20 May 2008

Judgment reserved.

Andrew Phang Boon Leong JA (delivering the judgment of the majority):

Introduction

1          The present appeal raises extremely interesting – albeit difficult – issues of interpretation and application in the context of the Property Tax Act (Cap 254, 2005 Rev Ed) (“the Act”).

The facts

2          The facts are undisputed and straightforward. The appellant, Pan United Marine Ltd, is the owner of a shipyard and a concrete batching plant located at 33 Tuas Crescent (“the Property”). The Property comprises five plots of land leased from Jurong Town Corporation (“JTC”) with an aggregate site area of 112,630m² and a water frontage of 359m at Tuas Bay. Three plots of land on which the Property sits were leased in 1982; the remaining two plots of land were leased in 1991 and 1993 respectively. All leases will expire simultaneously on 29 February 2012. Except for one plot of land, for which a lump sum premium was paid upfront, all the other lots were leased on annual land rents. Water frontage fees were also payable to JTC.

3          The Chief Assessor, the respondent in this appeal, had assessed the annual value of the Property under the Act to be $4,586,000 with effect from 1 January 2001. In his assessment, the respondent had adopted the “contractor’s test” method in determining the annual value of the Property under the Act and had sought to include, inter alia, the cost of three floating dry docks which were berthed above the seabed adjacent to the Property.

4          The three floating dry docks in question are afloat in Tuas Bay. The appellant has a temporary occupation licence (“TOL”) to use the seabed for the purpose of keeping the floating dry docks afloat in Tuas Bay. One of the docks was commissioned around 1987 (“the 1987 dock”); the other two were commissioned around 1992 and 1997 respectively.

5          The floating dry docks are hinged to pile-like structures which are permanently fixed to the seabed. The 1987 dock is held in place by means of anchor and anchor chains, and the remaining two docks are held by clamping collars to mooring pins. The floating dry docks are capable of being removed, towed away and reinstated, whether for a short or a long distance. The 1987 dock was moved several times for the purpose of repair as well as for getting it out of the way of vessels’ launch paths. The other two docks were not moved, although they could be moved, if required. An older dock which was used before the 1987 dock was towed away to Batam in 1993, and another dock built by the appellant in 1992 was towed to India to its buyer.

6          The floating dry docks are connected to the Property by a ramp, similar to a bridge. The ramp permits workers, material and machinery to get to the floating docks via the Property. Aside from the ramp, the floating docks are not connected to the Property.

7          It would be helpful at this juncture to set out briefly how a floating dry dock and a conventional dry dock (commonly referred to as a basin, or graving, dry dock) operate. For the floating dry dock, water is pumped into tanks of the dock so as to make it submerge in water. The ship is subsequently led in directly above the dock. Water is then pumped out to allow the dock to gradually resurface, thus lifting the ship above the water. A basin dry dock, on the other hand, uses a gate to control the water. The gate is first released to allow water to cover the dock, and the ship is led in. The gate is then closed and water is pumped out so that the ship will rest on the dock and above the water level. Notably, in the present appeal, the appellant did not own or utilise any basin dry docks.

8          Both floating dry docks and basin dry docks are used for ship repair, maintenance, as well as other work, but the former will float on water while the latter are excavated into land. Unlike a basin dry dock, a floating dry dock is cheaper and can be moved away when needed elsewhere. However, a floating dry dock cannot take bigger vessels, as it will not be able to support the weight of such ships properly. As such, basin dry docks are used for bigger ships.

The proceedings below

9          The appellant appealed at first instance to the Valuation Review Board (“the Board”) against the respondent’s assessment of the annual value of the Property. The appellant disputed, inter alia, the inclusion of the three floating docks in the assessment of the annual value. The appeal was heard by the Board in October 2004. The Board reserved judgment and, on 16 November 2004, the Board dismissed the appeal and confirmed the annual value of $4,586,000 proposed by the respondent (see Pan United Shipyard Pte Ltd v Chief Assessor [2006] SGVRB 1).

10        Dissatisfied with the Board’s decision on the issue of including the floating docks as being assessable to property tax, the appellant further appealed to the High Court. The High Court heard the appeal on 2 November 2006 and reserved judgment. On 8 February 2007, the High Court judge (“the Judge”) dismissed the appeal and delivered his grounds of decision (see Pan United Marine Ltd v Chief Assessor [2007] 2 SLR 633 (“the GD”)).

11        In essence, the Judge found, inter alia, that:

(a)        the floating docks fell within the definition of “buildings” under s 2(1) of the Act and were therefore liable to the charge of property tax under s 6(1) of the Act;

(b)        the floating docks were to be assessed as part of the shipyard land; and

(c)        the floating docks were not “machinery” within the meaning of s 2(2) of the Act.

Issues on appeal

12        The issues that arise in this appeal were identical to the issues raised before the Board and the Judge. In essence, the pith and marrow of the appeal was whether the three floating docks ought to be included in the assessment of the annual value of the Property. This question turned on the following three issues:

(a)        Are the floating dry docks “buildings” within the meaning of s 2(1) of the Act?

(b)        Are the floating dry docks part of the land for the purposes of the Act?

(c)        Are the floating dry docks “machinery” within the meaning of s 2(2) of the Act?

Are the floating dry docks “buildings” within the meaning of section 2(1) of the Act?

13        Before discussing the substantive issues at hand, we wish to make one observation. Although the appellant is merely the lessee of the Property, it is nonetheless deemed to be the owner thereof by virtue of s 2(8) of the Act which reads as follows (cf also the Singapore Valuation Review Board decision of McAlister Developments Ltd v Chief Assessor [1969] 1 MLJ xlv at xlix):

In assessing the annual value of any property comprised in … a lease of property by a public authority [in this case, JTC] for a period exceeding 3 years —

(a)        the grantee or lessee of the property shall be deemed to be the owner thereof;

…

14        The first issue stems from s 6(1) of the Act, which is the charging provision for the imposition of property tax. Section 6(1) of the Act reads as follows:

Charge of property tax

6.—(1) As from 1st January 1961, a property tax shall, subject to the provisions of this Act, be payable at the rate or rates specified in this Act for each year upon the annual value of all houses, buildings, lands and tenements whatsoever included in the Valuation List and amended from time to time in accordance with the provisions of this Act.

[emphasis added]

Accordingly, the floating dry docks must fall within “houses, buildings, lands or tenements” [emphasis added] in order for them to be included for the purposes of assessment to property tax.

15        The term “building” is defined in s 2(1) of the Act, as follows:

“building” means any structure erected on land and includes any house, hut, shed or similar roofed enclosure, whether used for the purposes of human habitation or otherwise, any slip, dock, wharf, pier, jetty, landing-stage, underground or overground tank for the storage of solids, liquids or gases, and any oil refinery; …

[emphasis added in italics and bold italics]

16        The emphasis in the above definition illustrates what is, in our view, an extremely important point: Although perhaps a little infelicitously phrased, the definition of “building” comprises two main parts, the second part of which comprises, in turn, two sub-parts, which are identified by italics and bold italics, respectively. Indeed, the Singapore Valuation Review Board, in Yat Yuen Hong Co Pte Ltd v Chief Assessor [1959-1986] SPTC 135 (“Yat Yuen Hong”), refers to three separate parts, but, for reasons that will be apparent in a moment, the latter two parts which the Board refers to correspond to the aforementioned two sub-parts which, taken together, actually comprise one integral whole – thus resulting in two main parts as just mentioned. That this demarcation exists is clear from the relevant legislative history.

17        There had, in fact, been no definition of “building” in the Act when it was first promulgated in 1960 as the Property Tax Ordinance (Ord 72 of 1960). The definition was inserted later by s 2(b) of the Property Tax (Amendment) Act 1965 (Act 24 of 1965). The definition then was a little different from that which exists in the Act at present, and read as follows (with the additional words that are now not present in the Act highlighted in italics):

“building” means any structure erected on land and includes any house, hut, shed or similar roofed enclosure, whether used for the purposes of human habitation or otherwise, and includes any slip, dock, wharf, pier, jetty, landing-stage, underground or overground tank for the storage of solids, liquids or gases, and any oil refinery; … [emphasis added]

18        It will immediately be seen that the definition, in its original form (as set out in the preceding paragraph), supports our view that the definition of “building” in the Act comprises two main parts (with the second main part comprising two sub-parts). The first main part is the general definition where a “building” is clearly stated to “mean” “any structure erected on land”. There follows the second main part, which is represented by the words in italics and bold italics at [15] above. As we mentioned, the words in italics represent the commencement of the first sub-part (of this second main part), whilst the words in bold italics represent the commencement of the second sub-part (of this second main part). As we shall see, the second main part deals with specific structures. That there are two sub-parts is supported by the inclusion of the phrase “and includes” twice in the definition itself (see also Yat Yuen Hong). It is true that the phrase “and includes” (when it occurs a second time) is no longer present, but that is (as we explain below at [28]–[30]) probably due to a grammatical as well as a functional reason, and does not detract from the interpretation adopted in the present appeal. As already mentioned, this interpretation is also supported by the legislative history of the definition of “building”, to which we now turn.

19        The rationale for this amendment is to be found, first, in the explanatory note to the Property Tax (Amendment) Bill (Bill 50 of 1965) (“the 1965 Bill”), as follows:

[A] new definition of “building” is to be included to remove doubts as to whether certain structures will be liable to the payment of property tax under the Ordinance. [emphasis added]

20        Second, the following observations by the then Minister for Finance, Mr Lim Kim San, during the second reading of the 1965 Bill should also be noted (see Singapore Parliamentary Debates, Official Report (30 December 1965) vol 24 at col 774):

There is no definition of “building” in the Ordinance at the present time, and one of the amendments made by clause 2 is the inclusion of a definition. This, apart from its usefulness in regard to buildings and structures generally, specifically provides for the inclusion of items like underground and overground tanks and oil refineries. [emphasis added]

21        The observations set out in the preceding paragraph are not only consistent with the relevant part of the explanatory note (set out above at [19]) but also elaborate upon it in important respects. In particular, it is clear that the (then) new definition of “building” was introduced in the Act for two distinct purposes.

22        The first was to set out a general definition of a “building” as well as to reiterate (by way of specific elaboration) the paradigm examples of a “building”. As the Minister confirmed, one purpose of the definition lay in “its usefulness in regard to buildings and structures generally” [emphasis added] (see [20] above). And this purpose is encompassed in the first main part (which refers to a “building” as meaning “any structure erected on land”), which comprises the general definition of a “building” within the meaning of the Act. What follows is an elaboration of specific (and typical or paradigm) examples of a “building”, which is further encompassed within what we have characterised as the first sub-part of the second main part of the present definition, as encompassed within the following words:

… and includes any house, hut, shed or similar roofed enclosure, whether used for the purposes of human habitation or otherwise …

23        The second purpose of the (then) new definition was to extend the definition of a “building” to encompass structures that would not be traditionally considered to be “buildings”. In so far as this particular category of structures is concerned, the focus (at the time the (then) new definition of “building” was introduced) was, as the Minister himself observed, on “the inclusion of items like underground and overground tanks and oil refineries” [emphasis added] (see [20] above). However, the word “like” clearly demonstrates that the items mentioned are not exhaustive, although they do (as we have just noted) constitute the main examples. Indeed, this is evident from the relevant statutory language itself, as embodied within the second sub-part of the second main part, and which is encompassed within the following words:

… any slip, dock, wharf, pier, jetty, landing-stage, underground or overground tank for the storage of solids, liquids or gases, and any oil refinery …

24        In summary:

(a)        The definition of “building” in the Act has two main parts.

(b)        The first main part comprises a general definition of a “building” as being “any structure erected on land”.

(c)        The second main part has two sub-parts, each of which has slightly different functions, although both sub-parts have a common thread inasmuch as they focus on specific structures (unlike the first main part which, as we have seen (at [24(b)] above) is a general definition).

(d)        The first sub-part of the second main part elaborates upon the first main part by way of specific (and traditional) examples (and is encompassed within the words “and includes any house, hut, shed or similar roofed enclosure, whether used for the purposes of human habitation or otherwise”).

(e)        The second sub-part of the second main part has a somewhat different function from the first sub-part. It is intended to extend the definition of “building”.

25        Such an approach is also not only consistent with, but is (in many ways) buttressed by, the approach adopted by the Singapore High Court in the leading decision of Chief Assessor & Comptroller of Property Tax v Van Ommeren Terminal (S) Pte Ltd [1993] 3 SLR 489 (“Van Ommeren”) (where the legislative history was also referred to briefly). In that case, Chao Hick Tin J was of the view that the definition of “building” in s 2(1) of the Act was not confined only to structures erected on land. The learned judge observed thus (at 492, [11]–[13]):

It is an established canon of construction that when the word ‘means’ is used in a definition that definition is intended to be exhaustive. It is different if the word ‘include’ is used. …

…

However, in the definition now under consideration, the legislature has used the words ‘means … and includes’. How should one approach such a definition? In my opinion a plain reading of that definition is surely this. The legislature has defined the word ‘building’ to bear the ordinary sense of ‘any structure erected on land’. But it has also expanded the meaning of that word to encompass those items enumerated after the words ‘and includes’ irrespective of whether those items are structures erected on land. It will be noted that the legislature has used the words ‘and includes’ twice in the definition. With respect, I am unable to agree with the Board that the things enumerated after the words ‘and includes’ are merely examples of structures erected on land. For instance, a pier or jetty is not a structure erected on land. It is a structure erected over the sea or water. Similarly, I do not see how one could appropriately say that an underground tank is a structure erected on land. Indeed, most of the items listed are not items one would ordinarily think of as buildings.

[emphasis added]

26        Indeed, the approach adopted by this court (as summarised at [24] above) may in fact be seen as a slight elaboration of the perceptive analysis contained in the judgment of Chao J in Van Ommeren (the main part of which has been set out in the preceding paragraph).

27        A little side note might be relevant at this juncture. As we have noted above (at [18]), the phrase “and includes” appeared twice in the original version of the definition of the “building” in s 2(1) of the Act. However, it appears only once in the present definition (corresponding to the first time it appeared in the original version). There appears to be no clear explanation for the deletion of this phrase. We would, in this regard, venture one possible explanation and (if that explanation is accepted) one possible (and, more importantly, curious) result.

28        The possible explanation is grammatical in nature. It might have been thought that it sufficed to include the phrase “and includes” only once, right at the beginning of what we have termed the first sub-part of the second main part. It might, correspondingly, have been thought that the inclusion of that phrase twice imported a grammatical awkwardness. However, the present version of the definition of “building” in s 2(1) of the Act does raise a possible (and curious, albeit non-substantive) result.

29        In the original version of the definition of “building” under the Act, the use of the phrase “and includes” twice served an important function each time inasmuch as each time that phrase was used it assisted in the demarcation of the first sub-part of the second main part and the second sub-part (of the same (second) main part). Now that the phrase appears only once at the beginning of the second main part, there would – grammatically speaking – appear to be three sub-parts in the second main part instead. In addition to the two sub-parts already noted, the words at the end of that definition (“and any oil refinery”) – in particular, the word “and” – suggest that oil refineries now constitute a discrete third sub-part. However, it will readily be seen that nothing of substance turns on this, and we therefore say no more about it, save to observe that if the grammatical awkwardness can be ignored (as we argue it should), then we are left with just two sub-parts (instead of three) in so far as the second main part is concerned. This is, of course (and as we have explained in detail above), wholly consistent with the original spirit and intent of the definition when it was first introduced.

30        We wish to add that s 4(1) of the Revised Edition of the Laws Act (Cap 275, 1995 Rev Ed) (“RELA”) sets out the powers of the Law Revision Commissioners in the preparation of the revised editions of all Acts of Parliament in Singapore. The salient portions of s 4(1) of the RELA read as follows:

In the preparation of the revised edition of Acts, the Commissioners shall have power in their discretion —

…

(j)        to alter the form of arrangement of any section of an Act by transposing words, by combining it in whole or in part with another section or other sections or by dividing it into two or more subsections;

…

(l)         to correct grammatical, typographical and similar mistakes in any Act and to make verbal additions, omissions or alterations not affecting the meaning of any Act;

…

(p)        to delete any words, expressions, nomenclature or other provisions in any Act which have expired or become obsolete, including references to repealed Acts, and to substitute therefor, where necessary, appropriate words, expressions, nomenclature or provisions or references to the appropriate Acts;

…

In this regard, it appears that the phrase “and includes” was deleted by the Law Commissioners from the original version of the Act to correct any grammatical awkwardness without changing the original meaning of “building” in the Act. In our judgment, this only confirms our interpretation adopted above that the definition of “building” comprises two main parts (with the second main part comprising two sub-parts) (see above at [16] and [18]).

31        What is relevant (indeed, crucial) in so far as the present appeal is concerned is the meaning of the word “dock” in the definition of “building” in s 2(1) of the Act. More importantly, the word “dock” occurs within what we have described as the second sub-part of the second main part of this particular definition.

32        We have already seen (at [23] above) that the second sub-part of the second main part of the definition of “building” was intended to extend that particular definition. Indeed, as we have also seen (at [20] above), the Legislature did refer expressly to underground or overground tanks for the storage of solids, liquids or gases as well as to oil refineries (which are the last-mentioned items in that sub-part). What, then, about the other structures mentioned in that particular sub-part (viz, “slip”, “wharf”, “pier”, “jetty”, “landing-stage”, and (most importantly, from the perspective of the present appeal) “dock”)? These structures refer, in fact, to structures which are not part of the land in the conventional sense as such; the reference is, specifically, to “any slip, dock, wharf, pier, jetty, landing-stage, underground or overground tank for the storage of liquids or gases, and any oil refinery” [emphasis added]. It is particularly significant, for the purposes of the present appeal, that there is reference to structures such as “slip”, “dock”, “wharf”, “pier”, “jetty” and “landing-stage”.

33        The above interpretation (relating to the two main parts in the definition of “building” in s 2(1) of the Act) is, in fact, buttressed by the definition of “annual value” in (also) s 2(1) of the Act, which reads as follows:

“annual value” —

(a)        in relation to a house or building or land or tenement, not being a wharf, pier, jetty or landing-stage, means 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 (other than goods and services tax); and

(b)        in relation to a wharf, pier, jetty or landing-stage, 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[.]

[emphasis added]

34        It is clear, without more, from the very definition of “annual value” as set out in the preceding paragraph, that there is a distinction between structures that are part of the land in the conventional sense and those that are not.

35        It is appropriate, at this juncture, to consider the meanings commonly attributed to the structures mentioned in the second part of the definition of “building” in s 2(1) of the Act by reference to The Concise Oxford Dictionary (Oxford University Press, 10th Ed, 1999), as follows:

“slip”: short for “slipway” [which is defined as] a slope leading into water, used for launching and landing boats and ships or for building and repairing them.

“dock”: an enclosed area of water in a port for the loading, unloading and repair of ships … a group of piers where a ship or boat may moor for loading and unloading [and see the definition of “pier” below].

“wharf”: a level quay-side area to which a ship may be moored to load and unload.

“pier”: “a structure leading out to sea and used as a landing stage for boats or as a place of entertainment.

“jetty”: “a landing stage or small pier … a construction built out into the water to protect a harbour, stretch of coast, or riverbank [and see the definitions of “landing stage” below and of “pier” above].

“landing stage”: a platform on to which passengers or cargo can be landed from a boat.

[emphasis added]

36        The corresponding meanings found in The Oxford English Dictionary (Clarendon Press, 2nd Ed, 1989) are as follows:

“slip”: a. An artificial slope of stone or other solid material, built or made beside a navigable water to serve as a landing-place. b. … An inclined plane, sloping gradually down to the water, on which ships or other vessels are built or repaired.

“slip-way”: A sloping way leading down into the water; a slip.

“dock”: An artificial basin excavated, built round with masonry, and fitted with flood-gates, into which ships are received for purposes of loading and unloading or for repair.

“dry or graving dock”: a narrow basin into which a single vessel is received, and from which the water is then pumped or let out, leaving the vessel dry for the purpose of repair (Sometimes also used for building ships).

“floating dock”: a large floating structure that can be used like a dry dock.

“wharf”: A substantial structure of timber, stone, etc., built along the water’s edge, so that ships may lie alongside for loading and unloading.

“pier”: A solid structure of stone, or of earth faced with piles, extending into the sea or a tidal river to protect or partially enclose a harbour and form a landing-place for vessels; … also, a projecting landing-stage or jetty on the bank of a river or lake … [and see the definitions of “landing-stage” and of “jetty” below].

“jetty”: a. A mole, pier, or the like, constructed at the entrance of a harbour, or running out into the sea or a lake, so as to defend the harbour or coast; a similar structure running into a river so as to divert the current from a threatened part of the bank; an outwork of piles or timber protecting a pier, a starling. b. A projecting part of a wharf; a landing-pier, a timber pier of slight construction [see also the definitions of “wharf” and of “pier” above].

“landing-stage”: A platform, often a floating one, for the landing of passengers and goods from sea-vessels[.]

[emphasis added]

37        The common thread amongst the structures just considered is that each structure, although connected to (and leading out of) the land or property concerned, is (with the possibility of one exception considered later at [38] below) not necessarily part of the land or property concerned but lies (in part or in whole) beyond the physical boundary of the land or property concerned. However, they are, from a purposive and functional perspective, intended to form part of that particular piece of land or property. This is, in fact, an extremely crucial point, which we shall have occasion to return to in the next section of this judgment.

38        It is true that a “dock” might possibly lie within the land or property concerned (this is a “basin dry dock”, briefly referred to at [7]–[8] above, and considered at [71] below), but it could, equally, lie beyond the physical boundary of the land or property as well (this is a “floating dry dock”, which is the type of dock considered in the present appeal). Indeed, given the similar functions of both types of docks just mentioned (which is to facilitate the necessary work with regard to ships and other sea-bound vessels), it would be artificial in the extreme to argue that the word “dock” in the definition of “building” in s 2(1) of the Act should be confined only to “basin dry docks” and excludes “floating dry docks”. Further, it is clear that all the rest of the structures (with, perhaps, the exception of “slip” which involves (according to the definition at [35] and [36] above) some part of that structure being on the land or property itself) mentioned in this particular definition (of “building”) are (as the preceding paragraph clearly demonstrates) structures that lie wholly beyond the physical boundary of the land or property concerned.

39        Indeed, we are also in agreement with the reasoning of the Judge who arrived at the same conclusion by referring, first, to the definition of “dock” (in the maritime sense) in The Oxford English Dictionary (Clarendon Press, 2nd Ed, 1989) vol IV (see also above at [36]), where the reference is to “[a]n artificial basin excavated, built round with masonry, and fitted with flood-gates, into which ships are received for purposes of loading and unloading or for repair”, but where there is also reference to a “floating dock” (see the GD at [11]). The Judge then proceeded to find that a floating dry dock was indeed a subset of “dock” by referring to the definition of the verb “dock” in the same work (“[t]o take, bring, or receive (a ship) into a dock”), and concluded thus (at [12] of the GD):

In my view, the verb is the key. The activity concerned is the bringing of a ship into a dock. There are various types of docks depending on the purpose for which the ship is docked and the business decision of the entity that is performing the activity in furtherance of that purpose. A floating dry dock is just one type of dock. I therefore find that the floating dry docks in issue fall within the term “dock” in the definition of “building” in s 2(1) of the Act.

40        Reference may also be made to the definition of “annual value” set out above at [33], where, significantly perhaps, the terms “slip” and “dock” are not mentioned because, in so far as “docks” are concerned, these can refer to “basin dry docks” as well, and, in so far as “slips” are concerned, we have just noted that some part of that particular structure could be part of the land or property itself. However, it is clear that both “slips” and “docks” can lie beyond the physical boundary of the land or property concerned and – to that extent – are grouped together with other structures in the second sub-part of the second main part of the definition of “building” in s 2(1) of the Act which, as noted at the end of the preceding paragraph, whilst connected with the land or property concerned, lie wholly beyond the physical boundary of the land or property.

41        It suffices, for present purposes, to note that the structures that are the subject matter of the present appeal do, in fact, come, prima facie, under the rubric of a “dock” within the definition of “building” in s 2(1) of the Act. Having regard to the argument from artificiality (at [38] above), it is our view that a “dock” is not confined to a “basin dry dock” and would include a “floating dry dock” as well. In the circumstances, therefore, a “floating dry dock” would clearly fall within the definition of “building” in s 2(1) of the Act.

42        One final point remains. Did it matter that the connection of the floating dry docks to the land was by way of a ramp? In particular, did it matter that such connection was horizontal rather than vertical? In our view, nothing substantive turns on this issue in the context of the specific facts in the present appeal. As we have already noted, sans the floating dry docks, the leases would have been useless to the appellant, given the business it was in. These floating dry docks were clearly annexed to and considered (as well as used) as part of the land. One must look to the substance rather than the form of the situation concerned. Indeed, a concern merely with form leads to arid technicality and consequent artificiality; it also encourages (here) taxpayers to use any and every means to circumvent the spirit of the law whilst ostensibly obeying the letter thereof. As (if not more) importantly, the approach we have advocated is also wholly consistent with the fact that the definition of “building” in s 2(1) of the Act (as we have seen above) includes structures (such as docks, slips, wharves, piers, jetties and landing-stages) whose only clear connection with the land or property concerned is, in point of fact, horizontal rather than vertical.

Are the floating dry docks part of the land for the purposes of the Act?

Introduction

43        Having found that the floating dry docks in the present proceedings fall within the definition of “building” in s 2(1) of the Act, it is, strictly speaking, unnecessary to consider the next issue, viz, whether the floating dry docks – which are positioned outside the physical boundary of the land – are also part of the land itself. This is because as the floating dry docks fall within the definition of “building” in s 2(1) of the Act, they are, in accordance with the terms of s 6(1) of the Act (which encompasses “buildings”), subject to property tax. Further, it would appear rather odd – if not illogical – to characterise a particular structure as a “building” within the meaning of the Act, only to decide that it was not subject to property tax because it did not form part of the land. Put simply, a “building” would, by its very nature and definition, constitute part of the land. If, however, that structure did not constitute a “building” within the meaning of the Act, it could still be subject to property tax if it fell, instead, within the (broader) concept of “lands” within the meaning of s 6(1) of the Act (which, it should be noted, is not defined precisely because it is so broad); in this regard, reference may also be made to Van Ommeren ([25] supra) and the Malaysian High Court decision of The Shell Company of the Federation of Malaya Ltd v Commissioner of the Federal Capital of Kuala Lumpur [1964] MLJ 302 (“The Shell Company”), as well as David Widdicombe, The Hon David Trustram Eve & Anthony Anderson, Ryde on Rating (Butterworth & Co (Publishers) Ltd, 13th Ed, 1976), especially at p 148. It is only at this particular stage that it would need to be ascertained whether or not the structure concerned was part of the land.

44        During the course of the hearing of this appeal, it transpired, in fact, that there were two alternative (and quite different) tests that could be adopted in order to resolve this particular issue. Not surprisingly, perhaps, the appellant advocated one whereas the respondent advocated the other.

The fixture test

45        The first test (“the fixture test”), which was relied on by the appellant and applied by the Judge in the court below, is that embodied in the oft-cited English decision of Holland v Hodgson (1872) LR 7 CP 328 (“Holland”), where Blackburn J, delivering the judgment of the court, observed thus (at 334–335) :

There is no doubt that the general maxim of law is, that what is annexed to the land becomes part of the land; but it is very difficult, if not impossible, to say with precision what constitutes an annexation sufficient for this purpose. It is a question which must depend on the circumstances of each case, and mainly on two circumstances as indicating the intention, viz., the degree of annexation and the object of the annexation. Where the article in question is no further attached to the land, then by its own weight it is generally to be considered a mere chattel; see Wiltshear v. Cottrell [(1853) 1 El & Bl 674; 118 ER 589], and the cases there cited. But even in such a case, if the intention is apparent to make the articles part of the land, they do become part of the land: see D’Eyncourt v. Gregory [(1866) LR 3 Eq 382]. [emphasis added]

Accordingly, the two considerations for determining whether the floating dry docks are fixtures or chattels rested on (a) the degree of annexation; and (b) the object of annexation.

46        In so far as the purpose of annexation is concerned, the following observations by Boreham J in the English High Court decision of Hamp v Bygrave (1983) 266 EG 720 at 724 are apposite:

The second test is: What was the purpose of the annexation? Was it in order to enjoy the chattel as a chattel or was it to improve the freehold in a permanent way? There is, in my judgment, authority for the following propositions: (a) Items which are firmly fixed to the land may yet remain chattels if (1) the purpose of the annexation was to enjoy them as chattels and (2) the degree of annexation was no more than was necessary for that purpose. See Re de Falbe, Ward v Taylor [1901] 1 Ch 523, which was a case concerning valuable tapestries. (b) Articles which are intended to improve, in the sense of being a feature of, the land though their annexation is by no more than their own weight may be regarded as fixtures. See D’Eyncourt v Gregory (1866) LR 3 Eq 382. (c) While the earlier law attached greater importance to the mode and degree of annexation, more recent authorities suggest that the relative importance of these considerations has declined and that the purpose of the annexation is now of first importance. In judging the purpose of the annexation regard must be had to all the circumstances, including the manner of annexation and the intention of the annexor or occupier of the land at the relevant time. See Leigh v Taylor [1902] AC 157. (d) Nevertheless, in the absence of evidence of a contrary intention, the prima facie inference to be drawn from the mode and degree of annexation will not be displaced … [emphasis added]

47        The principles relating to the fixture test are also well-summarised in a leading textbook, as follows (see Kevin Gray & Susan Francis Gray, Elements of Land Law (Oxford University Press, 4th Ed, 2005) at paras 1.71, 1.72 , 1.75, and 1.81 (and the authorities cited therein, including the cases cited in the preceding two paragraphs)):

1.71      The distinction between fixtures and chattels has often been said to turn on two separate but related tests as to the intention of the original owner of an object in bringing it into close association with the realty. As Blackburn J indicated in Holland v Hodgson, these tests relate, first, to the degree or mode of annexation present in the given circumstances and, second, to the general purpose of annexation. The intention of the annexor himself is material only in so far as it can be presumed from either the degree or the overall purpose of the annexation. In reality, however, the differentiation of fixtures and chattels may now depend so heavily upon the circumstances of each individual case that relatively few guidelines remain in the modern law which are capable of unambiguous application to particular facts. Almost the only immutable principle is the idea that some degree of physical connection is necessary before a chattel can be said to have become part of the realty.

1.72      The older of the two traditional tests takes the more primitive form of an enquiry into the degree of the physical attachment between the object and the pre-existing realty. …

1.75      … Modern case law strongly suggests that the relative significance of the degree of annexation has declined and that considerations of purpose are ‘now of first importance’ [citing, inter alia, Hamp v Bygrave]. Generally the tests of degree and purpose coincide in result, but this is not always or necessarily the case. Inferences drawn from the physical mode of annexation may well be overridden by more subtle considerations relating to the objectively understood motivation underlying the annexation in question.

1.81      The contemporary borderline between fixtures and chattels may now be more case-specific and more context-dependent than was once believed.

[emphasis added; emphasis in original in bold italics]

The enhancement test

48        The second test (“the enhancement test”) is also embodied in the English case law – notably, in the House of Lords decision of London County Council v Wilkins [1957] AC 362 (“Wilkins”) and the English Court of Appeal decision of Field Place Caravan Park Ltd v Harding [1966] 2 QB 484 (“Field Place Caravan Park”), as well as in the more recent (also) English Court of Appeal decision of Rudd v Cinderella Rockerfellas Ltd [2003] 1 WLR 2423 (“Rudd”) (reference may also be made to Ryde on Rating ([43] supra) at pp 148–152). Briefly put, pursuant to the enhancement test, if a chattel is enjoyed with the land and enhances its value, it forms part of the land for property tax purposes. More importantly, however, for the purposes of the present appeal, the key issue is whether the enhancement test is not (like the fixture test) only embodied in the English law but is also (and more importantly) considered, in the context of property tax, as being the operative test (the fixture test being consequently held, in this last-mentioned regard, to be irrelevant).

49        A succinct statement of the enhancement test can be found in the judgment of Lord Denning MR in Field Place Caravan Park, where the learned Master of the Rolls observed thus (at 497–498):

Whatever the cases may have said in the past, I think that the law on this subject has been revolutionised or, perhaps I ought to say, made clear, by the decision of the House of Lords in London County Council v. Wilkins. The House considered at length whether a chattel which was placed on land could be a rateable hereditament. The Lord Chancellor, Lord Kilmuir, said: “In my view a chattel to be rateable must be enjoyed with the land on which it rests.” Lord Radcliffe said: “A structure placed upon another person’s land can with it form a rateable hereditament, even though the structure remains in law a chattel and as such the property of the person who placed it there.” Lord Oaksey agreed.

Mr. Albery [lead counsel for the appellants] urged us to hold that Lord Radcliffe was wrong. I am not prepared to do so. If I may respectfully say so, I think he was right. The correct proposition today is that, although a chattel is not a rateable hereditament by itself, nevertheless it may become rateable together with land, if it is placed on a piece of land and enjoyed with it in such circumstances and with such a degree of permanence that the chattel with the land can together be regarded as one unit of occupation.        

50        It is clear, of course, that the enhancement test tends, by its very nature, to have a much wider reach compared to the fixture test (although, depending on the facts of the case concerned, both tests might give rise to the same result (cf, in this regard, Van Ommeren ([25] supra, especially at 496–497, [34])). By its very nature, the enhancement test also does not require the court to find that the structure concerned is in fact part of the land, applying (as it does) to chattels. It is not surprising, therefore, that counsel for the respondent, Mdm Julia Mohamed (“Mdm Julia”), advocated this particular test.

51        The leading local decision is the Singapore High Court decision of Van Ommeren. A principal difficulty lay in the fact that a reading of Van Ommeren could appear to support either of the above tests and, indeed, this particular decision was, in fact, raised by counsel for both parties in the present appeal as supporting their respective positions! However, a close perusal of the decision itself suggests that the court in that particular case was focusing, in substance, on the fixture test (where, inter alia, Holland ([45] supra) was cited).

52        If, in fact, the enhancement test is adopted, it does not (as noted above at [50]) matter whether the floating dry docks were part of the land or not. They would be subject to tax under the Act if it could be demonstrated that they had enhanced the value of the land (the other requirements laid down in the relevant case law (see, for example, Rudd ([48] supra at [44]) having, in our view, also been satisfied, viz: (a) actual occupational possession; (b) occupation or possession which is exclusive; (c) occupation or possession which is of some value or benefit to the occupier or possessor (this particular requirement overlaps with a core characteristic in the enhancement test); and (d) occupation or possession which has a sufficient quality of permanence). At this particular juncture, it should be noted that although the fixture test is quite different, from a literal perspective, it must also be demonstrated that the structures concerned (here, the floating dry docks) did enhance the value of the land. However, this does not mean that the enhancement test and the fixture test are one and the same. For example, a structure may enhance the value of the land concerned, but may nevertheless not be considered to be a fixture. Conversely, a structure may be a fixture, but may not enhance the value of the land. However, in this last-mentioned situation, property tax, whilst theoretically chargeable under the Act, would not be so chargeable (in the practical sphere) simply because there would have been no increase in the annual value of the property concerned. Looked at in this light, it would appear that the fixture test is more stringent than the enhancement test – not only because it (the fixture test) has rather strict requirements (see above at [45]) but also because it appears that, in order for the fixture test to result in chargeable property tax, there must also be enhancement of the value of the property as well. In other words, the fixture test not only incorporates (in substance at least) the enhancement test but also lays down independent criteria of its own. The general issue that arises is whether or not the local legislature intended such a stringent test to apply before property tax could be levied.

Which test should apply?

53        Although interesting arguments were raised by both parties as to which test should apply, it is unnecessary to decide this issue based on the fact situation in the present appeal. As we shall elaborate in a moment, the same result would be arrived at even if it is assumed that the fixture test applies. In the circumstances, we do not propose to rule on this particular issue.

Our decision

54        Turning, then, to the application of the fixture test to the facts in the present appeal, we note that, although the floating dry docks were each attached to the property by only a ramp, the purpose of anchoring these docks where they were was clear beyond peradventure: It was intended that these docks constitute the very pith and marrow of the business conducted by the appellant on the Property. Indeed, without the docks, the lease of the property by the appellant from the JTC would have been an exercise in futility. As the Judge put it (see the GD at [20]):

In the present case the Board observed that the three floating dry docks were integral to the business of ship repair of the appellant. The Board pointed out that, as there were no other docks in the appellant’s shipyard and all ship repairing were carried out on these three floating dry docks, they were essential to the use of the Property as a shipyard and their presence enhanced its value. The Board took the view that, in those circumstances, the floating dry docks were part of the Property and they were properly included in the assessment of annual value. [emphasis added]

55        As we have also seen above (at [42]), it does not matter that these docks were located, strictly and literally, beyond the physical boundary of the property. Put simply, the floating dry docks were clearly intended to be an integral part of the Property – particularly from a functional perspective (see also GD at [22]). It is also important to note that, as we have seen above, as a point of general legal principle, the purpose of annexation is an extremely important factor (indeed, so it appears, even more so than the degree of annexation, as to which, see above at [46]–[47]).

56        It is also significant, in our view, that the functions of a floating dry dock and of a basin dry dock are the same (we elaborate upon this point in more detail below at [71]). And it is equally significant that it is unarguable that a basin dry dock would be clearly considered to be part of the land.

57        We should also add that the fact that the water frontage to which the floating dry docks were anchored onto was also leased by the appellant (together with a TOL granted to it with regard to the seabed) does not affect the conclusion we have arrived at. Indeed, if at all, this particular fact buttresses it. More specifically, it reinforces the conclusion – already arrived at above – to the effect that the floating dry docks are indeed part of the land. And they are, a fortiori, fixtures which have been attached to that land, especially if – as we have already done – we take into account the purpose of anchoring these docks in the first instance.

58        In any event, as we have already noted, there was sufficient physical connection by way of the ramp. There was also some discussion in Rudd ([48] supra), albeit in a slightly different context, as to whether or not it mattered that the physical connection was horizontal rather than lateral. We have, in fact, already explained above (at [42]) why this is not a crucial issue and the decision in Rudd itself supports our views. We should also add that although we have arrived (with respect to a similar fact situation) at the same conclusion as both the Hong Kong Lands Tribunal and the Hong Kong Court of Appeal in Yiu Lian Machinery Repairing Works Ltd v Commissioner of Rating and Valuation [1982] HKC 55 (“Yiu Lian”) and Comr of Rating and Valuation v Yiu Lian Machinery Repairing Works Ltd [1985] 2 HKC 517, respectively, we do this via a quite different legal route. In particular, we do not agree with Judge Cruden in Yiu Lian that a floating dry dock is different from a basin dry dock (at least in so far as their respective functions are concerned).

59        In the circumstances, we therefore hold that the floating dry docks are not only “buildings” within the meaning of s 2(1) of the Act but that they also constitute part of the Property.

Are the floating dry docks “machinery” within the meaning of section 2(2) of the Act?

60        Section 2(2) of the Act provides that the enhanced value due to the presence of machinery which is used for the purposes therein stated is not to be taken into account for the assessment of property tax. The salient portion of s 2(2) of the Act reads as follows:

In assessing the annual value of any premises in or upon which there is any machinery used for any of the following purposes:

…

(b)        the altering, repairing, ornamenting or finishing of any article; or

…

the enhanced value given to the premises by the presence of such machinery shall not be taken into consideration, and for this purpose “machinery” includes the steam engines, boilers and other motive power belonging to that machinery.

[emphasis added]

61        In the proceedings below, the Judge (at [15] of the GD) held that a floating dry dock could be described as a structure that, combined with machines such as water pumps, carried out the function of hoisting a large vessel off the water. The Judge held that the floating dock might well be considered to be machinery under s 2(2) of the Act and, if that were the exclusive function of the floating dry dock, he would have held so. However, because the floating dry dock also functions as a place where the ship and other machinery and equipment are stored, and where repair works are carried out, the Judge found that the floating dry dock was more a floating factory than mere machinery.

62        The Judge (at [16] of the GD) was further of the view that the value of machinery (ie, the water pumps and welding equipment) on board the floating dry dock should not be taken into consideration pursuant to s 2(2) of the Act. The Judge held that lifting of the ship above water level was part of the process by which repair work was carried out. To this end, the Judge drew an analogy between a car which needed to be jacked up, so as to enable the mechanic to gain access to the undercarriage to carry out repair work to the car, and the lifting of the ship from the water. Accordingly, the Judge found that the pumps that pumped water into and out of the tanks were machinery under s 2(2) of the Act.

63        On appeal, Mr Ong Sim Ho (“Mr Ong”), counsel for the appellant, focused on this particular issue right at the outset of oral arguments before this court. This was because, as he correctly pointed out, if his client was successful on this issue, that would conclude the appeal in his client’s favour without more. In other words, even if the respondent could prove that the floating dry docks were “buildings” within the meaning of the Act and/or constituted part of the land within the meaning of the Act, if the appellant could nevertheless prove that these floating dry docks were machinery within the meaning of s 2(2) of the Act, then the enhanced value that accrued as a result of such machinery would nonetheless be excluded (as an exception) under the clear terms of that particular provision itself.

64        In this regard, one must guard assiduously against a layperson’s instincts and intuitions. This point was emphasised, in clear terms, by Mr Ong right at the outset of the appeal. It was, if we may say so, a timely reminder. For example, he pertinently pointed out that the exception in s 2(2) of the Act could apply even if the articles concerned (here, the floating dry docks) did constitute part of the land for the purposes of the Act.

65        Mr Ong contended that the Judge had erred in finding that a floating dry dock, as a system, must have the sole and exclusive function of lifting a vessel off the water. Mr Ong argued that so long as the primary purpose of the floating dry docks was one of the purposes set out in s 2(2) of the Act, the enhanced value from the floating dry docks should be excluded from assessment.

66        We are of the view, with respect, that the Judge’s test of exclusive function is too strict. An alternative test of dominant function appears to us both just and fair. It would appear that the Judge had conflated two (albeit closely related) issues. The first (which is, in fact, a prerequisite) is whether or not the structure concerned is machinery in the first place. The second issue (assuming that the structure concerned is machinery) is whether or not its use falls within one or more of the purposes set out in ss 2(2)(a) to 2(2)(c) of the Act. There appear to us, therefore, to be two stages at which the concept of function operates (and in somewhat different ways). In this regard, the first stage corresponds to the first issue just mentioned, and involves the issue as to what the predominant function of the structure concerned (here, the floating dry docks) is, having regard to the crux of the inquiry (which is whether or not it is machinery in the first place). In other words, was the predominant function of the structure to serve the function which would normally be attributed to machinery generally or was it to serve some other function?

67        The second stage corresponds to the second issue mentioned in the preceding paragraph, and involves the question as to whether or not (assuming that the predominant function of the structure concerned is one that would normally be attributed to machinery) that function falls within one or more of the purposes set out in ss 2(2)(a) to 2(2)(c) of the Act – in which case the enhanced value given to the premises by the presence of such machinery shall not be taken into consideration.

68        However, at this juncture, it is important to note that the actual evidence adduced in relation to the first stage of the inquiry is of crucial importance. Indeed, the entire inquiry is necessarily factual in nature. That line-drawing is involved is not only a given but comports with reality generally. Indeed, the courts are constantly involved in such an exercise of discretion (which, in turn, involves issues of application of the law to the relevant facts of the situation at hand). However, in order to avoid arbitrariness (or even the perception thereof), it is necessary that there be a guiding legal principle (or set of such principles) and logical as well as commonsensical application of such a principle (or principles) to the facts concerned.

69        The guiding principle, as we have just mentioned, is that of dominant function. What, in other words, is the dominant function of the article (or articles) concerned (here, the floating dry docks)? More specifically, is the dominant function to serve as machinery or as an apparatus, or is it, instead, to serve as a setting or platform in which the necessary work on ships may be effected (bearing in mind the obvious fact that the ships concerned need to be in a dry environment in order for the necessary work to be effected).

70        It is our considered view that, whilst one of the functions of the floating dry docks in the present appeal is to lift the ships concerned up into a dry environment (and, in this sense, constitutes machinery or apparatus), it has, however, not been demonstrated to our satisfaction that that function was a dominant one. It is clear, in our view, that an at least equally (if not more) important function is to serve as the setting or environment in which the necessary work can take place.

71        In this regard, it would be helpful to compare the floating dry docks in the present appeal (see generally John W Gaythwaite, Design of Marine Facilities for the Berthing, Mooring, and Repair of Vessels (ASCE Press, 2nd Ed, 2004) (“Gaythwaite”) at pp 442–456) with basin dry docks (see generally id, at pp 413–433). Indeed, Mr Ong conceded that the latter would not only be part of the land but would also not come within the exception relating to machinery within the meaning of s 2(2) of the Act. However, as Mdm Julia, correctly, in our view, pointed out, the function of both these types of docks is the same. The principal purpose is to enable the ship to be docked in a dry environment in order for the necessary work to be effected. The key difference lies in the method by which this purpose is achieved. In so far as floating dry docks are concerned, this purpose is achieved by lifting the ship concerned, whereas in so far as a basin dry dock on land is concerned, the purpose is achieved by pumping out the water once the ship has docked safely. Indeed, in the latter instance, some mechanism (albeit, here of pumping) is involved. This usually takes the form of “[a] separate building or chamber called a pumping station, built into the wall of the dock, [and which] contains the dewatering pumps and valve operators, as well as other smaller pumps and equipment for discharging rainwater and providing fire-fighting or ballast water, or, in the case of an underdrain-type dock, pumps for the discharge of groundwater” [emphasis added] (see Gaythwaite at p 425). One could not, especially with regard to the concept of function, meaningfully distinguish between mechanisms that were built outside and inside the wall of the dock, respectively, for this would be but a literal or physical difference – and no more. In both instances, it is clear to us that the predominant function is the same – and it is to provide a proper setting or environment in which the necessary work can be properly and safely carried out.

72        This is not, however, to state that if it had been demonstrated by the appellant that the predominant function of the floating dry docks in the present appeal was to lift ships out of the water, we would not have been favourably disposed towards the appellant’s case. Unfortunately, such evidence was simply not present on all the evidence available before us. We note that Mr Ong directed us to the affidavit of evidence-in-chief (“AEIC”) of the appellant’s executive director, Mr Ng Sing Chan (“Mr Ng”), and of the respondent’s valuer, Mr Yong Guo Yeou. However, there was nothing in the AEICs which suggested that the primary or main purpose of the floating dry docks was not for repair. Although Mr Ng stated (at para 3 of his AEIC) that “[a] floating [dry] dock is a piece of mobile equipment or machinery”, he added that “[i]n order to accommodate a vessel for purposes of repair, the floating [dry] dock is partially submerged directly below the vessel” [emphasis added].

73        Accordingly, as we have mentioned, it appears that the predominant function of the floating dry docks is to provide a proper setting or facility (principally a dry area) in which the necessary work can take place. In our judgment, we find that the floating dry dock is akin to a motor workshop whereas the water pumps are akin to a car jack. The former is the setting or environment to accommodate the vessel for the necessary work and the latter are machinery used to facilitate the execution of the necessary work. Indeed, the furthest we could possibly go in favour of the appellant on this particular issue is that the provision of such a setting or environment is at least as important as that of lifting the vessel concerned for the purposes of effecting the necessary work. Unfortunately, an equally important function is insufficient since, as we have already accepted above, the test is that of dominant function.

74        Finally, we note that our holding on this particular issue is also entirely consistent with our earlier holding that the floating dry docks are “buildings” within the meaning of the Act. Indeed, it would be both semantically as well as substantively odd (or even inconsistent) to describe a structure as being, at one and the same time, both a “building” as well as “machinery”.

75        In the circumstances, we are of the view that the floating dry docks in the present appeal do not constitute machinery for the purposes of s 2(2) of the Act and that, the appellant having failed at this threshold stage, it is irrelevant that the floating dry docks could otherwise fall within sub-ss (a) and/or (b) and/or (c) of the same provision.

Conclusion

76        We should like to observe that although the appellant was unsuccessful in the present appeal, Mr Ong is to be commended for presenting as clear and as persuasive a case as he could on behalf of his client. Indeed, in our view, he could not have presented a stronger one. Failure to secure the decision in a case is not necessarily a reflection of the quality of the argument as well as advocacy; indeed, as we have just mentioned, this is one such instance to the contrary. We are also particularly impressed by Mr Ong’s candour and his refusal to gloss over arguments as well as facts that did not appear to be in his client’s favour. Although the court would, of course, disregard any such attempts, it is refreshing that Mr Ong resisted the temptation to do what happens so often, but which, we should hasten to add, is often due to inexperience and/or overzealousness rather than bad faith.

77        To summarise, we hold that:

(a)        the floating dry docks constitute “buildings” within the meaning of the Act;

(b)        the floating dry docks are in fact also part of the land for the purposes of the Act; and

(c)        the floating dry docks do not constitute machinery within the meaning of s 2(2) of the Act, and the appellant is therefore precluded from availing itself of the benefit of that provision.

78        In the circumstances, therefore, we dismiss the appeal with costs, albeit for somewhat different reasons than those adopted by the Judge. The usual consequential orders are to follow.