We announced the implementation framework of the Pilot Scheme for Arbitration on Land Premium (the Pilot Scheme) and briefed Members of the Legislative Council in July. The Pilot Scheme aims to facilitate early agreement on land premium payable for lease modification/land exchange applications, with the objective of expediting land supply for housing and other uses. As arbitration on land premium is a completely new initiative and public revenue is involved, the Pilot Scheme will be implemented starting now for a trial period of two years, to be followed by a review of its effectiveness in the light of accumulated experience.
Lease modification/land exchange is a private contractual matter between the land owner and the Lands Department (LandsD), which can be concluded only by mutual agreement. The amount of premium payable by an applicant for lease modification/land exchange is one of the key terms of any such contract. Under the existing arrangement, there are no limits on the number of appeals that an applicant can lodge against the premium amount assessed by the LandsD. Neither party can compel the other to accept its position on the premium. The disagreement could therefore continue indefinitely, without any conclusion being reached.
Arbitration is a consensual dispute resolution process where the parties agree to submit their disputes to an Arbitral Tribunal for resolution, the award of which is final and binding. If the land owner and the Government agree to settle premium disputes by way of arbitration and complete the lease modification/land exchange on the basis of a fair and impartial arbitral award, it will help expedite land supply for housing and other uses in the short to medium term, bringing benefits to the community as a whole.
The introduction of the Pilot Scheme was first put forward in the Policy Address this year. Relevant departments (including the LandsD and the Department of Justice) have worked together since the beginning of this year to formulate implementation details and consult relevant stakeholders (including professional bodies). They have now finalised the implementation framework of the Pilot Scheme.
The implementation framework is summarised as follows:
(1) The scope of the Pilot Scheme should be confined to the amount of premium. Issues other than the premium amount are not subject to arbitration.
(2) The Arbitral Tribunal will comprise three arbitrators, in line with the international trend of arbitration. The arrangement will enhance the impartiality and credibility of the Arbitral Tribunal and avoid over-domination by a single arbitrator. All three arbitrators will carry the same weight in deciding the arbitral award. The Chairman of the Arbitral Tribunal will be a legal professional and the other two members will be professional surveyors.
The Chairman, who should have a robust legal background, may be a retired judge, barrister or solicitor with at least 10 years of post-qualification experience. Familiar with the relevant laws, the Chairman would ensure that the procedural steps are scrupulously observed by the Tribunal. As regards the other two members of the Tribunal, they should be professional surveyors who are familiar with land and valuation matters in the context of Hong Kong.
(3) The arbitrators for each arbitration case will be mutually agreed and appointed by both parties to the arbitration to ensure the impartiality of the Arbitral Tribunal. The Chairman of the Tribunal will be nominated and agreed by the Government and the Applicant. As regards the other two members, the Government and the applicant will each nominate one professional surveyor, who will be appointed subject to the other party’s agreement.
(4) The arbitrators will be required to make a written declaration (on a standard form), and in so doing disclose any circumstances likely to give rise to justifiable doubts as to their impartiality or independence and confirm their ongoing duty of disclosure during the arbitration process. The arbitrators will also be required to declare that they have not solicited or accepted any advantage, and undertake that they will not so solicit or accept, any advantage as defined under the Prevention of Bribery Ordinance in connection with the arbitration case in question. In addition, the declaration will make reference to the relevant statutory provisions in the Arbitration Ordinance and to the International Bar Association Guidelines on Conflict of Interest in International Arbitration. Provisions have been included in the Arbitration Agreement and the arbitrators’ written declarations to prevent collusion and safeguard the confidentiality of the arbitral proceedings.
(5) To ensure that arbitration would indeed lead to additional land supply, we will put in place measures that would deter the applicant from “walking away” during the arbitration proceedings or after receiving the arbitral award. For instance, we will require the applicant to pay the Government 15 per cent of the premium last assessed by the Government as a deposit and impose restrictions on alienation of the subject lot and on transfer of shareholding (in case the applicant is a company) until execution of the lease modification/land exchange documents in accordance with the Arbitration Agreement.
The negotiation process in lease modification/land exchange applications, including premium negotiations, has always been a private contractual matter between the Applicant and the LandsD. The arbitration procedure is essentially an extension and enhancement of the existing private contractual process. Given that arbitration is normally conducted in private and is generally confidential, the Pilot Scheme will follow the practice of keeping the arbitral proceedings confidential. The amount of premium charged on the basis of the arbitral award will nonetheless be disclosed through the usual registration of the lease modification/land exchange documents in the Land Registry. We will also reserve our right to disclose for public information the cases put to arbitration and the arbitrators appointed.
As arbitration on land premium is a new approach and can proceed only with the mutual agreement of the applicant and the Government, we cannot at this stage estimate the number of cases in these two years. The LandsD will adopt certain criteria in prioritising cases, such as according higher priority to “high yield” cases in terms of net increase in flat number or net gain in non-residential gross floor area, cases with a wider premium gap, and cases with fewer issues in dispute or with relatively straightforward disputes.
We understand that some Members of the Legislative Council have expressed concern over the introduction of the Pilot Scheme because they are concerned about the potential risk of corruption. In view of such concerns, the Government has paid special attention to anti-corruption provisions and exercised due caution in formulating the implementation framework of the Pilot Scheme. A number of anti-corruption measures (including those described in items (2), (3) and (4)) have been put in place. To safeguard the interest of the Government, any misconduct of an arbitrator in handling an arbitration case will be addressed under applicable legislation and the relevant arbitration agreements. We have sought the professional advice of the Independent Commission Against Corruption (ICAC) in working out the anti-corruption measures for the Pilot Scheme, and we will continue to consult the ICAC on the detailed procedures and improvement measures in the light of experience as the Scheme is taken forward.
Arbitration has been successfully applied in various fields as a mechanism to resolve disputes. The Government will review the Pilot Scheme after a trial period of two years and will decide, in the light of experience, whether the arbitration mechanism should continue and if so, how it may be applied on a broader scale. During the trial period, the Government may adjust the implementation details in the light of practical experience.
26 October, 2014
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