a word of my own in that connection.

5. Throughout my life in the law, I have always regarded reality as a touchstone. If there truly is a separate “rating world”, then I am a mere visitor to it. And as such, I was initially somewhat bemused by the statements made in some of the cases to the effect that rating operates in a world of unreality or worse. As it seems to me upon closer inspection, however, there is no unreality in rating beyond that which is forced upon it by the requirement that the rateable value of a tenement be ascertained in terms of the hypothetical year to year tenancy laid down by s.7(2) of the Rating Ordinance, Cap.116. Sometimes, as in the present case, the tenement concerned is of such a kind that its rateable value does not lend itself to determination by the comparative method of valuation. So a notional method of valuation has to be used. That may render valuation even more open than usual to rival approaches yielding different results. Where it does, two things become, I think, particularly important to bear in mind. The first is that the Lands Tribunal is entitled to adopt any method or technique of valuation by which the rateable value of a tenement can be accurately ascertained, remembering always that s.7 requires nothing more precise than the rent that “might reasonably be expected”. And the second is that the Lands Tribunal’s decisions on rateable value are those of a specialist tribunal appealable only on law and not on fact.

Mr Justice Ribeiro PJ :

6. I have read in draft the judgment of Lord Millett NPJ and respectfully agree with his reasoning and conclusions.

7. This judgment is concerned with a discrete issue arising on the appeal. As the Tribunal recorded,[1] certain assets of the Company were identified by the parties “as still under construction (and thus not occupied)” at the relevant date. Those assets have been referred to in argument and in the judgments below as “assets under construction” or “AUC” and were treated by the Commissioner as forming part of the Company’s rateable tenement.[2] The question is whether such treatment of the disputed assets is correct as a matter of law.

8. If the answer is “No”, a second question arises: Does it follow that there must be a downward adjustment to the divisible balance adopted in the receipts and expenditure method of valuation (discussed by Lord Millett NPJ) and a consequent reduction to the assessed rateable value of the Company’s tenement?

9. The Tribunal held that the Commissioner was wrong in law to include the disputed assets as part of the rateable tenement[3] and that a downward adjustment was required. It accepted as correct the adjustment proposed by Mr Parsons, one of the Company’s experts.[4]

10. The Court of Appeal reversed the Tribunal. It held the disputed assets to be rateable and therefore held that the second question (concerning adjustment) did not arise.[5]

A. The nature and scope of this issue

11. It is important to note the limits of the question upon which the parties join issue. Mr Holgate QC made it clear that the Company is not seeking to contend that the relevant property must be occupied in order for it to constitute a rateable tenement. Clearly, under the Rating Ordinance, a tenement may still be rateable notwithstanding that it is unoccupied (subject to the possibility of a refund of rates paid in some cases[6]).

12. The question posed is when and in what circumstances a certain piece of land, a building or a structure first qualifies as a tenement attracting liability to rates under the Ordinance. Such a question arises where the asset in question is undergoing or is intended to undergo a process of construction or development designed to enable it to be used in the particular manner intended by the ratepayer.

13. It is therefore a question germane to the Company’s assets under construction. As the Tribunal found:

“It is a feature of the HEC tenement that works are almost constantly in progress to update both the assets which rating treats as the HL’s[7] tenement and the assets which rating treats as the HT’s[8]. On 1st April in any given year, a wide variety of works would have been in progress but not complete. These are what constitute the AUC in these appeals.”[9]

14. An important component of the assets under construction involves the reclamation of some 22 hectares of land on Lamma Island in order to provide capacity to expand the power station and to accommodate six gas fired combined cycle generating units. The reclamation works were not substantially completed until 1 April 2007 so that the reclamation project was ongoing in 2004/2005. As the Tribunal records:

“One additional gas fired combined cycle unit was installed there for which gas is supplied by an undersea pipeline of about 92km from Shenzhen. These facilities are not directly relevant to the appeal in respect of 2004/05 (being at that time under construction) and only became part of the tenement in 2006/07. In that year, there was a substantial amount of unused capacity in the land extension.”[10]

15. The Court is presently not concerned with and was not informed about the circumstances in which the newly installed unit and associated pipeline “became part of the tenement in 2006/07”. However, the situation referred to illustrates the need for conceptual and legal criteria for ascertaining whether and when assets which have been undergoing construction or development become part of a ratepayer’s rateable tenement.

16. Similar questions arise in relation to the Company’s other assets. The Tribunal found that the Company’s rateable tenement included some 400 kilometres of transmission cables linked to substations housed in 32 buildings and some 5,000 kilometres of cables and numerous substations forming its distribution network. As new building and other development projects come into existence on Hong Kong Island, Ap Lei Chau or Lamma Island, the Company’s existing networks have to be expanded or modified to supply them with electricity. Issues necessarily arise as to when the expanded or modified networks of tunnels, ducts, substations and so forth, constructed to house cables and other equipment linking the new projects to the electricity grid, first become part of the Company’s rateable tenement as a matter of law.

17. The answer proposed by the Company is that all such assets only become rateable as part of its tenement when they become capable of occupation for the particular purposes of the occupier (in a sense developed in the law of rating, examined below).[11] Where the land, building or structure in question becomes capable of occupation, it becomes rateable even if it is not thereafter in fact so occupied. But while the property is or is intended to be under construction or development but not yet capable of supporting such occupation, the Company argues that it is not rateable.

18. The Commissioner submits that there is no legal basis for such a criterion of rateability. She contends that in Hong Kong, the fact that the property in question may be under construction or development does not prevent it from attracting liability to rates.

19. Those opposing contentions frame the principal issue...

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