HONGDA CONTAINERS LTD v. The SECRETARY FOR TRANSPORT

cacv 269/2003

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 269 of 2003

(on appeal from LDMR NO. 7 of 2000)

_________________________

_________________________

_________________________

REASONS FOR JUDGMENT

_________________________

Hon Rogers VP:

1.  I agree with the reasons for judgment of Le Pichon JA. 

Hon Le Pichon JA:

2.  This is an appeal by Hongda Containers Ltd (“HCL”) from the order dated 18 August 2003 of the Lands Tribunal dismissing its claim for compensation.  At the conclusion of the hearing, the appeal was dismissed with costs, the basis of such costs being reserved.  The reasons for dismissing the appeal and the basis of the costs order appear below.

Background

3.  The applicant operated a container storage, repair and maintenance business in the New Territories on land held from Government.  A strip of land representing approximately 18.62% of the total site was resumed by Government as part of the West Rail project.  The site notionally reverted to Government on 16 January 1999 although actual site clearance only occurred on 26 May 1999.  It was the applicant’s case below that the resumption caused it to cease business and in fact it did so on 31 July 1999, some 67 days after Government resumed possession.  The applicant applied for compensation and submitted that its loss should be assessed on a total extinguishment basis because it was reasonable for it to have terminated its business given the resumption. 

4.  It was common ground that as from 1 August 1999, the applicant’s business was carried on by another company called Hongda Terminal (HK) Ltd (“HTL”) and the de facto owners of the applicant and HTL were two brothers, namely, Simon Lau Shek-tat and John Lau Shek-yau respectively and referred to as “AW1” and “AW2” respectively by the judge.  HTL ceased business in October 2001.

5.  The application was heard over a number of hearing days spread out between September 2000 and October 2001 (“the first hearing”).  On 4 June 2002, the tribunal gave judgment for the respondent (“the first judgment”).  It rejected the applicant’s case that the resumption caused it to cease business: rather, it made the following finding at paragraph 83:

“83.  In our judgment, no reasonable businessman in the same position of [Simon Lau] would have decided to extinguish his business totally.…  In other words, we find that on the evidence before us, a reasonable businessman in the position of the Applicant would have continued with his business and claimed compensation on the basis of the loss actually caused by the disturbance resulting from the resumption.”

6.  The tribunal ruled that the applicant’s claim for disturbance should only be assessed on the basis of partial extinguishment instead of total extinguishment and directed that the applicant “be allowed to file further statement and/or documentary evidence (e.g. the monthly trading accounts of [the applicant] and HTL …”.  A further hearing was accordingly held in 2003 (“the second hearing”).  On 18 August 2003, the tribunal rendered its judgment (“the second judgment”) dismissing the applicant’s claim to compensation which is the subject matter of this appeal.

This appeal

7.  Mr Smith SC, who appeared for the applicant, submitted that the judge had made errors of law in the second judgment.  Before turning to those matters, there is a more fundamental issue that should be considered first.

8.  Section 32(2) of the Railways Ordinance, Cap. 519 provides that:

“(2)  A person described in column 3 of Part II of the Schedule has the right to recover compensation for the matters set out in column 1 to the extent suffered or incurred by him as assessed under this Ordinance.”

It is clear from Part II of the schedule referred to that compensation may be claimed for the resumption of land under the Railways Ordinance, the basis of compensation being the same as if the claim had been made under the Lands Resumption Ordinance, Cap. 124.  Under section 10(1) of Cap. 124, compensation is determined “on the basis of the loss or damage suffered by the claimant due to the resumption of the land specified in the claim”.

9.  Having regard to the clear finding of fact made by the tribunal set out in paragraph 5 above, had the applicant acted reasonably, it would have continued with its business and claimed compensation for any loss actually suffered by reason of the resumption.  But that was not a course that the applicant chose to adopt.  Therefore any loss would be purely hypothetical, based on profits it might in theory have made had it chosen to continue in business, an option which the tribunal found it had unreasonably eschewed. 

10.  Mr Smith submitted that the loss should be calculated or quantified at the date of resumption but he was unable to produce an authority to that effect.  Then it was said that it had been agreed between the parties that the appropriate multiplier was for 3 years’ purchase.  I do not see that that can assist the applicant since the multiplier becomes relevant only after the applicant has succeeded in establishing his entitlement to compensation.  In my view, it is clear that the applicant is not entitled to be compensated for potential loss of profit or hypothetical loss.  I cannot see that the applicant can be entitled to any compensation after 31 July 1999 when it did in fact cease business because the threshold for compensation required by section 10(1) which is actual loss suffered and not loss computed on some hypothetical basis had not been met.  In this regard, the decision of this Court in Yip Kui trading as Tai Wo Trading Company v The Secretary for Transport, CACV 379 of 2002, unreported, 13 June 2003 applies.  For that reason alone, the appeal falls to be dismissed. 

11.  It is to be noted that, in my view, the tribunal ought not have assessed the claim on the basis of partial extinguishment.  As a practical matter, that made no difference to the result because the applicant’s claim was in fact dismissed on the basis that the applicant had failed to adduce sufficient evidence of loss resulting from the resumption to justify an award.

12.  Turning to the so-called errors of law, as will appear below, the applicant was unable to substantiate its case that there had been any such errors. 

The accounts

13.  At the resumed hearing in 2003, the applicant did not avail itself of the opportunity to file new evidence; rather, it amended its calculation of the loss of profits.  Two alternative bases were put forward.  An assumed occupancy rate of 63% formed an important component of the calculations which were based on newly adopted optional occupancy figures using historical accounting data and assumptions.

14.  At the first hearing, AW1 and AW2 gave evidence to substantiate the applicant’s claim for compensation.  A total of 4 accountant’s reports were submitted to the tribunal by Cheung Sai-wa (AW3) who is an accountant.  At paragraph 18 of the first judgment, the tribunal had this to say about the reports:

“In all these reports, AW3 made certain assessments on the profitability of the Applicant’s business on the assumption that if (sic) no resumption were to take place.  The other objective of these reports was to assess the loss suffered by the business because of the resumption.  As confirmed by AW3 in his evidence given in the hearing, his role was not that of an auditor.  Hence, he had simply accepted the truthfulness of the information and accounting documents supplied to him and made his assessments there from.”

Then at paragraph 32, the tribunal after noting that the accountant’s report included the applicant’s trading results as well as its audited accounts for the respective years ended 31 December 1998 and 31 December 1999 observed as follows:

“We noted that those accounts were not complied (sic) by AW3 himself but he was just given those accounts together with other documents.  He then used those accounts to prepare the accountant’s report for the purpose of making the present claim by making a comparison between the projected profits with the actual figures achieved.  We also noticed that the Respondent had repeatedly raised queries on the authenticity and accuracy of those accounts.  However, the accountant who worked out those accounts from raw data was never called and the Applicant’s case could only be rested on such footings.”

The other documents included in the reports were forecasts of annual profits, projections, statistics and monthly management accounts.

15.  In evaluating the evidence of AW1 and AW2, the tribunal referred, inter alia, to the financial figures produced by the applicant.  For example, AW1 had maintained (1) that the applicant suffered “losses at $0.50 M per month from April 1999 onwards”; (2) that by March or April 1999, AW1 had accumulated a loss of $15 M or that the applicant had lost its $15 M capital because of the adverse impact of the resumption; (3) that shortage of funds was a pressing and insurmountable problem for AW1 in April 1999 that led to cessation of the applicant’s business.  The tribunal found that the accounts did not tally with the evidence of AW1 and AW2.  It disbelieved AW1 and AW2 on the basis of documentary evidence.  The tribunal concluded that there was no urgent need for any reasonable businessman controlling the applicant in April 1999 to decide to cease business totally and permanently because, contrary to the applicant’s case, the business had been generating a steady stream of profit since December 1998 and the 3 months prior to cessation on 1 August 1999 continued to show improving results. 

16.  Mr Smith’s complaint was that the tribunal erred in rejecting the authenticity or accuracy of the accounts in determining compensation because it had relied on them in the first judgment.  But as will have become apparent, the accounts served to demonstrate that AW1 and AW2’s evidence should not be believed.  That did not mean that the tribunal accepted the truth and accuracy of the accounts.  It is clear from the passages from the first judgment cited in paragraph 14 above that the tribunal was well aware of the shortcomings of the accounts and the criticisms of the respondent in that regard. 

17.  Mr Smith then submitted that the applicant was not obliged to tender the author of a set of accounts for cross-examination.  That may be so but the accounts contained material that had not been audited.  Given the nature of the accounts which included forecasts put forward to show the “with resumption” and “without resumption” financial position, statistics and projections to demonstrate the loss suffered, the tribunal cannot be faulted for coming to the conclusion that it could not be satisfied on the balance of probabilities that the figures shown represented the true financial picture when the person who had compiled the forecasts was not called to give evidence to explain the basis upon which these had been made.

HTL’s accounts

18.  As noted above, HTL was a company which carried on the business of the applicant as from 1 August 1999 and was operated by AW2.  In the first judgment, the tribunal allowed the applicant to file further evidence in support of its claim on the basis of partial extinguishment and, by way of example, it referred to the trading accounts of both the applicant and HTL.  The applicant filed an expert’s report dated 3 August 2002 prepared by Ellen Y T Lo.  Paragraph 7 of the report reads:

“7.  The Applicant’s business ceased on 31 July 1999 after resumption of a land strip running diagonally across the depot on 16 January 1999.  Hongda Terminals (HK) Limited (‘HTL’) established a similar business on the same site on 1 August 1999.  However, the business of HTL is not taken into account in this exercise as a result of the decision of the Tribunal that HTL is not a party in the present case.”

As appears from paragraph 20 of the second judgment, the tribunal did not agree with what was stated in the last sentence of that passage.  Mr Smith submitted that the tribunal had misdirected itself inasmuch as it considered that the business records of HTL (which was not a party and a separate legal entity) ought to have been produced in evidence by the applicant.

19.  Given that the brothers AW1 and AW2 were respectively the de facto owners of the applicant and HTL and both of them had given evidence on behalf of the applicant, had it so wished, the applicant could have procured the production of HTL’s accounts which would have been pertinent to the issue of loss likely to have been sustained as from 1 August 1999 had the applicant carried on its business.  All the tribunal was saying was that given the circumstances, if HTL’s accounts were not produced when plainly the applicant was in a position to do so, it was a matter that could be taken against the applicant who, after all, had the burden of proving that the loss would have been suffered.

Occupancy rate

20.  It was said by the applicant that the tribunal had made a finding that an occupancy rate of 63% was a realistic figure for the entire reduced site at paragraph 79 of the first judgment and that, accordingly, the applicant was entitled to rely on this ‘finding’ for the purposes of establishing its claim for compensation.  

21.  Mr Smith acknowledged that it had not been put to the tribunal at the second hearing that the tribunal was bound by the 63% occupancy rate.  In fact, in the course of argument, Mr Smith had to concede that he was not in a position to submit that the tribunal was bound by any ‘finding’ made in the first judgment.  If, therefore, the tribunal was not bound by any earlier finding, it was open to it to review the matter afresh at the second hearing.

22.  In fact, the exercise carried out by the tribunal described in paragraph 79 of the first judgment was an estimate of the containers present on the northern portion of the reduced site based on a photograph taken on 31 August 2001.  This was undertaken to evaluate the veracity of the evidence of AW2 that the rate of utilisation of the entire reduced site by HTL was only 35%.  The tribunal concluded that AW2 “was not telling the tribunal the truth when giving evidence on the occupancy rate of HTL.”

Concrete paving

23.  Another complaint was that the tribunal had misdirected itself in failing to award compensation of $179,500 of the loss of concrete paving.  It was said that the respondent’s expert Elmo Mella had calculated that a sum of $179,500 out of consultancy fees of $2.5 million paid to the landlord was fairly attributable to the concrete paving on the resumed strip of land.  But as the tribunal noted in paragraph 10 of the second judgment, Mr Mella’s primary position was that there was no evidence to show that the applicant had acquired any proprietary interest on the land other than its use during the life of the tenancy.  The quantification of the claim at $179,500 was made on an alternative basis on the assumption that, contrary to his primary position, the applicant did acquire a proprietary interest in the concrete paving.  It is clear that there had been no concession by the respondent that the applicant had made any payment in respect of the concrete paving.

24.  The tribunal found that the $2.5 million payment was more likely to have been an agency fee.  That was a finding of fact which was open to the tribunal to make and one which the applicant is precluded from challenging absent any concession on the part of the respondent and there had been none.

Costs

25.  Mr Miu applied for costs on a common fund basis because it was said that the appeal should never have been brought.  That the appeal had no merit was evident.  But to justify an award of costs on a basis higher than party and party taxation, the dismissal of the appeal is in itself insufficient.  In my view there has to be some special factor or unusual feature to attract a higher basis of costs, for example where the appeal bordered on being an abuse of process.  No such special factor or circumstance existed in the present case.  I would therefore award costs to the respondent on the normal party and party basis.

Hon Tang JA:

26.  I agree.