1 
Cur Adv Vult

2 This is an appeal against a decision of the Valuation Review Board on an appeal against: (a) a decision of the chief assessor in respect of the annual value of a shipyard owned by the respondent owners; and (b) a decision of the Comptroller of Property Tax to recover property tax on the basis of the annual value decided by the chief assessor.

3 With certain exceptions, property tax is payable under the Property Tax Act (Cap 254) on the basis of the annual value of a property assessed by the chief assessor. A valuation list is maintained by him which shows the ownerships and annual values of all taxable properties in Singapore. Section 20(1) of the Act provides that where it appears to the chief assessor that the valuation list is or has become inaccurate in any material particular, he may amend it after notifying the owner of the proposed amendment in manner provided in s 20(2) and hearing any objections from the owner. That includes any inaccuracy in the annual value arising from improvements to a property. On 31 October 1983, the chief assessor issued a notice to the owners under s 20(2) [then s 18(2)] proposing to revise the annual value of the property to $11,852,000 with effect from 1 January 1983 to take account of improvements which had been made to the shipyard. The then existing annual value of the property was $5,658,300, with effect from 16 September 1981.

4 Under s 21(3) of the Act, where improvements have been made to a property and no action is taken to amend the valuation list for the year in which the improvements were completed, the property tax in respect of the property shall be payable from the date of completion of the improvements. The tax is computed on the revised annual value subsequently ascribed to the property in a subsequent valuation list. Under s 22, the Comptroller of Property Tax, after notifying the owner under sub-s (1) and hearing any objections, may recover property tax on the basis of the revised annual value. On 31 October 1983, the Comptroller issued a notice under s 22(1) [then 19A(1)] to the respondent owners proposing to recover property tax for the period 16 February 1982 to 31 December 1982 on the basis of the proposed revised annual value of $11,852,000, treating the improvements attracting the enhanced tax as having been completed on 16 February 1982.

5 The owners, being dissatisfied with the proposed annual value of $11,852,000, appealed to the Board. The Board, at a hearing on 22 February 1991, allowed the appeal and fixed the annual value for the period 16 February 1982 to 31 December 1986 at $9.5m. This figure was arrived at after allowing a 20% discount on the figure determined by the chief assessor, to take into account the depressed state of the shipping industry at the relevant time. The Board also ordered that the recovery of tax by the Comptroller of Property Tax for the period from 16 February 1982 to 31 December 1982 be on the basis of the annual value of $9.5m as determined by the Board. It goes without saying that the property tax payable for the period 1 January 1983 to 31 December 1986 would be based on the $9.5m annual value determined by the Board. At 23% rate of tax, the amount payable per year was $2,725,960.

6 The appellants, being dissatisfied with the Board`s decision, appealed to the High Court under s 35(2) of the Act.

7 The appeal raises the question of the proper application of what is commonly called the contractor`s test as a method of valuation for the purpose of ascertaining the annual value for the purpose of the Act, in particular whether the Board was right in taking into account the depressed state of the shipping industry at the relevant time.

8  The definition of `annual value`

9 Section 2 of the Act defines the annual value of a house, building, land or tenement to mean `the gross amount at which the same can reasonably be expected to be let from year to year, the landlord paying the expenses of repair, insurance, maintenance or upkeep and all taxes.` In the case of a wharf, pier, jetty or landing-stage, `annual value` means `the gross amount at which the same can reasonably be expected to be let from year to year, the tenant paying the expenses of repair, insurance, maintenance or upkeep.` It seems to be common ground that the first part, rather than the second part, of the definition is applicable in the instant case.

10  Assessment of annual value

11 Under both the first and second part of the definition, annual value is what the hypothetical tenant might reasonably be expected to pay by way of rental on a yearly tenancy upon the terms stipulated under the relevant part of the definition.

12 There are various methods of valuation to arrive at the annual value. The most commonly used is what is known as the rental comparison method. It is used as far as possible, as rents negotiated at arms` length have been tested by the supply and demand forces of the market and are the best evidence of value. Where rental comparables are not available, because the property concerned is of a type rarely let, something loosely called the contractor`s basis of valuation is used. It is essentially based on the cost of producing the property, ie cost of the land and cost of construction.

13 Lord Dunedin in Port of London Authority v Assessment Committee of Orsett Union at p 295, put it as follows:

14 The Solicitor General of England in the Lands Tribunal case of Dawkins (valuation officer) v Royal Leamington Spa Council and Warwickshire County Council at p 251 explained the concept thus:

15 The Solicitor-General`s exposition has been described by Lord Denning as the `classic explanation` in Cardiff City Council v Williams .

16 It is common ground between the parties that the contractor`s basis is the appropriate basis for ascertaining the annual value in this case, because there are no or insufficient comparable rental data available.

17  The five stages in the contractor`s basis

18 In Ryde on Rating (13th Ed) at p 518, the learned authors say that in the modern practice of applying the contractor`s basis, it is possible to discern five stages, as follows:

19 The first stage is the estimation of the cost of construction of the building.

20 The second stage is to make deductions from the cost of construction to allow for age, obsolescence and any other factor necessary to arrive at the `effective capital value`.

21 The third stage is to estimate the cost of the land in accordance with the principle of `rebus sic stantibus`.

22 The fourth stage is to apply the market rate or rates at which money can be borrowed or invested to the effective capital value of the building and the land. The result is what it would cost the occupier, in annual terms, to provide the hereditament for himself, rather than to lease it.

23 The fifth stage is to consider whether the result of the fourth stage really represents what the hypothetical tenant would pay for an annual tenancy on the statutory terms, and to make any adjustments necessary to ensure that no higher rent is fixed as the basis of assessment than that which it is believed the owner would really be willing to pay for the occupation of the premises.

24  The chief assessor`s computation

25 The chief assessor, purporting to apply the contractor`s basis, arrived at the proposed annual value of the subject property as follows :

26 As can be seen, the chief assessor arrived at the effective capital value by adding the land value and the cost of the improvements on the land. He then applied what he termed a net rate of 6% pa to the effective capital value. He then added the costs of repairs, maintenance, insurance on the buildings and the property tax to give the `annual value` as defined in the first part of s 2 of the Property Tax Act, which is `the gross amount at which the (property) can reasonably be expected to be let from year to year, the landlord paying the expenses of repairs, insurance, maintenance or upkeep and all taxes`.

27 The owners did not dispute before the Board and do not dispute before me the chief assessor`s computation set out above, including the figures used by the chief assessor for the various components in the computation. What they contend is that after going through the exercise that the chief assessor had done, the valuer should go through the fifth stage mentioned by the authors of Ryde ; he should step back and consider whether what has been arrived at really represents what the hypothetical tenant would pay for an annual tenancy on the statutory terms, and to make any adjustments necessary to ensure that what has been fixed is something that the hypothetical tenant would really be prepared to pay for the occupation of the premises. The owners contend that having regard to the depressed state of the industry, the Board was right to conclude that a hypothetical tenant would not pay the annual value arrived at by the chief assessor as the annual rent for the subject property and that it would be reasonable to make an adjustment of 20%.

28 There was undisputed evidence that the industry was going through a very bad patch in the period 1982 to 1986. Statistics on the gross turnover of the marine industry showed a high of $2,418m in 1981, with steady declines to a low of $651m in 1985, and only a slightly higher $723m in 1986, at the start of the recovery. The Mitsubishi yard, at No 48 Gul Road next door to the subject property, was forced to close in 1985. It had been built at a cost of $67m. The equipment and machinery were sold by public auction and the bulk of the land, held on lease, was surrendered gratis to the Jurong Town Corporation (`JTC`) the lessors. It was re-let, with the drydock, workshops, wharfs and ancillary facilities, to the Far East Livingston Shipbuilding Ltd for three years at an annual rent of $527,269. That part of the land which was not surrendered to the JTC (plot 2716) together with buildings and structures on it was sold and the lease assigned to FELS for $600,000.

29 Another shipyard at No 55 Gul Road belonging to Marathon Letourneau Offshore Pte Ltd was also closed and the land surrendered to the JTC in 1985. The buildings and structures were offered by the JTC for sale by tender in September 1988. They were bought by Singmarine Dockyard & Engineering Pte Ltd for $1,800,000. Singmarine was granted a 25 years` lease of the land at the then prevailing land rental rates.

30 Mr Tan Kim Choon, the owners` expert witness, says that the actual rents charged by the JTC for the dry dock, workshops and wharves, etc on the former Mitsubishi shipyard, and the actual market prices paid for the purchase of the buildings and structures on Mitsubishi`s plot 2216 and those on the former Marathon Letourneau shipyard are the best evidence in the open market of the rental value and the capital value of buildings and structures in shipyards. Mr Tan makes it clear that in referring to these rentals he is not seeking to derive an annual value by the rental comparison method. What he says is that the annual value, whether it be arrived at by the rental comparison method or on the contractor`s basis, at the end of the day must be the annual value as defined by s 2 of the Act, the rent which the hypothetical tenant could reasonably be expected to pay.

31 Rents, Mr Tan says, are determined not by a formula or method of valuation such as the contractor`s basis, but by supply and demand at a specific point in time, which in turn are determined by the earnings and profitability of the industry. Rents and property taxes form a substantial part of a tenant`s costs and if earnings from shipyards keep on falling, then rents of shipyards must fall because existing tenants would try to get out and new ones would be deterred from coming in. It is for this reason that one has to go through the fifth stage mentioned by the authors of Ryde on Rating .

32  The appellants` case

33 The appellants` case, in gist, is that the contractor`s basis for the assessment of annual value is based strictly on the application of an interest rate or rate of return to effective capital value. They say that the only consideration, apart from the addition of the expenses and taxes postulated in the first part of the statutory definition of `annual value`, which applies to this case, is how much it would have cost, in annual terms, for an owner to produce the subject property. Conceptually, Mr Tan Boon Leong, the appellants` witness says, it is not permissible to take into consideration any other factor, including the evidence of rentals of the yards in the vicinity, because the contractor`s basis for valuation is predicated on the fact that there are no rental comparables.

34 Counsel for the appellants contends that if any allowance is to be made for the state of the industry, it should be made in the earlier stages of the exercise, ie in the ascertainment of the effective capital value and in the fixing of the net rate of return or cost of funds of 6%. He also suggests that the state of the industry had in fact been taken into account in the chief assessor`s computation, and it would be double counting to give any further reduction from the resulting annual value arrived at by applying the 6% rate of return or cost of funds.

35  My views

36 I accept the owners` contention that the ultimate object of the exercise is to arrive at the annual rent which a hypothetical tenant would be prepared to pay on a year to year basis in accordance with the definition of `annual value` in s 2 of the Act. What it would cost in annual terms a hypothetical owner to acquire the land and to build a facility he desires does not necessarily represent what a hypothetical tenant could reasonably be expected to pay by way of rent for the occupation of the premises. As Lord Herschell said in London County Council v Churchwardens and O verseers of the P oor of the Parish of Erith & Ors at p 593:

37 This passage from Lord Herschell`s speech is the genesis of the fifth stage postulated by the learned authors of Ryde on Rating , who also say (at p 525, op cit):

38 The learned authors also say, at p 509:

39 It seems to me that the Board was quite right in principle in testing the result of the chief assessor`s computation by looking at it from the point of view of the hypothetical tenant. Mr Tan Kim Choon is perfectly right when he says that rent is determined by supply and demand, and the supply and demand are determined by the health of the particular industry concerned. The appellants` case that in applying the contractor`s test one does not need to consider such a factor, is, with respect, somewhat simplistic. I refer in this connection to what Scott LJ said in Robinson Brothers (Brewers) Ltd v Assessment Committee for the No 7 or Houghton and Chester-le-Street Area of the County of Durham at p 469:

40 I am therefore of the view that in principle it is right for a valuer, when using the contractor`s basis for the assessment of the annual value to have regard for such market conditions as have a bearing on the hypothetical rental value of a property. The validity of this proposition may be tested in this way. In cases where the rental comparison method is used, the primary data are rental values. When the economy, or a particular sector of the economy, is bad, and there is less demand for property of the type under consideration, rental values will be less. The rental comparison method automatically takes into consideration the falling demand via the rental values, and arrives at an annual value for the property according to the statutory definition. Therefore, the state of the market is taken into account. In so far as the contractor`s basis is no more than an alternative method of arriving at annual value, is there any reason why it should not similarly allow for factors that affect demand and value? The answer is obviously no.

41 It seems to me that it does not matter at which stage of the calculation such factors are taken into consideration, so long as they are taken into consideration.

42 The appellants` counsel suggested that the state of the industry had in fact been taken into account in the working out of the effective capital value and in the 6% net rate of return or costs of funds. I must say that this has not been shown to be the case. All that the appellant`s witness has said is that the annual value of $11,852,000 is conservative because the land value used was based on land values in 1978, which were lower than those in 1983 and 1986. As for the cost attributed to the buildings and the marine facilities, he says that this should normally be based on how much it would cost to build them in 1983, allowing for obsolescence and building material price changes. However, that would yield a figure of $123.6m, higher than what it had actually cost the owners to build. So in favour of the owners, the historical cost, ie the cost actually incurred by the owners, was used. That was $21.6m for buildings and $97.2m for the marine facilities, as shown in the chief assessor`s computation.

43 It seems clear that, contrary to counsel`s submission, no account at all was taken of the state of the marine industry in this part of the exercise.

44 As for the 6% rate, it seems to be no more than a conventional rate adopted for use generally in all cases where the contractor`s test is employed. It has not been suggested that the rate is adjusted, or was adjusted in this case, to take account of the state of the industry so far as that has an effect on the rental reasonably realizable from a hypothetical tenant.

45 Finally, the appellants` counsel points out that under the Act the valuation list is prepared from year to year. The annual values included in the list are based on the circumstances prevailing at the time the list is prepared. The owners` own evidence shows that the shipping industry was doing much better in the earlier years of the period 1982 to 1986 than in the later years. It is not permissible to determine the annual value for 1982 and 1983 by reference to the state of the industry in 1986. Appellants` counsel puts it graphically when he says that one cannot determine the annual value for 1982 and 1983 by putting on the spectacles of 1986.

46 I think the short answer is that since the decline in the industry had already started in 1982 and was on a steep downward slide to the trough of 1985-1986, there is no justification for thinking that anyone could have formed anything like an optimistic view of the industry even in 1982 or 1983.

47  Conclusion

48 On my view of the matter, therefore, the Board was right in taking into account the state of the industry in so far as that had any effect on the demand for the property in question and the notional rental achievable from the hypothetical tenant.

49 The Board accepted Mr Tan Kim Choon`s suggestion of a 20% allowance based on a 40% decline in the turnover of the marine industry from 1982 to 1986. In so far as the issue of this appeal has been reduced to the question whether the 20% allowance is fair and reasonable, it is obviously not a question of law; it is more a question of fact. Section 35(2) of the Act allows an appeal by the chief assessor or the Comptroller from a decision of the Board only upon a question of law or a question of mixed law and fact. I do not think it is the task of this court to say how much should be allowed or to substitute another figure for that accepted by the Board. On my view of the matter, the appeal fails on its merits as well as on jurisdictional grounds. I would dismiss it with costs.

50  Interest

51 Under s 22(5) of the Act, when an owner of property appeals against the Comptroller`s proposal to recover tax pursuant to s 21, he has to pay tax to account according to the proposed annual value. Under s 33(3), where the tax payable in accordance with the annual value determined by the Board is less than what has been paid to account, the Board may direct the Comptroller to refund the difference and to pay interest at the rate of 6% pa on the difference. The question of refund of the excess tax paid and the interest was not dealt with by the Board when it allowed the owners` appeal. The owners now ask that the Comptroller refund the excess tax paid together with interest at the rate prescribed in s 33(3). The appellants say that as the Board did not deal with the question of interest, and the owners have not appealed against the Board`s decision, no interest should be awarded, although he no doubt would concede that the excess tax itself should be refunded.

52 The provisions for appeals to this court are contained in s 35 of the Act, and the procedural provisions of O 55 of the Rules of Supreme Court 1990 (appeals from courts, tribunals and persons) apply. There are no provisions requiring the filing of a cross-appeal or anything akin to a respondent`s notice such as in an appeal from the High Court to the Court of Appeal.

53 Section 35(5) of the Act, however, does give this court the power, on the hearing of an appeal, to confirm, vary or rescind any order made by the Board.

54 It seems to me that under the general provisions of s 35(5), I have the power to do anything which the Board ought to have done, consequential upon the determination of the issues submitted to it. On this basis, I order that the Comptroller refund any excess tax paid by the respondents together with interest at the rate of 6% pa from the date or dates when such excess tax was paid.

55  Appeal dismissed.