LegCo Paper No. CB(1)123/96-97
(These minutes have been
seen by the Administration)
Ref : CB1/BC/45/95/2

Bills Committee on New Territories Land Exchange Entitlements (Redemption) Bill

Minutes of Meeting held on Friday, 19 July 1996 at 10:45 a.m.in Conference Room B of the Legislative Council Building

Members present:

Member absent:

Public Officers attending:

Mr Trevor Keen: Principal Assistant Secretary for Planning, Environment and Lands
Mr C M MO: Principal Government Land Agent (Specialist)
Ms Sherman CHAN: Senior Assistant Law Draftsman (Atg.)

Clerk in attendance:

Miss Odelia LEUNG: Chief Assistant Secretary (1)1
Mrs Mary TANG: Senior Assistant Secretary (1)2

Staff in attendance:

Mr LEE Yu-sung: Senior Assistant Legal Adviser
Miss Connie FUNG: Assistant Legal Adviser 3

I. Election of Chairman
II. Meeting with the Administration Clause 3 Clause 7 Clause 8 Clause 11: Clause 3; Clause 7; Clause 8; Clause 11

I. Election of Chairman

Mr Zachary WONG Wai-yin was elected Chairman of the Bills Committee.

II. Meeting with the Administration

2.Mr Ronald ARCULLI declared interest that he was legally representing four developers on matters concerning redemption of Letters A/B.Mr LAU Hon-chuen stated that being a solicitor, he might be appointed to handle cases involving redemptions of Letters A/B

3.At the invitation of the Chairman, Mr Trevor Keen explained the background to the New Territories Land Exchange Entitlements (Redemption) Bill (the Bill). New Territories land exchange entitlements (LEE), commonly known as Letters A/B, were issued between 1960 and 1983 to landowners in the New Territories whose land was required for development. The issuance of Letters A/B was stopped in 1983 because of increasing difficulties in meeting the commitments. The Administration estimated that a total of about 6.75 hectares of entitlements or equivalent building land were outstanding. Over the years, many of the outstanding commitments had been bought up by major property developers. Out of this, 4.68 hectares of equivalent building land, representing about 70% of the total outstanding commitments, were held by four of them. It had always been the Governments intention to redeem all the outstanding Letters A/B as soon as possible. Sufficient land would be made available in the 1996-97 Land Disposal Programme to cover these outstanding commitments. However, the ownership of the remaining 2.07 hectares of building land was likely to be untraceable. It was not feasible for the government to continue to provide land to redeem these residual untraceable commitments which were likely to be held in small packets. The purpose of the Bill was to provide a way to deal with this situation by fixing the value of the remaining Letters A/B at a given date and ensuring that sufficient funds were set aside to enable that value plus interest to be payable on redemption.

4.Members were concerned that the proposal would delink the redemption value from the prevailing land prices. They opined that the existing monetized values for redemption of Letters A/B were already well below market land prices and it was unfair to set the redemption money at the rates based on the monetized values. There had not been any time limit on when the land exchange entitlements would be exercised. The Bill, if enacted, would deprive holders of Letters A/B of the different redemption options currently available. Once the Bill came into operation, holders would be left with no option but cash redemption.

5.In response, representatives of the Administration made the following points -

There were three values relevant to Letters A/B, namely the face value, the monetized value and the value at which they could be traded in the market. The Administration proposed to redeem Letters A/B at the monetized value. The monetized value was chosen because it was based on the average value of land of all types. The monetized value had been established for a long time and was updated twice annually. There had not been any difficulties in the acceptance of the monetized values. Given that there was no obligation for the government to provide a particular type of land, it was fair to draw reference to the monetized values which should reflect the updated land prices.
The Administration considered it reasonable to delink the redemption values from land prices. If the redemption values were to continue to be linked with land values, the liability on public funds would be contingent upon the fluctuation in market land prices and could not be assessed. It was only through fixing the monetized values at a specified date that the financial liability could be known and sensible financial planning could be achieved.
In the past, very few Letters A/B holders accepted cash redemption because Letters A/B were being traded at much higher prices. However, a lot of Letters A/B had been redeemed in lieu of cash in land transactions under the monetized scheme. Records showed that the surrender values in 1985-86, 1990-91 and 1995-96 were $758 million, $465 million and $3 million respectively.
Holders of Letters A/B had been given the option to surrender their entitlements in exchange for land for many years. They would be given a final opportunity within the current year. The Administration did not seek to extinguish the rights of Letters A/B holders but only sought to replace the existing arrangements for redemption, which were no longer practicable. The Bill did not breach the Bill of Rights. Under the Bill, there was no time limit on redemption. Any redemption money payable should bear interest from the commencement date of the proposed legislation until the date of payment.

The Administration had been planning to wind up the LEE system some five years ago but was unable to do so because developers were reluctant to surrender their Letters A/B in view of the rising land prices. The Chinese side was kept informed of the progress of redemption, but there had not been any pressure from the Chinese side to speed up the process. Nor was there negotiation with the Joint Liaison Group on the present proposal. The Administration considered it an opportune time to draw a line under the issue and hence initiated the Bill. At members request, the Administration would provide information on the formula for arriving at the monetized values and give a comparison between the face values, the monetized values and the trading values of Letters A/B.

Admin

6. As to the financial implication of the proposal, Mr Keen estimated that encashment of the remaining 2.07 hectares of entitlements would cost around $2 billion. The exact values would depend on the amount of equivalent building land still outstanding, and the updated monetized values. Mr Keen stressed that the Bill was 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 would be redeemed through the provision of land under the 1996-97 Land Disposal Programme. Negotiations with the developers were underway and it was expected that by the time the legislation was enacted, the outstanding commitments of 4.68 hectares of entitlements held by the four developers would have been dealt with.

7.A member expressed concern about the effect of the Bill by which the government unilaterally altered the terms of contracts by legislative means and queried whether there were any precedent cases of a similar nature. MrKeen said that the Administration would not resort lightly to use legislative means to modify contractual obligations. There were practical reasons for doing this in the present case. As to whether there were precedent cases, Mr Keen said that changes in development density rules under the Town Planning Ordinance (Cap. 131) modified land grants. MsSherman CHAN stated that there were cases where land acquisition for major infrastructure projects necessitated the variation of the terms of granted Crown leases.

8. On the likely consequences if the Bill was not enacted, MrKeen stated that this would lead to a standstill because it was not practicable to continue to make land available for redemption. Holders of Letters A/B might be left with no option but to surrender their Letters A/B at face value which would be unfair.

9.Some members were concerned that holders of Letters A/B might not have sufficient time to consolidate their holdings for the purpose of exchanging land before the enactment of the legislation. A member suggested that holders should be allowed some time, say three to five years, to consolidate their holdings. Mr Keen stated that a public tender exercise would be conducted within the current year. The tender exercise would be advertised both in Hong Kong and overseas and the consequences of missing it would be clearly spelt out. The Administration had yet to decide on the commencement date of the Bill on and after which different methods of redemption would no longer be available. The Administration would consider the suggestion to provide a longer lead period before the Bill came into effect.

Admin

Clause 3

10.On the need for the clause, Mr Keen explained that the inclusion of it was to avoid any confusion or challenge that might arise in other land transactions.

Clause 7

11.Members questioned the reasons for specifying the redemption money and interest be paid out of the Capital Works Reserve Fund. They were concerned that changes in capital accounting would affect the availability of funds. Mr Keen agreed to seek clarifications from the Finance Branch on the need to designate a separate fund for redemption purposes.

Admin

Clause 8

12.Mr Keen stated that the provision was to ensure that the ownership of Letters A/B would be verified before redemption money was paid. Where there were doubts about the authenticity of Letters A/B, other evidence of ownership as recorded in the Land Registry would be examined. At members request, the Administration would provide an information paper on the requirements and the current procedures for accepting Letters A/B for redemption.

Admin

13.As there were no legal procedures to establish the ownership of Letters A/B, members were concerned how cases of competing claims would be handled. Members also questioned the need for the indemnity provision in subclause (1)(c). MrKeen and Ms CHAN explained that subclause (1)(c) was intended to protect against double payments and enable the government to seek refund and recover losses from the claimant in case of wrongful payment. At present, where there were competing claims, it was up to the court to decide on the ownership of the Letters. Whereas disputes on land titles could be adjudicated by the Lands Tribunal, disputes over ownership of Letters A/B would need to be resolved by a declaration made by the court. The Bill made no provisions for appeal regarding the claims over Letters A/B because the existing mechanism already addressed this issue.

14.Regarding the indemnity provision, Mr Keen said that indemnities were routinely sought in cases of land resumption. The main difference between redemption of Letters A/B and resumption of land was that the former dealt with entitlements while the latter dealt with physical land. While the procedures for payment were slightly different, in both cases, ownership had to be ascertained before payment was made. The Administration would confirm whether, under the existing practice, holders of Letters A/B were required to execute an indemnity in favour of the Government in case of wrongful payment and whether the Government had ever sought refund from persons to whom payment should not have been made.

Admin

Clause 11

15.Members were concerned about the means for ensuring that the notice served on the claimants would be received. Ms CHAN clarified that the notice provision in clause 11 provided, inter-alia, for service of notice on the claimants who had lodged their claims after the commencement of the egislation. As to the means for locating and tracing holders of Letters A/B prior to the commencement of the legislation, Ms CHAN stated that the Administration would probably resort to administrative means such as advertising and sending letters to the last known addresses of holders.

16.It was agreed that the next meeting would be held on 7 October 1996 at 10:45 a.m.

17.The meeting closed at 12:15 p.m.

LegCo Secretariat

14 October 1996