CY Leung policy address 2014

CY scheme to shorten land premium negotiations is open to graft, lawyer says

Arbitration aimed at saving time in land premium negotiations would not be binding and would invite corruption, arbitrator and surveyor warns

PUBLISHED : Monday, 27 January, 2014, 4:30am
UPDATED : Wednesday, 29 January, 2014, 1:44pm

An arbitrator and a surveyor has cast doubt on a pilot scheme to bring arbitrators into negotiations over the premiums developers must pay to rezone land.

The scheme was announced by Chief Executive Leung Chun-ying in his policy address earlier this month, with the aim of shortening land premium negotiations - during which a developer can sit on land set aside for redevelopment for years.

Research by the Post shows a significant drop in the number of such redevelopment cases - involving lease modifications or land exchanges - over the past decade, from more than 60 in 2003 to about 20 last year.

According to officials, instead of waiting for a developer to accept a proposed premium, the government would invite an independent arbitrator or surveyor to suggest an amount that would satisfy both sides. But developers would have to consent to using an arbitrator.

The idea has been challenged by Daniel Lam Chun, a former chairman of the Hong Kong Institute of Arbitrators and a council member at the Hong Kong International Arbitration Centre.

He said it was wrong to label the scheme arbitration and warned the process could be open to corruption.

"Arbitration cannot be applied in this case as disagreement over the amount of land premium is not based on any contract or agreement," Lam said. "You can only call it an expert's determination, which is far less effective and reliable."

Under normal arbitration, a lawyer is requested to make decisions based on laws. His decision, known as an award, has the same standing as a High Court judgment and is binding.

"A price suggested by an expert is far less enforceable," said Lam, a former adviser to the government on land issues and a non-executive director of the Urban Renewal Authority.

Such a non-binding decision could become a problem if property prices dipped, Lam said.

"Can they ignore the suggested price when there's a sudden fall in property prices?' he said. "Does the expert or the government have the power to enforce the decision reached earlier?"

Although the Real Estate Developers Association and one of its highest-profile members, Sun Hung Kai Properties, have welcomed the scheme, Lam said it would become less attractive to developers if the resulting decisions were binding, given fluctuations in the property market.

He also warned that there were fewer than 10 arbitrators in the city who were qualified valuation surveyors or had experience dealing with land premiums.

"This means experts making decisions involving billions of dollars would be exposed to all sorts of corruption. They would be working under great temptation and pressure," Lam said.

Hong Kong International Arbitration Centre chairwoman Teresa Cheng, who is advising officials on the scheme, said the government and developers must come to a written agreement if the scheme was to be workable legally and practically.