Top court rules for Hongkong Electric on rates
The Court of Final Appeal handed a major victory to Hongkong Electric yesterday. The top judges unanimously ruled that government rates did not have to be paid on properties under construction.
The court overturned a Court of Appeal decision that Hongkong Electric had to pay rates for the year 2004 on 22 hectares of land intended for a power plant on Lamma Island, as well as on its frequently shifting infrastructure, including 5,000 kilometres of cables around Hong Kong. The rates will be recalculated by the Lands Tribunal.
Rates are government taxes on properties, calculated as a percentage of its hypothetical rental value - even if the property is not intended for rent. That calculation is a property's 'rateable value', which also affects how much government rent can be charged for buildings on a government lease.
The issue of 'assets under construction' formed part of a judgment on how Hongkong Electric's rateable value could be calculated, with the court restoring an earlier Lands Tribunal judgment.
Determining a property's potential rent means considering a hypothetical landlord and hypothetical tenant, and their bargaining power. 'Some ... judgment must ultimately be made as to what rent these hypothetical parties would agree,' said Mr Justice Henry Litton, giving the court's judgment.
Each side used different measures to determine the cut of the company's profits to which a hypothetical tenant was entitled, with the remainder to be paid in hypothetical rent.
Hongkong Electric used 'average net fixed assets' - a measure of the company's assets under the scheme of control used to regulate it as a public utility monopoly. The Commissioner of Rating and Valuation used the 'weighted average cost of capital' - a measure of the return on investment that an individual would find acceptable. The Commissioner said Hongkong Electric's rateable value was HK$5.68 billion whereas the Lands Tribunal decided it was HK$3.95 billion.
The case was heard by Mr Justice Geoffrey Ma Tao-li, Mr Justice Kemal Bokhary, Mr Justice Roberto Ribeiro, Mr Justice Litton and Lord Justice Millett.
A Hongkong Electric spokeswoman said the company welcomed the ruling.