WO KEE TRADING CO LTD v. THE SECRETARY FOR TRANSPORT

LDMR 28 OF 2000

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS REFERENCE APPLICATION NO. 28 OF 2000

_______________

_______________

________________

J U D G M E N T

_________________

Background

1. The Applicant was incorporated in 1992 and has been a dealer in left-hand drive cars. In 1994 it became the tenant of the site which comprised Lot Nos. 478 (portion), 479 (portion), 482 RP (portion), 483 RP, 486 RP (portion), 487 (portion) and 488 (portion) in Demarcation District No. 103, Kam Tin Road, Yuen Long, New Territories. Pursuant to a resumption notice made under the Railways Ordinance and dated 15.10.1998 Lot Nos. 478 (portion), 479 (portion), 486 RP (portion), 487 (portion) and 488 (portion) were reverted to the Government on 16.1.1999, and an area of 1,315 sq. m. was cleared in April 1999. This notice was gazetted on 16.10.1998. In respect of the resumption of the above portions of land, the Applicant made the following claims pursuant to section 34 of the Railways Ordinance: -

"(1) Loss on partial extinguishment of goodwill: $1,510,302;

(2) Loss on termination of contract with suppliers and associated expenses: $903,749;

(3) Loss of fixtures and facilities and cost of removal and reinstatement: $616,392;

(4) Loss on forced sale of stock (350 cars): $3,479,203;

(5) Severance payment and payment in lieu of notice to employees: $78,204;

(6) Professional and disbursements: $217,105; and

(7) Interest."

The evidence of the Applicant's first witness, Miss Mandy Chan (AW1)

2. The Applicant's first witness, Miss Mandy Chan, has been a director of the Applicant since 1996. In October 1997, her company came to learn that part of the site would be resumed as this was publicised by the Kowloon-Canton Railway Corporation. But she did not know how much of the site would be resumed. In between October 1997 and September 1998, she received no further information at all about the resumption. In September 1998, the Applicant received information that the resumption was approved and then in October 1998, notice of the resumption was gazetted. Prior to September 1998, she did not know when the resumption would take effect, and how much of the site would be resumed. She did not make enquiry with any Government department about resumption. She only enquired with the Applicant's landlord, but the landlord did not know how much of the site would be resumed.

3. From August 1998 onwards there was a drastic drop in sales in the Applicant's business. She explained that this was due to the fact that the Applicant cancelled some of the contracts for vehicles, and some vehicles were being held back in Japan, because in Sept/Oct 1998 the Applicant knew the exact resumption date, and they anticipated that they would not have sufficient space to accommodate the vehicles. The Applicant had to cancel purchase orders because in the market other car dealers sold out their goods at very low prices due to resumption, but the Applicant did not want to sell its goods cheaply. Sales decreased in August 1998 because the Applicant did not want to take part in the sales war.

4. The Applicant stopped placing orders for vehicles in mid 1998 because the price was very low. The market situation was very bad. A price-reduction war went on. If a certain company tried to sell out its goods at very low prices, and if another company also wanted to sell out its goods, the Applicant had to sell out its goods at an even lower price.

5. She was not quite sure when the price war started. She could not be sure if it was July or August 1998. The price war affected sale figures in July which decreased when compared with those in June. So she saw fit to cease the placing of purchase orders altogether, and to dismiss the staff. On 15.8.1998, 7 out of the 12 staff were dismissed, because the Applicant's business reduced and it did not need so many people to do the work.

The evidence of the Applicant's second witness, Miss Wong Yin Fong (AW2)

6. She was the Applicant's sales manageress, and was responsible for purchase and sale of vehicles at the Kam Tin site. She was not clear which one was affected by resumption. She knew that in her immediate vicinity there were 5 to 6 companies dealing in left-hand drive vehicles, which had their land resumed.

7. Both Miss Chan and Miss Wong did not adduce evidence to show why other car dealers in the vicinity of the Applicant had to sell their cars at a low price. They attributed this to the resumption of land of these other car dealers. But if the resumption of land is the sole contributing factor, it would only compel these other car dealers to sell their cars at a low price if they did not have sufficient car parking spaces to store their cars as a result of the resumption. They have not adduced evidence to show the impact of resumption, if any, on these other car dealers. The Tribunal finds that the Applicant has failed to prove that the price reduction of selling cars on the part of these other car dealers was due to the shortage of storage space for their vehicles as a result of resumption.

Analysis of the Applicant's business before and after the resumption

8. During the hearing, AW1 produced the Applicant's monthly business figures, which were extracted from the sales invoices, in the forms of two tables. The first table at page 1 of Exhibit A5 set out the monthly sales figures from April 1997 to May 2000. The second table at pages 2 and 3 of Exhibit A5 gave a more detailed breakdown of the stock, purchases and sales figures from April 1996 and February 2001. However, after comparing the figures in these two tables, we are surprised to find that for the period in common (i.e. April 1997 to May 2000), the monthly sales figures in the Applicant's two table do not tally with each other! A summary of the figures is set out below: -

Table 1

Comparison of figures shown in page 1 and pages 2 & 3 of Exhibit A5

9. Since the figures in the second table at pages 2 and 3 of Appendix A5 show a more detailed breakdown, we have decided, in the absence of any other information as to which set of figures should be more correct and be preferred, to adopt the said figures.

10. The second table only provides the stock figures at the beginning of the months, the monthly imports, the monthly purchases, the monthly exports, the monthly sales of cars in Hong Kong and the monthly total number of cars that were dismantled into various components in Hong Kong. There are however no statistics on the total sales figure in each month. We have to carry out certain computations before such sales figures are obtained. In the course of our computations, we have found that the figures in the second table show some obvious errors in that the stock figures at the end of four months (July 1999, September 1999, February 2000 and August 2000) were not the same as those computed from the stock figures at the beginning of the said months by adding the imports and purchases figures and deducting the sales figures. We have replaced these with the correct computed figures and have made other consequential changes as well. Thereafter, we set out in Table 2 below our computed monthly sales figures and the monthly additional number of cars, in addition to the stock at the beginning of the month, the imports and the purchases during the month: -

Table 2

Analysis of the average monthly figures of the business of Applicant, from 8/1996 to 7/1999

* of resumption under Railways Ordinance (dated 15th October 1998)

# Date of clearance of resumed portion under Railways Ordinance

** This is the sum of the figures shown in the 5th, 6th and 7th columns from left of Exhibit A5, page 2.

11. Although the date of resumption was in October 1998, we have included the figures from April 1996 to July 1999 in the above Table 2 so as to show a fuller picture of the trading performance of the Applicant before the resumption. However, we have not included the figures from August 1999 to February 2001 because these were already over a few months to almost two years from April 1999, the date of clearance in respect of the resumption under the Railways Ordinance. From the above Table 2, we have the following observations: -

(a) The stock at the beginning of the month of January 1997 was 524 cars, close to the all-time high stock figure of 578 for the month of September 1998, just one month before October 1998 when the notice of gazette of the resumption was given by the Government. The all-time high stock figure of 578 for September 1998 was still 72 cars short of 650, the estimated maximum capacity of the site before the resumption. (see paragraph 25 below)

(b) The actual stocks on site at the beginning of each month appeared to have stabilized in the first half of 1998 to an average figure of about 311 cars. Similarly, the import orders per month also appeared to have stabilized in the first half of 1998 to an average figure of about 307. The corresponding average number of actual stocks on site and the average import orders per month for the first 6 months of 1997 were 271 and 230 respectively. So, these figures were quite contrary to what AW1 said upon cross examination by the counsel for the Respondent: -

Transcript, page 135, H - N

" Q. I mean, upon knowing about the resumption under the Railways Ordinance in July or August 97, did you take any responsive steps, any steps in response?

A. Because, at that time, it's not known yet how much land would be resumed and when would it take place. So, it's only at the end of 97 or early 98 that we began to reduce our orders for cars and to start looking for other sites.

Q. Yes, now, let's take it step-by-step, chronologically. Let's not jump to the end of 97, first, okay? Right? Let's - we are still in July/August 97. Understand? Now, ...

A. Yes.

Q. ... at that time, after learning about a possible resumption, did you take any steps in response?

A. To have a look at what good are coming in and try to cut down our stock by sales because we feared that we won't have sufficient place to store them."

Transcript, page 137, B - F

Q. Right. Okay, and then we come to September 97, right? September 97, you came to know about the possible resumption under the Roads Ordinance, is it right?

A. Yes.

Q. Did that cause you to take any further steps in response?

A. The further thing to do was to see whether we should cut down our order.

Q. Right. Now, did you, in fact, cut down your order in September 97?

A. As for the actual situation, I have to check our orders because some order are bimonthly, some order are monthly."

Transcript, page 138, O - T

Q. ... So, is it fair to say, say, by early 1998, the amount of purchase orders that you placed per month was only about half that you previously placed before you knew of the resumption? Is that a fair way to put it?

A. Early 98?

Q. The - yes, sorry. the reason why I said early 98, was because you mentioned January, February, March. Right? Yes.

A. Yes, right."

(c) The total monthly sales did vary a lot during the months between April 1996 and September 1998. The monthly sales figures varied from 75 for the month of April 1996 to 723 for the month of December 1997. AW1 conceded in her oral evidence that the business of trading of LHD cars fluctuated a lot. AW actually said, "Because the market we face is China, mainland China, it's our main market, as for fluctuation, it happens very year." (Transcript, page 113, J-K) The figures in Table 2 supported her evidence.

(d) The total sales volume for the 12-month period from July 1997 to June 1998 was 5,569 with an average of about 467. Similarly, the total monthly addition of cars, that is, the summation of imports and local purchases, for the said period was about 5,517, with an average of about 460. Therefore, we can conclude that for the said 12-month period, the number of cars that were sold was roughly equal to the number of monthly additions. That 12-month period was close to the date of resumption yet the month of June 1998 was 4 months prior to the notice of resumption so that the whole period should not be much affected by the resumption. The average monthly stock at the beginning of each month during that period was 275, representing only +42% of the estimated maximum capacity of 650. So, we can conclude that the site was, on average, only slightly over 40% occupied to its full capacity during that 12-month period.

(e) Whilst for any three consecutive months, the sales figures could vary a lot (for example, the sales figures for 12/1996 to 2/1997 were 298, 600 and 339 respectively and the sales figures for 12/1997 to 2/1998 were 723, 223 and 526 respectively), we find that after a month of exceptionally low sales figure, it was usually followed by a month of higher sales figure.

(f) Therefore, we find that when the sales figures did slump in the month of 7/1998, it should have alarmed the Applicant when the sales figure further reduced substantially in the month of 8/1998. In fact, the reduction of sales figures for these two consecutive months of 7/1998 and 8/1998 was so significant that we consider that for any reasonable businessman, it should be prudent for him to stop or reduce substantially any new purchases from Hong Kong immediately. This was necessary so as to avoid piling up of stock of cars in the site. However, we find that the Applicant, instead of stopping or reducing local purchases in the month of August 1998, actually purchased an additional total of 117 cars locally in the month of September 1998. Therefore, it was the direct result of this management decision that the total stock of car at the beginning of October 1998 stood at a relatively high figure of 444, despite of an improved sales figure of 281 for the month of September 1998. We shall revert to this aspect later in this Judgment.

12. Meanwhile, in order that we may be able to gauge an overall picture of all the figures in Exhibit A5, we have also analyzed the averages of the various figures in Table 2 on a yearly basis. We have summarized the result of our analysis below: -

Table 3

Analysis of the average monthly figures of the Applicant's business on financial yearly basis, from 1996/1997 to 1999/2000

13. We note from Table 3 above that the average stock at the beginning of each month for 1998/1999 is 359, which is much higher than the stock levels in the previous two financial years and the year 1999/2000. The average stock figure for any financial year is of course much less than the estimated maximum capacity of 650 for the site before the resumption. This must be so for the year 1997 and before since it was AW1's evidence that roughly about half of the site was sub-let before 1997. Even for the year 1998/1999, the monthly average stock level is only 359, about 55% of the estimated maximum capacity of 650. On the other hand, the average monthly sales figure for 1998/1999 is 226, much lower than the previous year's average of 454. However, it is only slightly lower than the corresponding figure of 277 for the year 1996/1997. Therefore, it appears from the sales figures in Table 3 that the year 1997/1998 is a particularly good year in sales.

14. During the evidence in chief and cross-examination of AW1, it was suggested that the stock figure given at Exhibit A5 (which figures were extracted into Table 2) were the figures at a certain date of each month of the year in question. There might be ups and downs in the level of stocks and other trading figures so that the lacking of space for storage of cars, existing and new, might not be easily appreciated from reviewing Exhibit A5. However, the Tribunal was never shown any other evidence (for instance, daily figures, etc.) from the Applicant in support of their case that the figures in Exhibit A5 might not present a right picture. The onus of proof must be on the side of the Applicant. In the present case, this has not been discharged by the Applicant.

15. A more thorough study of the figures in Table 2 suggests to us that it might be misleading by comparing the Applicant's trading performance according to the financial years. This is because apart from the sales volume, which began to drop suddenly from 486 for June 1998 to 299 for July 1998, and then to drop much further to 142 which was hitherto (since April 1996) an all time low figure of 115 for July 1998, there was a drastic change in imports, purchases and stock level only since August 1998. Therefore, if we alternatively tabulate the figures in Table 2 on a different 12-monrh interval basis, i.e., from 8/1997 to 7/1998, and from 8/1998 to 7/1999, the figures would show more appreciable differences in the average monthly sales figures and average total addition, as follows: -

Table 4

Analysis of the average monthly figures of the Applicant's business on 12-months period basis, from 8/1998 to 7/1998 and from 8/1998 to 7/1999

16. It appears from Table 4 above that despite a reduction in the average of the monthly total addition of about 378 between the year from 8/1998 to 7/1999 and the year from 8/1997 to 7/1998, the average daily stock still increases by 108. This was caused by the dramatic reduction of average monthly sales figure of 348 cars between these two 12-month periods. From these average figures, again we cannot understand at all the alleged difficulties facing the Applicant, before and after the resumption regarding the lacking of space for the storage of stocks, existing and new. Since the maximum capacity was said to be 650, these average figures in Table 4 above clearly show that the site was hardly nearing fully utilized both before and after the resumption.

17. We find that the average figures from Table 4 are quite different from those shown in Table 3 above, the only difference being in the adoption of different 12-months intervals. Also, because of the dramatic fluctuation of actual trading figures between the two periods in Table 4, we decide that it is necessary to concentrate and look more closely on the actual monthly variations for the few months (e.g. six months in two different batches) prior to and after the date of notice of resumption. We do the computations and set out below the results of our analysis: -

Table 5

Detailed analysis of the average daily figure of the Applicants from 4/1998 to 2/1999 (based on figures from Table 2)

18. We take the month of October 1998 as the reference month and calculate the average figures for two 3-monthly intervals both before and after this month. We include all the average figures of these 3-month intervals, in addition to the monthly figures, in Table 5 above as this averaging exercise should reduce the effects due to a particular month. The figures in Table 5 show a consistent reduction of average figures, from 4/1998 to 4/1999, in almost all sorts of statistics: stock at the beginning of each month, imports, purchases in Hong Kong, total addition of imports and purchases, and sales. However, we are unable to be convinced from the figures in Table 5 that the lacking of storage space in the site was a problem for the Applicant, so much so that the Applicant had to firstly, carry out forced sale of 350 cars between October 1998 and April 1999 resulting in a loss of about $9,403,250 and secondly, cancel and vary a number of contracts resulting in a loss of about $1,005,323. We shall discuss these two matters further later in this Judgment.

19. We shall now consider the issue raised by the Applicant that because of the threat of resumption, the Applicant had suffered losses that were due to the reduction in sale prices of cars in general which was in turn caused by the cut-throat competition of prices by fellow traders in the vicinity. Also, we shall consider if there was any loss of business profits due to the resumption.

Actual utilization of the site before and after the resumption

20. As regards the maximum capacity in the site, AW1 gave evidence several times during the hearing that the maximum capacity would be 600 to 650 and the actual average number on site amounted to 500 (Transcript, page 10) although the ideal number on site would be about 550. We extract from page 37 of the Transcript of the hearing held on 20th June 2001 and set out below the evidence by AW1 regarding the maximum capacity of the site upon examination in chief by counsel for the Applicant: -

" Q: Now, I would like you to look at the aerial photo on page 853 of A2. Now, you told us that you site can accommodate as much as 650 vehicles. Now, if you look at the aerial photo, and the way the cars are parked, right, that there are spaces in-between the cars, yes?

A: Yes.

Q: When you say "650, maximum number of cars", would there still be any spaces left?

A: Very little.

Q: If there's only "very little", would that affect the way the business operates?

A: Would not.

Q: Why not?

A: Because there is space at the entrance, and the cars could be moved in or out.

Q: Okay. But, apart from that, there's no ... there are no other difficulties?

A: No difficulty in particular.

Q: What about the movement of customers; would that not be a problem?

A: No problem, because between the cars, there is a row sufficient to allow to people to walk through.

Q: But, in your operation, although 600 to 650 is the maximum, there is an optimum number you try to aim at?

A: The ideal number should be around 550."

21. Also, AW1 gave evidence upon cross examination on 21st June 2001 (Transcript, page 44, D-I) that the actual number of cars stored in the site before the resumption was 550 to 600. That reflected all the stock of the Applicant because all the cars were stored in the site, and nowhere else. As for the part of the site resumed for the West Rail portion only, around 150 cars could be accommodated (Transcript of 21st June 2001, R-T). Surprisingly, this capacity given by AW1 was very different from what she answered the counsel for the Applicant on 19th June 2001 (Transcript, page 9, A-C): -

" Q: And, after the resumption, how many cars can the site hold?

A: The first resumption?

Q: Yes.

A: Now, below 200."

22. AW2 gave evidence on 13th December 2001 that the maximum capacity on the site before the resumption under the Railways Ordinance was about 620 to 630, but that the capacity for which the cars can be parked while leaving spacious passage between the cars was about 570 to 580. On the other hand, AW2 said about 200 could be parked today, or 250 to 260 if parked tightly.

23. Other than these oral testimony by AW1 and AW2, the Applicant did not adduce any other evidence such as the detailed record of the stock on site (for example, layout plan) at any time to prove the stated actual or maximum capacity of the site.

24. A third witness, Mr. Elmo L. Mella (RW2), an expert plant and machinery valuer, estimated that the maximum capacity on site before the resumption was about 495, based on his estimates of providing optimum spacing between the cars.

25. We decide that since AW1 was the director in charge of the Applicant's business, including the operation of the purchases and sales, her figures should be preferred, as far as the maximum capacity of the site before the resumption is concerned. As to the maximum capacity of the site after the so-called "first resumption", i.e., the resumption for the West Rail portion only, we decide that her conflicting evidence on 19th June 2001 and 21st June 2001 suggested to us that she might be mistaken when answering the question from the counsel for the Applicant on 19th June 2001. When she answered that after the first resumption, the site could hold below 200 cars, she might have confused herself with the capacity of the portion resumed. On the other hand, she answered on 21st June 2001 that for the part of the site resumed for the West Rail only, around 150 cars could be accommodated. Based on the latter answer, therefore, the site excluding the part resumed for the West Rail would be able to hold a maximum of 650 (the original maximum capacity) less 150, or 500 cars. This represented about 77% of the original maximum capacity. This appears to us to be more plausible bearing in mind that in terms of the area of the land, about 20% of the site was resumed for West Rail.

26. On the basis of a maximum capacity of 650 and 500 before and after the resumption, we calculate and set out below the utilization rate of the site, based on stock records from Exhibit A5, pages 2 and 3: -

Table 6

Estimates of the actual utilization rate of the site (based on the Tribunal's estimate of maximum capacity and the Applicant's average actual daily stock on site)

Notes

1. Date of clearance in April 1999

2. The actual daily stocks on site at the beginning of each month. They were originally based on the monthly figures shown in Exhibit A5, pages 2 & 3. A summary of the average monthly figures has been set out in Table 3 above.

3. It was AW1's evidence that in 1997, about 1/2 of the site was leased out (Transcript, page 105, M-N). In the absence of other information, we assume that the maximum capacity before 4/1997 was 1/2 of 650, or 325.

4. Based on the evidence from the Applicant's witnesses, the maximum capacity of the site before the resumption under the Railways Ordinance is estimated to be 650 cars.

5. In the "After situation", the maximum capacity of the site is based on the evidence from AW1 (i.e., 650 - 150 = 500).

6. % to the nearest integer

27. The above table shows that for the 3 years before the clearance of the resumed area, the average % of utilization were estimated to be 74%, 43% and 55% respectively whilst for the year after the clearance (from 4/1999 to 3/2000) the average % of utilization of the site dropped to about 43%. Since these % of utilization are computed from the average of monthly figures in Table 3 above, it could mask differences within a year. We therefore carry out a similar analysis using the monthly figures directly from Table 2.

Table 7

Estimates of the actual utilization rate of the site from 8/1997 to 7/1999

* Estimated alternative maximum capacity of the site was the "ideal" capacity estimated by AW1

# Date of clearance in April 1999

x The alternative maximum capacity after the clearance was estimated using the same ratio before the resumption (approximately 85%)

28. We find from the analysis in the above Table 7 that there was spare capacity in the site in any month, both before and after the resumption. The alternative ideal maximum capacity, we decide, only serves as a reference. There was no reason that the Applicant could not, if so required, store the cars to the maximum permitted by the site.

Estimate of the net profit margin of the Applicant's business

29. AW1 gave evidence that the normal profit margin of the cars sold by the Applicant was roughly between 5 to 10% (Transcript, page 37 H-I). On the other hand, the audited accounts of the Applicant show that the gross profit margin, calculated as the ratio of gross profit to sales, was only in the region of 0.74% to 2.46%. Also, with the exception of the two years that the Applicant reported a net taxable loss, the Applicant only managed to achieve a very slim taxable profit margin of roughly between 1/2 % and 1% for the years between 1993/1994 and 1997/1998, as follows: -

Table 8

Summary of sales figures, gross and taxable profits, and profit margins of the Applicant (based on the Applicants' audited accounts for 1993/1994 to 1997/ 1998.)

30. Since the gross and taxable profit margins in the above Table 8 have been calculated using the figures shown in the audited accounts produced by the Applicant, we decide that these are to be preferred than the mere statement given by AW1. In fact, we note that not only did AW1 fail to give a correct range of figures for the profit margin of the Applicant but her figures were also vastly different from the actual figures!

Estimate of the net profit per car sold for the years 1996/1997 and 1997/1998

31. Although the audited accounts show the gross turnovers of the Applicant's business, there is no reported figure on the number of cars sold. We can find the sales figure from Exhibit A5 but they are only for the years 1996/1997 and afterwards. As a result, we are able to calculate the average gross and net profit (or loss) per car sold by the Applicant for these two years (see Table 9 below). We find that for the year 1996/1997, the average gross profit and the average taxable profit for each car sold were about $2,162 and $659 respectively whilst for the year 1997/1998, the average gross profit per car was $981 but the average loss per car was $591. Although we do not know the number of cars sold for previous years, we can see from the following table of comparative figures that the average gross profit and taxable profit for each car sold in those years should also be very modest, when compared with the high values of the cars.

Table 9

Analysis of average gross profit and average taxable gross/(loss) per car sold by the Applicant.

^ Year from 1/10/1992 (date of commencement) to 31/3/1994

# Based on audited accounts of the Applicant

* Based on Exhibit A5, page 2

Loss of goodwill on partial extinguishment of the business

32. The Applicant's position for partial loss of goodwill is summarized as follows: -

(a) The profit and loss figures of the Applicant, for the years 93/94 to 97/97 [A2-1033] be adopted as the starting point for the assessment of profitability of the business.

(b) Directors' remuneration [A2-682AB] be added back to the said profit and loss figures.

(c) After the said added back, average profit from the 5 years prior to resumption, $1,156,093 [A2-682AC]

(d) Interest on the issued share capital be deducted, adopting an interest rate of 6%,

(e) A years purchase of 6.566 (30 years at 15%) be adopted,

(f) Since the Railway Land amounted to 20% of the site previously occupied by the Applicant, a 20% of the goodwill of the business is assumed to have been extinguished. Loss is assessed at $1,510,302.

33. In order to succeed in this claim, the Applicant has to prove the following matters: -

(1) there was loss of profit after the resumption,

(2) such loss was caused by the resumption, and

(3) the amount of that loss.

34. The Applicant's case is that the Applicant's customers invariably had to attend the site to view and inspect the cars which they intended to buy before they would purchase them. Therefore the Applicant must have sufficient spaces to store his cars and so it is vital to its business to have a spacious area for its business. Due to the resumption the area of the site was reduced.

35. The Respondent's counsel submitted that "The reduction in size not only caused disruption in trade. It also affected the ability of the Applicant to carry it's full range of cars. It also meant that the site was no longer spacious and attractive to customers."

36. In order to ascertain the Applicant's loss of profit caused by the resumption, it is necessary to analyse the statistics of its sales provided by the Applicant. The Applicant only adduced as evidence audited accounts up to 31.3.1998. It did not adduce evidence relating to any sales figures after 31.3.1998. The Tribunal has to ask itself whether it is reliable to rely on the sales figures up to 31.3.1998 for the purpose of assessing the profitability of the Applicant's business after the resumption. If its business prior to 31.3.1998 was stable, and if subsequent to 31.3.1998 sales conditions remained the same as before, it might be safe to rely on the sales figures up to 31.3.1998. But it must be borne in mind that the profit and loss of the Applicant's business prior to 31.3.1998 were fluctuating. It sustained a loss of $3.2 millions for the period from 1.4.1997 to 31.3.1998. From 31.3.1998 to 15.10.1998, there is a period of 6 1/2 months, during which a price war was going on. There was a drastic drop of sales of cars in the months of July and August, 1998. It is important to have the sales figures from 1.4.1998 onwards in order to ascertain the Applicant's sales situation. It is unreliable and unsatisfactory simply to base on the profit and loss figures of the Applicant for the years 1993/1996 to 1997/1998 (up to 31.3.1998) as the starting point for the assessment of the profitability of the Applicant.

37. As shown in Table 5, the Applicant did not fully utilize the storage capacity of the site both before and after 15.10.1998. It was only when the Applicant fully utilized the storage capacity of the site then it is justified to say that resumption would have effect on the Applicant's business. But this is not the situation both before and after the resumption. Clearly the resumption had nothing to do with the loss of profit, if any, of the Applicant. In conclusion, the Tribunal decides that the Applicant had failed to prove any loss of profit due to the resumption, and the claim for partial loss of goodwill is dismissed.

Loss on Forced Sale of Stock

38. AW1 gave oral evidence that by early 1998, the amount of purchase orders that the Applicant placed per month was only about half of that she previously placed before knowing of the resumption (Transcript, page 138, O-T). In addition, AW1 gave evidence in her witness statement dated 31st May 2001 (Bundle A1, page 13) that "As a result of the respective resumption, the stock on site or arriving on site had to be put on forced sale at lower prices. The price of some models has recently increased a lot. We have been deprived of the opportunity to buy low at earlier times and sell high now." She re-confirmed this in her oral evidence that, "If he (we) had the place to store them, we could withhold the sales until the price was higher (Transcript, page 34)." She further said that a small discount of around $1,000 per car would be given for sales of large volumes.

39. AW2 gave more detailed evidence regarding the loss resulting from the forced sale of existing stock on the site. She said in her witness statement dated 31st May 2001, "Sometime in or about August or September 1998, I was instructed by the Applicant to contact customers, particularly retailers, for the sale of the stocks on hand. They include (but not limited to) the items (total number of 350 vehicles) set out in the attached Assessment Report of Stock. The Applicant ordered these items in bloc because we believe that they were in real demand for the near future. We have to dispose of them at a discount because we do not have sufficient space to store them. I believe that we are in a position to dispose them and make a substantial profit if we are able to sell them in the normal circumstances and over a period of time. Subsequent events prove that we were correct in our views, their price increased as shown in the Assessment Report of the Stock attached hereto (Bundle A1, page 16)". In support of the Applicant's case, AW2 set out in Bundle A1 the following documents: -

1. Assessment report giving the details on loss of forced sale of Left Hand Drive cars as a result of resumption for both West Rail and Kam Tin Road Improvement Works (Pages 20-28);

2. Receipts of Forced Sale of Left Hand Drive Cars (Pages 29-164);

3. Sales Record of different brands of Left Hand Drive Cars (Pages 165-250); and

4. Import License of different brands of Left Hand Drive Cars (Pages 251-509).

40. According to AW2's assessment report dated 30th May 2001 in pages 20-28 of Bundle A1, a total number of 350 cars were sold under "forced sale" condition from 10th October 1998 to 27th April 1999 incurring a total loss to the Applicant of $9,403,250, which is equivalent to an average loss of $26,866 per car. It was not very clear how these cars were selected for sale by forced sale, at the same time when other cars were sold during this interval of almost 8 months' time. From Table 2, we find that the total number of cars sold by the Applicant between October 1998 and April 1999 was 637. Deducting 350 from 637 gives a remainder of 287. Since the Applicant did not claim loss from forced sale of those 287 cars, presumably they were sold during this period of time at market values. Unfortunately, we do not know the comparable prices of those cars that were presumably sold at market values, nor do we know whether they were of the same models as those sold under the basis of forced sale so that we could compare directly with the latter. There was no information at all for those 287 cars.

41. The expert surveyor called by the Applicant, Mr. Nam Chi Kwong (AW3), simply took it for granted what AW2 told her and set out in his report dated 31st May 2001 (Bundle A2, page 685) the sum of $9,403,250 as assessed by AW2 as the basis of the loss on forced sale that should be awarded to the Applicant. AW3 had adopted in his first report an apportionment factor of 20%, which was based on the area of private lots resumed for the West Rail over the whole site area to arrive at a figure of $1,880,650. AW3 subsequently in his supplementary report considered it more reasonable to apportion the loss based on the ratio of the resumed area under this resumption (1,315 sq. m.) to the total resumed areas under different resumptions (3,545 sq. m.) in respect of the subject site. On this basis, AW3 arrived at a ratio of 37% and applied this to the total loss amount of $9,403,250 due to the forced sale of stock as estimated by AW2 before arriving at a loss of $3,479,203 for this resumption (Bundle A2, page 810A).

42. Other than the calculation of the apportionment ratio due to different resumptions, AW3 had not taken into consideration whatsoever on the difference between the maximum and the actual capacity on site, and whether the Applicant had the need to sell those 350 cars at such a large discount, especially when the profit margin of the Applicant's business was only less than 1% for any of the 5 years prior to the date of resumption (see Table 8 above). Also, there was no discussion and comment on the method of disposal by the Applicant, as well as AW2's method of valuation of the market value and the forced sale value of the 350 cars in her report. We shall revert back to these issues later in this Judgment.

43. The counsel for the Applicant submitted that "Initially only small numbers of cars were sold below market price but after October when the area to be resumed was made known, the number of cars sold below market price increased, especially in the months of December 98 and January, March and April 99. The evidence of AW2 was that it was a start and stop process and this is supported by the sales figures for those months (Exhibit A5)." Applicant further submitted, "by this method of forced sale, the Applicant was able to obtain the best price for the cars with an 80% return for the forced sale stock. This is an extremely high figure as compared with a 27.4% in Callwin International Electric Co. Ltd. & Anor v Director of Engineering Development [1983-85] CPR 448." In this connection, the Tribunal agrees with the counsel for the Respondent that the comparison with Callwin is wholly inappropriate because "what constitutes reasonable forced sale price depends on the particular circumstances of individual cases." In Callwin, the Tribunal was dealing with electrical products whereas in the present case, we are dealing with LHD cars with a profit margin of less than 1%.

44. Mr. Yeung Man (RW1), the expert surveyor called by the Respondent, adopted what RW2 had analyzed and concluded in the latter's Rule 20 documents, that the Applicant should have no loss on forced sale of the cars. We therefore set out in the next paragraph the gist of RW2's findings and conclusion.

45. RW2 opined in his expert report that "As the business did not extinguish and the trading or selling of the LHD cars has continued and that this kind of trading business is not fully affected by the downsizing of the lot, so therefore it is not necessary to force sale the stocks of LHD cars." Noting that the forced sale by the Applicant lasted a period of about 6 1/2 months, RW2 added that "as forced sale is characterized by the limited or short period of time to complete the sale or dispose of the assets under liquidation, business closure and other conditions that forces the business to close, the case of Wo Kee is not under such situation nor it is reasonable to liquidate its stocks of LHD cars whilst its business continues". As a counter check, RW2 found from the audited accounts for the year 1997/1998 the gross sales figure of $725,772,934 and dividing this by AW2's average market value figure of $135,143 for these 350 cars that had been sold by forced sale, he estimated that the number of cars sold by the Applicant in that year was $5,370. He therefore concluded that, "With this comparison and calculations, Wo Kee is therefore capable of selling about 448 units per month (5,370 units / 12 months), or 2,688 in 6 1/2 month's time. This will show that the 350 units of LHD cars sold in 6 1/2 month's period is within the average or even below the average trading volume of Wo Kee and is therefore not a forced sale." In addition, RW2 also commented, "It was not reported if any auction sale was conducted nor was I informed of any advertisement or how the sale was conducted."

46. We consider that there are a few issues in this claim for the Applicant's loss resulting from the forced sale of 350 cars. Firstly, we have to ask ourselves, why was the forced sale of the Applicant's stock necessary? The Applicant's case was that there was insufficient space to hold both the existing stock of cars on-site and the continuing arrival of new stock from orders that had been committed in previous months. So, the first answer we have to find out is whether there was sufficient space to hold the existing stock and the new stock. If we find that there was sufficient space on site to house both the existing and the new stock altogether, then obviously the forced sales of stocks reported by AW2 in her assessment report should not have been effected at all. As a result, there should be no need to assess the quantum of loss under this head of claim as there should be in principle no loss arising from forced sales.

47. Secondly, if we did find that there was insufficient space, we should consider the approximate shortfall in space and whether, as contended by the Respondent, space could be found elsewhere to accommodate the cars that exceeded the maximum capacity of the site at any particular point of time.

48. Thirdly, we should consider if the methodology adopted by the Applicant in the assessment of the loss due to the forced sale of stocks was reasonable and had met with the test of reasonableness since the majority of the sales were undertaken after the date of resumption, as a result which the Applicant had a duty to mitigate her loss. This includes whether the values the Applicant had adopted as to be the respective open market values and forced sale values of the cars sold were supported by the evidence adduced by the Applicant.

49. None of the witnesses called by the parties attempted to tackle the first question. In order to answer this question, we decide that we have to do the counting ourselves. Unlike RW2 at the time of preparing his Rule 20 document, we were given from Exhibit A5 the monthly stocks, purchases and sales figures so there is no need for us to estimate the number of cars that had actually been sold. We therefore start our analysis by firstly finding out how many cars sold between 10/1998 and 4/1999 were cars sold under forced sale and how many were not. This we set out in Table 10 below.

Table 10

Summary of (i) no. of cars sold at forced sale values and (ii) no. of cars not sold at forced sale values by the Applicant during the Months from October 1998 to April 1999.

* The actual sales figures were based on Exhibit A5, page 2 (see summary in Table 2)

# The no. of cars sold at forced sale value were based on the schedule shown in Bundle A1 produced by the Applicant. The percentage in bracket is the ratio of the no. of cars sold at forced sale values to the total actual sales of cars.

50. We can see from the above that during the months between October 1998 and April 1999, the Applicant disposed of about 637 cars (or an average of about 106 cars), much less than say the average monthly sales for the year from 8/1997 to 7/1998, or any of the previous financial years prior to 4/1998 (see Table 3 and Table 4 above). It is for the same reason that the Respondent submitted that it would not be right for RW2 to say that the Applicant could easily dispose of these 350 cars in a period of 6 1/2 months without the recourse to forced sales because the trading condition during this particular period of time between October 1998 and April 1999 was not normal. As a result, the Respondent submitted, "Forced sales had to be conducted to reduce the number of cars; as decrease in sales, cars ordered in the previous 4 to 6 months still arriving, falling prices as other dealers were being affected by the resumption and the knowledge that only around 200 cars could be retained meant space would be insufficient to accommodate all the cars." (para. 16.3 of written submission by counsel for the Applicant).

Was there sufficient space to accommodate the old and new stock without the need to dispose of the 350 cars at forced sale values?

51. To answer this question, we consider it appropriate to concentrate on the Applicant's trading figures for the months from October 1998 to April 1999, that is, the period during which AW2 claimed that those 350 cars were sold. Next, we assume that the Applicant did only sell those 287 cars that were sold not at forced sale values (see Table 10 above), and instead of selling those 350 cars, retained them within the site. As AW1 confirmed that the Applicant, having learnt of the resumption several months ago, had known of the details of the resumption by October 1998, we find that it would be very unreasonable for the Applicant to manage the site on the assumption that only 200 cars could be retained in the site during this period from October 1998 to April 1999. Therefore, as we have concluded earlier, we find that the maximum capacity of the site was 650, based on evidence presented to the Tribunal. As far as the present resumption under the Railways Ordinance is concerned, it only resumed about 20% of the land occupied by the Applicant. Therefore, on a pro rata basis, the site should have a maximum capacity of 80% of 650, or 500 after the area resumed was cleared and reverted to the Government. Alternatively, if we believe in AW1's evidence, the capacity in the 'After' situation should be 650 minus 150, or 500.

52. Then, we consider it appropriate to make the assumption that the Applicant should not have made additional purchases in Hong Kong after October 1998, when the resumption was gazetted, if lacking of storage space was the number one problem faced by the Applicant. We remind ourselves that all along, it was AW1's evidence that although the Applicant did not start forced sale of cars until October 1998, she had in between mid 1997 and October 1998 kept an eye on the stock to avoid piling up too many cars. We are also concerned that after the actual notice of resumption was gazetted and made known to the Applicant under the Ordinance, the Applicant was obliged to mitigate the loss due to the resumption. Moreover, it would be plainly prudent for any reasonable business in the position of the Applicant not to make any additional purchases in Hong Kong from October 1998, if it was worried that it could not find sufficient space to house his stock, and definitely not to make any such purchases at the expense of having to conduct forced sale of existing stock at a large discount. At this juncture, when we remind ourselves of the average loss of the Applicant's forced sales (at $9,403,250/350, or $26,866 per car, see Bundle A1) as against the average gross profit of $2,162 per car sold by the Applicant for the year 1996/1997 (see Table 9), we are very much convinced that if storage was indeed the major problem and worry facing the Applicant from October 1998 to April 1999 (the period of forced sales), then the Applicant should not have made the purchases locally in Hong Kong. As to the imports, for the purpose of this analysis, we agree to keep the figures intact on the ground that these had to be made so as to fulfil the sales contracts with suppliers that were agreed prior to the resumption. Otherwise, the Applicant would have to suffer losses due to the cancellation or variation of any of these contracts.

53. Based on the assumptions set out in the above paragraph and the original trading figures in Table 2 above, we set out in Table 11 below our estimates of the Applicant's revised average monthly figures if the Applicant had not disposed of those 350 cars sold at forced sale values.

Table 11

Detailed analysis of the average monthly figures of the Applicants from 7/1998 assuming the Applicant did not dispose of those cars that had been sold at forced sale values (based on Table 2 and Table 10)

54. The figures shown in Table 11 are on the whole self-explanatory. The right most column in Table 11 shows our estimates of what the stocks on site would be at various times. It would be in the region of between 419 (for December 1998) and 489 (for October 1998). None of the estimated stock figure for the period between October 1998 and April 1999 was even as high as the actual stock figure (i.e. 484) for August 1998 as reported by the Applicant in Exhibit A5. Moreover, in none of the months under consideration did the estimates exceed our estimated maximum capacity of 650 for the site.

55. Therefore, we conclude that when the Applicant sold the 350 cars at forced sale values, there should be no shortage of space for the existing stock and the incoming stock (from imports) as long as the Applicant had properly mitigated the loss due to the resumption by making the reasonable management decision of not purchasing cars locally in Hong Kong. Our analysis in Table 11 leads us to arrive at the above conclusion.

Was the methodology for forced sale undertaken by the Applicant reasonable?

56. AW2 gave evidence that she followed the management's instruction and carried out the forced sale of the 350 cars on site. There was no particular list of cars earmarked for forced sale, nor was the clients given the forced sale prices of the cars. It was only after a customer offered or countered a price that she would seek approval from AW1. And, after AW1 approved the sale, it would be a done deal. So, from what AW2 had told us, the so-called forced sale prices appear to us to be the prices that a prospective purchaser was prepared to pay at a particular point of time during the period between October 1998 and April 1999. However, it could be that due to the fluctuations of market prices and the interaction of supply and demand the prices might have dropped substantially at the end of 1998, in response to, for example, as contended by the Respondent, the changes in import policy of China regarding the LHD cars.

57. We cannot understand why a list of cars earmarked for forced sale was not prepared if the Applicant decided that a forced sale was necessary between October 1998 and April 1999. Likewise, from what the Applicant's witnesses have said in their oral evidence, the prices fetched for these 350 cars (shown in Bundle A1) were not forced sale values, according to the commonly adopted definition of forced sale value, as defined by R2 in his report (Bundle A2, page 726), as follows: -

"market value with the proviso that the vendor has imposed a time limit for completion, which cannot be regarded as a reasonable period within which to negotiate the sale, taking into account the nature of the assets and the state of the market."

Were the open market values of the cars that had been sold at forced sale values properly made?

58. AW2 gave evidence that the open market values of cars sold at forced sale values were based on the prices of other cars of the same model, which were transacted either some months earlier or some months after the date of forced sale of such cars. She included a number of sales invoices of such transactions at market values in Bundle A1.

59. We have set out below a summary of the quoted transactions of one popular model of cars, Mitsubishi V31: -

Table 12

Analysis of Sales contracts of "Mitsubishi V31" which were used as "comparable" by the Applicant

Notes

(1) From pages 21 and 22 of Exhibit A1, there were a total of 79 cars of the brand, "Mitsubishi V31" (1999 Model),sold under "forced sale" by the Applicant. They were sold between $79,800 and $87,000 per car, during the dates between 14/10/1998 and 7/4/1999. Their total sales price under "forced sale" was $6,566,420 giving an average sale price of $83,119.

(2) The Applicant valued these 79 cars (sold under forced sale) at a market value of $111,000 each.

(3) The Applicant also quoted the above comparable transactions as evidence of market values for the cars sold.

60. AW2 did not actually explain in details how she had valued these 79 cars of "Mitsubishi V31" (that were sold between 14/10/1998 and 7/4/1999) at a market value of $111,000 each. From what were set out in the sales invoices of Bundle A1 (the details of which have been summarized in Table 12 above), a total of 28 such cars were sold by the Applicant between 6/2/1998 and 24/3/1998 at prices between $117,000 and $130,000, and an average of $118,786 per car. Also a second batch of 100 of such cars was sold between 18/11/1999 and 3/2/2001 at prices between $119,000 and $160,000 or an average of $131,000 per car. Therefore, we could infer that AW2 basically adopted the transacted prices of cars in March 1998 as the market values of similar cars (of the same brand but different year) sold under "forced sale" condition between 14/10/1998 and 7/4/1999. However, the Tribunal decides that if this was in fact what AW2 had done, this was too simplistic and was wrong in principle. From Table 12, we find that the changes in actual transacted prices could be as high as about 10% in a month's time. So, it would be wrong in principle to adopt the actual prices of sales of some cars in March 1998 as the market values of similar cars of the same brand but different year in October 1998 to April 1999.

61. Our above comments still stand even though we find from page 14 of Exhibit A11, which was produced by RW2, that the total market value of these 350 cars, in the sum of $48,350,000, as estimated by AW2 was quite close to the total market value of the same, in the sum of $50,964,000, as estimated by RW2. For example, in Exhibit A11 prepared by RW2, we note that whilst the market value estimated by AW2 for Mitsubishi V31 was $111,000, the market value of the same estimated by RW2 was $120,000. The difference is $9,000, or 7.5% of RW2's estimate. However, what is at stake here is the principle of arriving at the assessed market value figures. Since we find that the method of arriving at the market values by AW2 had not been, in the outset, properly set out in her assessment report, we consider that it is necessary to point out the problems, as above.

Loss on breach of contracts with suppliers and associated expenses

62. It was submitted by the counsel for the Applicant that in order to cope with the impacts of the impending resumption, the Applicant had taken steps to reduce the number of cars by a gradual reduction in the placing of orders with the manufacturer. AW1 said in her oral evidence that she started to reduce the orders after she had known that the resumption was going to take place but before she knew the details (Transcript, page 10). She further added that it had taken about 4 months and half a year between placing an order with suppliers and the shipments' arrivals to Hong Kong (Transcript, page 11). However, we find the said times between orders and deliveries to be different from the respective dates shown in the copies of cancelled or varied contracts of sales produced by the Applicant. In the latter instances, we find that the span of time between the date of sales contract and the last date of shipment of the cars were between about 2 1/2 months and 3 1/2 months.

63. Also, the figures from Table 2 show that the number of cars imported by the Applicant was not reduced for the months from January 1998 to July 1998, despite the evidence from AW1 that she and other fellow traders in Kam Tin had heard of the resumption since late 1997. In fact the number of imported cars was only reduced from the month of August 1998. Assuming that it took an average of about 3 months from the date of placing an order to the last date of shipment to Hong Kong, we find that it was not until about the month of May 1998 that the Applicant had actually reduced the placing of orders. Also, the actual reduction in orders were anything but gradual since we find that the numbers of imported cars were reduced from 314 in July 1998, to 147 in August 1998, 30 in September 1998, 75 in November 1998 and 0 in December 1998. By contrast, we find from Table 2 above that the number of imported cars was quite steady for the 6 months between February 1998 and July 1998.

64. The Applicant claimed the following losses under this head, as set out by AW1 in his supplementary report (Bundle A2, page 812B): -

Deposits forfeited by Mitsubishi	HK$3,035,000
Corporation, Japan
Less Reduction in price in new contract	HK$2,841,930
	HK$193,070.00
Add Extra storage and interest charges	HK$439,494.73
	HK$632,564.73

		say HK$632,565
Add deposits forfeited under 2
contracts with China Automobile Co. Ltd.		810,000
Add value of six cars forfeited due to
frustration of other contracts with NMSC Ltd.		HK$1,000,000
	Total losses, before apportionment	2,442,565
	Apportionment factor	37%
	Total losses, after apportionment	HK$903,749

65. The Applicant submitted that it was AW1's evidence that apart from these contracts, all other outstanding contracts had been fulfilled by the Applicant (Transcript, page 31). And the reason given by AW1, for the termination of the contracts was, "Because of lack of space or insufficient space. Because if they came in one go, there won't be sufficient space to accommodate them." (Transcript, page 31, N-O)

66. On the other hand, RW1 considered that there was no need for the Applicant to cancel the contracts "as the trading business carried on as usual before and after resumption where cars come and go". He further added, "Although portion of the subject site was resumed by Government and reduced the storage capacity of the business, the cars might just arrive as usual but store at some place else in Hong Kong. The rental expenses saved from the resumed portion should be able to cover the additional rental expenses for the replacement area."

67. The Respondent submitted in the final submission that no compensation ought be paid in respect of the Applicant's terminations of contract, for the following reasons: -

(a) "The said termination of contracts were necessitated not by the resumption but by the change in market situation in mainland China."

(b) "At least some of the terminated contracts should have been fully performed before the Applicant had details of the resumption. The termination is likely to have nothing to do with the resumption."

(c) "The contracts with Mitsubishi were cancelled in December, those with China Automobile in October 1999 and those with NMSC in September 1999. Given the drastic steps taken by AW1 since August 1998 (stopping purchases, withholding orders, effecting forced sales), there was no reason why these contracts had to be terminated at such a late stage. The need to terminate must have arisen from causes other than the resumption."

(d) "L/Cs for the full contract sums of the two Mitsubishi contracts ought to have been opened by 15.7.1998 and 15.8.1998 respectively. That in respect of one of the contracts with NMSC ought to have been opened before end of July 1998. These dates were well before the Applicant had detailed knowledge of the resumption." Therefore, the terminations could be due to impecuniosities on the part of the Applicant and not due to the resumption.

(e) "... for the contracts with NMSC, the applicant only needed to pay a 10% deposit, equivalent to the value of 2.5 cars. Unless the Applicant was unable to pay the deposit, there is no reason why the Applicant should use the six bonus cars as deposit. Furthermore, it is unreasonable to ask the Respondent to compensate the Applicant for the 6 bonus cars, when what ought to have been forfeited as deposit was only the equivalence of the value of 2.5 cars."

(f) "Goods represented by the Mitsubishi contracts were to be shipped direct to China and had nothing whatsoever to do with the lack of space in Hong Kong."

68. We find that the reasons submitted by the Respondent in paragraphs (b), (d), (e) and (f) above are valid and have not been adequately accounted for in either the Respondent's claim or in the evidence of the Respondent's witnesses. For those reasons alone, the Tribunal agrees with the Respondent and decides that no compensation should be paid to the Applicant in respect of its claim under this head. In addition, the Tribunal also considers it appropriate to analyse the matter further in trying to determine whether there was sufficient space to accommodate the stock from the contracts that were breached by the Applicant.

Was there sufficient space to accommodation the stock if the contracts were not cancelled or varied by the Applicant?

69. We summarize in Table 13 below all the contracts that were breached or varied, including the one re-negotiated contract with Mitsubishi for 126 cars, replacing the two cancelled contracts. We also add a column titled "Assumed shipment months and quantity if contracts were not breached or new contract not signed".

Table 13

Details of Contracts frustrated or re-negotiated by the Applicant

* The two contracts with Mitsubishi (Ref. 1 and 2 in Table 13) were for a total of 186 cars. The Applicant could not fulfil the terms of the contracts. The manufacturer disposed of 40 cars to some other party and the Applicant took delivery of 20. The order for the remaining 126 cars was replaced by a contract dated 3rd Dec., 1999 (Ref. 3 in Table 13) under which the cars were re-purchased at a lower price but the deposits paid under the two previous contracts were forfeited.

# The Applicant withdrew its claim in respect of this contract.

^ See details in the column titled "Estimated Additional Imports" Table 14 below.

70. Using the results of our analysis from Table 11 above, and our assumptions in the right most column of Table 13 above we carry out and set out in Table 14 below an analysis of the monthly figures of the Applicant from 7/1998 to 7/1999, similar to that of Table 11, but on the following assumptions: -

(i) the Applicant had not disposed of the cars that had been sold at forced sale values (same as the assumption for Table 11);

(ii) the Applicant did not cancel or re-negotiate the contracts listed out in Table 13 above (new assumption);

(iii) the Applicant stopped purchases in Hong Kong between 9/1998 and 4/1999 (similar to the assumption for Table 11); and

(iv) the Applicant did not have to enter into a new contract with Mitsubishi as a result of which the shipments from that contract (Ref. 3 in Table 13) would have been cancelled.

Table 14

Detailed analysis of the monthly figures of the Applicant from 7/1998 assuming: (i) the Applicant did not dispose of those cars that had been sold at forced sale values, (iii) the Applicant did not cancel or re-negotiated the contracts listed out in Table 13 and (iii) the Applicant stopped purchases in Hong Kong between 9/1998 and 4/1999

71. In carrying out the analysis at Table 14, we consider that the assumptions made are reasonable ones. The differences between the assumptions in preparing the analysis in Table 14 and the earlier Table 11 are two. Firstly, we assume that the Applicant should have made the reasonable decision to stop purchases locally in Hong Kong in September 1998 (one month before the date of gazette notice of resumption), after taking into account the drastic reduction in sales in July 1998 and August 1998, and the consequential upsurge in actual stock on site, as well as the adverse financial impacts to the business if any of the contracts were to be breached. Secondly, we assume that the Applicant had not breached any of the contracts, and the deadline for shipments of the vehicles were complied with, as shown in the right most column of Table 13. The details of these additional imports are set out in the column C of Table 14. The rest of Table 14 is self-explanatory.

72. In conclusion, from our analysis in Table 14 above, we find that our estimated stock did not at any month exceed the maximum capacity of 650 before the resumption, or 500 after the resumption. The maximum capacity was very nearly reached in the month of October 1998 and April 1999. In this connection, we agree with the Respondent that even in short periods of time, when the maximum capacity of the site, either before or after the resumption, was reached, there was no reason why the Respondent could not have the stock of cars stored elsewhere. Bearing in mind the high costs incurred if any of the contracts were cancelled or varied, or if the cars had to be sold at "forced sale values", it would be reasonable for a normal businessman to find some storage areas such as a properly guarded car park or parking yard to store the extra cars.

Loss of fixtures and facilities, and reinstatement costs

73. AW3 set out in Appendix E of his valuation report (Bundle A2, pages 713 - 716) an appraisal report, which was prepared by Great East Asia Surveyors & Consultant Co. Ltd. ("Great East Asia") and approved by a Mr. Thomas K. C. Wong, Registered Structural Engineer and Authorized Person. In the report, which was dated 25th May 1999, summarized the following estimates were summarized: -

"Construction cost analysis for similar arrangement of facilities

Paper A - Existing Fixture Value HK$428,220

Paper B - New Fixture Replacement Value HK$20,768

Great East Asia Surveyors & Consultants Co. Ltd. issue paper A and paper B for the existing fixture value and new fixture replacement cost for the claim settlement. Approved By Ir. Thomas K. C. Wong: (signed)"

74. In the said Paper A, Great East Asia set out the "construction cost analysis for similar arrangement of facilities (existing fixture)" of 14 items. The analysis includes the description of particulars of the items, the quantity, the unit rate and the amount for each item. The total amount claim for existing fixture in Paper A is $428,220. The said Paper B listed out the estimates of the replacement cost of 4 items: steel canopy, corrugated fencing, relocate container (workshop) and setting out survey fee, totaling $20,768.

75. Mr. Wong was not called by the Applicant to give evidence in the hearing. AW3, based on the appraisal report approved by Mr. Wong, stated in his report that the fixtures and facilities as detailed in the said Paper A, "had to be disposed of as a result of the scaling down of the business following the resumption" and could not be sold. As a result, the loss under this head should be $428,220 as assessed in Paper A of the appraisal report. In addition, AW3 stated in his report that the replacement costs of $20,768 for re-fencing, etc. as detailed in the said Paper B were "the necessary costs incurred to put the site up to a standard capable for operational purposes, in compliance with the statutory safety and environmental requirements."

76. The Applicant during the hearing produced page 716A, as an amendment to page 716 of Bundle A2. They show references of various items of the original page 716 to the items in RW2's report.

77. RW2 set out in his valuation report firstly, the schedule of assets of the Applicant and secondly, where appropriate, his estimates of the market values for existing use of some of these assets, which were affected by the resumption, and his estimates of the forced sale values of the same. At the end, he estimated that the sum of the market values of the Applicant's assets that were affected by the resumption was $64,673 while the sum of the forced sale values of the same was $4,400, giving a difference of $60,273 as to be the loss to the Applicant (Bundle A2, page 737A).

78. The Applicant submitted that the Applicant's total claim of $616,392 was based on the appraisal report prepared by Great East Asia as amended by the addition of several items. These items, including the elevated platform in the sum of $120,000, which had been omitted in the appraisal report, the fork lift adaptor for the elevated car platform in the sum of $8,000, the cost of dismantling of the elevated car platform in the sum of $27,204 and the cost of plumbing the relocated toilet facilities in the sum of $12,200, were added to the Paper A of Great East Asia's appraisal report. The amended Paper A was produced as page 716A of Bundle A2. The additional items claimed, the Applicant submitted, were supported by the invoices produced in Exhibit A10. Therefore, the total amount claimed in page 716A of Bundle A2 is $595,624. This amount, after adding the amount of $20,768 shown in Paper B (Bundle A2, page 715) gives a total of $616,392 as the revised claim of the Applicant under this head of claim.

79. The Respondent submitted that the appraisal report from Great East Asia was wholly valueless because: -

(a) The compiler of the report was never called.

(b) It was the evidence of RW2, who had inspected the site prior to resumption, that the various items of facilities listed out in the said Appraisal Report [716] (which was replaced by [716A], by the Applicant during the hearing) were not what he had found on site prior to resumption.

(c) There was no basis and an entire mystery to the Respondent as to how the figures under the column "Amount" in the said Appraisal Report were arrived at. It was not even known whether they represented replacement cost new or value of the item after depreciation.

(d) The Applicant adduced a whole bundle of invoices during the middle of cross-examination of RW2. Most of the items, which were in the first place actual costs without taking into account depreciation, were not referable to the items in the said Appraisal Report.

80. In the light of the above, the Respondent submitted that the only reliable evidence on the value of fixtures and fittings and cost of reinstatement must be those from RW2.

81. We find that notwithstanding that the evidence from RW2 was not entirely satisfactory, his evidence is far superior to that adduced by the Applicant. Apart from the fact that neither the compiler of the Appraisal Report submitted by the Applicant nor any other expert witness in that field was called to give evidence, we decide that the lack of evidence of even the existence or otherwise of the items shown in the original Appraisal Report of Great East Asia was fatal to the Applicant's case. As to the additional items claimed with the eleven invoices dated between 30/11/1994 and 27/4/1999 produced in Exhibit A10, it was also not clear whether some of the items actually existed in the site before the resumption. For example, the Tribunal finds that in Exhibit A10, there are so many invoices for gates in 1994, 1995, 1996 and 1999 that appears to us to be unusual, and that had not been accounted for by the Applicant. In the circumstances, we concur with the Respondent's submission and accept the evidence from RW2, the only expert witness on plant and machinery that was called to give evidence in this case, regarding the compensation under this head of claim. In fact, the Tribunal has considered whether RW2's evidence should also be rejected because of some of the shortcomings of his evidence. However, in the event that RW2's evidence were to be discarded, the Tribunal would be left with no credible evidence at all for the purpose of reaching its determination of the compensation amount under this head of claim. Therefore, the Tribunal finally reached its decision that in spite of imperfection of the evidence from RW2, the Tribunal is prepared to accept his evidence of values and hence his estimate of the loss to the Applicant under this head of claim.

Severance payment and payment in lieu of notice to employees

82. The Applicant dismissed 7 out of its 12 staff members on 15.8.1998. Apparently the price war affected its sales figures in July and August, 1998. Its business dropped drastically and it did not require so many employees. So it reduced its staff force. It is simply inconceivable that it would dismiss more than half of its staff force due to the resumption of the site, because at the material time it had no idea of the date of its implementation and it did not know the extent of the resumption. The Applicant's counsel submitted that "The staff were dismissed in August 1998 due to the impending resumption, the drop in input and ordering of cars from the end of 97 and the decline in the number of cars sold." On 15.8.1998, the Applicant had no knowledge of the date of the resumption, how could it regard the resumption as impending?

83. The Applicant employed one employee on 6th July 1998. If it had anticipated that the resumption would take place soon, and its business would be reduced, it should not have done so. It knew that resumption would take place, and yet it increased its staff force. This refutes any suggestion that it intended to reduce its manpower because of resumption. The dismissal of its 7 employees is not related to resumption. It had to dismiss such a number of employees purely because of its poor business at that time; it had nothing to do with resumption. The Tribunal therefore has no hesitation to dismiss this head of claim.

Professional fees and disbursements and interest

84. Both the Applicant and the Respondent agreed that determination of these items of claim be deferred to a later stage.

Orders

(1) Accordingly, we order that the Respondent do pay the Applicant compensation in the sum of $60,273 (Sixty thousand two hundred and seventy three Hong Kong dollars) as follows: -

(a)	Partial loss of goodwill	Nil
(b)	Loss due to termination of contracts with suppliers, and supplier's extra storage charges and interests	Nil
(c)	Loss of fixtures and facilities and cost of reinstatement	$60,273
(d)	Loss on forced sale of stock	Nil
(e)	Severance payments to employees	Nil
		_________
		$60,273

(2) The matters of professional fess, interest and costs be adjourned to a date to be fixed by the Assistant Registrar, with liberty to apply for any other ancillary and consequential matters.