LegCo Paper No. CB(1)307/96-97
Ref : CB 1/BC/45/95
Paper for the House Committee meeting on 15 November 1996 Report of the Bills Committee on New Territories Land Exchange Entitlements (Redemption) Bill
1. This paper reports on the deliberations of the Bills Committee on the New Territories Land Exchange Entitlements (Redemption) Bill and seeks members support for the Bill to resume its Second Reading debate on 27 November 1996.
2. New Territories land exchange entitlements, commonly known as Letters A/B, were issued between 1960 and 1983 to landowners in the New Territories whose land was required for development. Letters A/B holders were entitled to exchange, as an alternative to cash compensation, for building land at the ratios of one square foot of building land for one square foot of building land and two square feet of building land for five square feet of agricultural land. The land surrendered or resumed was credited with a face value assessed with reference to the level of land value at the time the land was surrendered or resumed.
3. The issue of Letters A/B was stopped in 1983 because of increasing difficulties in meeting the commitment which then stood at about 138 hectares of equivalent building land. Since 1 April 1984, Letters A/B holders have had another option of surrendering their documents for cash in accordance with a schedule of monetized values, which are gazetted and revised twice a year. These monetized values are determined having regard to the movement of property prices in the New Territories.
4. The Director of Lands estimates that a total of about 6.75 hectares of entitlements are outstanding. Out of this, 4.68 hectares of equivalent building land, representing about 70% of the total outstanding commitments, are held by four developers. The Administration believes that the ownership of the remaining 2.07 hectares of building land is likely to be untraceable, e.g. where Letters A/B belonged to persons who have died intestate and the estates remain unclaimed or where persons have emigrated.
5. The Bill seeks to enable the Government to redeem New Territories land exchange entitlements with cash and to extinguish all other rights against the Government under those entitlements. The Schedule to the Bill sets out the rates of redemption money payable. The Bill provides that any redemption money payable shall bear interest from the commencement date of the proposed legislation until the date of payment. The provisions in the Bill will only apply to those entitlements granted for surrender or resumption of land before its commencement date.
The Bills Committee
6. At the meeting of the House Committee held on 7 June 1996, members decided that a Bills Committee should be formed to study the Bill. At the House Committee meeting on 28 June 1996, members also agreed to advance the scrutiny of this Bill as it was one of the Bills which the Administration considered should be passed before 1 July 1997. Under the chairmanship of Hon Zachary WONG Wai-yin, the Bills Committee has held two meetings with the Administration. The membership of the Bills Committee is at Appendix I.
Deliberation of the Bills Committee
Reasons for enactment of the Bill
7. Given that the Land Exchange Entitlements (LEEs) system has been in existence for decades, members have queried the reasons for introducing the Bill in the transitional period before the handover. They are concerned whether the enactment of the Bill is driven by political consideration.
8. The Administration has explained that it has always been the Governments intention to redeem all the outstanding Letters A/B as soon as possible. Some five years ago it has been planning to wind up the LEE system but is unable to do so because developers are reluctant to surrender their Letters A/B in view of the rising land prices. While the Administration will make available sufficient land in the 1996-97 Land Disposal Programme to cover the outstanding commitments held by four major developers, there is no way of knowing when the "untraceable" Letters A/B may surface and when their owners seek to redeem them. The Administration considers it not feasible to continue to provide land to redeem the residual untraceable commitments which are likely to be held in small packets. Hence, the Administration decides that the best way to deal with the situation is by fixing through legislation the value of the remaining Letters A/B at a given date and ensuring that sufficient funds are set aside to enable that value plus interest to be payable on redemption. Apart from crystallizing future commitments in respect of the untraceable entitlements, the Bill will also help persuade holders of the other remaining Letters A/B to exchange their entitlements for land as soon as possible if they are not interested in cash redemption.
9. The Administration has emphasised that it considers it an opportune time to draw a line under the issue and hence initiates the Bill. Although the Chinese side is kept informed of the progress of redemption and has been given a copy of the Bill, there has not been any pressure from the Chinese side to speed up the process nor has the matter been discussed by the Sino-British Joint Liaison Group. As of date, the Administration has not received any comments from the Chinese side on the Bill.
Termination of contractual relationship
10. Some members are of the view that Letters A/B are in fact contracts signed between the Government and the holders. Under these "contracts", there is no provision governing the time limit as to when LEEs have to be exercised. The Administration, by introducing the Bill, is seeking unilaterally to modify the contractual relationship. The Bill, if enacted, will deprive holders of the different redemption options currently available. Once the Bill comes into operation, holders will be left with no choice but to surrender Letters A/B for cash.
11. The Administration has stressed that it will not resort lightly to use legislative means to modify contractual obligations. There are practical reasons for doing this in the present case. It is not practicable for the Administration to continue to make land available for redemption. Moreover, the residual untraceable commitments are likely to be held in so small packets as to make land exchange unviable. As a matter of fact, holders of Letters A/B have been given ample opportunities to exchange their entitlements for land over many years. The Bill is not intended to apply to all the outstanding commitments of 6.75 hectares of land since the majority of the entitlements held by the four developers will be redeemed by the time the Bill comes into effect. The Administration will provide a final opportunity for land exchange within this year by conducting a public tender exercise. The tender exercise will be advertised both in Hong Kong and overseas and the consequences of missing it will be clearly spelt out. The Administration has noted members view on the need to publicize the Bill for public knowledge.
Delinking redemption values from prevailing land prices
12. The Bill provides for redemption of Letters A/B at the monetized values (MVs) crystallised at the latest rates before its enactment. Members are concerned that the proposal will delink the redemption values from the prevailing land prices. They consider it unfair to set the redemption money at the rates based on MVs since the existing MVs for redemption of Letters A/B are well below market land prices.
13. The Administration has explained that it considers it reasonable to delink the redemption values from land prices. If the redemption values are to continue to be linked with land values, the liability on public funds will be contingent upon the fluctuation in market land prices and cannot be assessed. In choosing MVs as the basis for the redemption money, the Administration has taken into account the fact that MVs represent the average value of land of all types. MVs have been established for a long time and are updated twice a year. There has not been any difficulties in accepting MVs. Given that there is no obligation for the Government to provide a particular type of land for exchange, the Administration considers it fair to draw reference to MVs which reflect the updated land prices. The MVs will be maintained in real terms by the payment of interest.
14. Some members have suggested to maintain the current practice under which MVs are revised twice annually having regard to the movement of property prices. The Administration does not accept the suggestion. It maintains its view that the proposal under the Bill will protect the Government from an unquantifiable contingent liability in the future and provide certainty for LEE holders as to the value of their entitlements. The Administration estimates that as of date, encashment of the remaining 2.07 hectares of entitlements will cost around $2 billion. The exact values will depend on the amount of equivalent building land still outstanding, and the updated values.
Scope of power exercisable by the Director of Lands
15. Some members have expressed concern about the scope of power conferred on the Director of Lands. The Bill empowers the Director to admit or reject the entire claim or part of a claim for payment of redemption money. The Director may request a claimant to furnish to him any evidence in support of his claim. As a condition of payment, the Director may also require the claimant to execute an indemnity in his favour.
16. The Administration has advised that under the existing arrangements, the Director of Lands requires a holder to surrender to him a number of documents for the purpose of establishing the ownership of Letters A/B. Only in case of doubt will the Director require the claimant to seek statutory declarations on the ownership of Letters A/B. In handing out public money, the Administration should be and has been cautious. Moreover, it is necessary to ascertain the ownership of Letters A/B to protect the interests of genuine holders. The indemnity provision will enable the Government to recover the money in the event of wrongful payment. Under existing arrangements, an indemnity is normally required in the case of missing documents or some other title problems. The Administration has stressed that the arrangements on title checking have been implemented for many years and it is not aware of any complaint as to the power of the Director of Lands. The Administration does not intend to introduce any change to these arrangements after the coming into operation of the Bill.
17. The Bill does not provide for appeal against a decision made by the Director of Lands on a claim for payment of redemption money. Should a person feel aggrieved by the Directors decision, he may seek a declaration on ownership from the High Court. Some members are concerned that such a course of action is both costly and complicated. They have enquired whether the Administrative Appeal Board (AAB) can deal with appeals against the Directors decisions made under the Bill.
18. The Administration has advised that although the AAB handles appeals against administrative decisions of the Government, it does not have the expertise in ownership matters. Redemption of LEEs involves the interpretation of rights of holders of entitlements and proof of ownership. As such, the Administration does not consider that it should come under the jurisdiction of AAB. The Administration has further advised that the District Court is empowered to make declarations of rights in respect of choses in action if the value does not exceed $120,000 or in respect of immovable property if the rateable value or annual value does not exceed $100,000. These amounts are likely to be below the MV of any single LEE. A declaration on ownership of Letters A/B therefore has to be sought from the High Court. The application for such a declaration is a routine practice which has been in use for many years. Given the availability of avenue to seek declarations and the small amount of outstanding LEEs, the Administration does not consider it necessary or feasible to set up a specific mechanism for hearing appeals on LEEs.
19. The majority of members of the Bills Committee have expressed support for the Bill. Mr Ronald ARCULLI has objected to the enactment of the Bill on the ground that it is a matter of principle that the Government should not unilaterally amend contractual relationships by means of legislation.
20. The Bills Committee recommends the resumption of the Second Reading debate on the Bill at the Legislative Council Sitting on 27 November 1996.
21. Members are invited to support the recommendation at paragraph 20 above.
Legislative Council Secretariat
13 November 1996
Last Updated on 15 December 1998