MINGO PROPERTIES LTD v. THE DIRECTOR OF LANDS

LDLR 6 OF 2005

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Lands Resumption Application No. 6 of 2005

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D E C I S I O N

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Background

1. In January 2007, the Applicant applied to the Lands Tribunal for the determination of compensation in respect of the property known as Portions D & E on Ground Floor, Nos. 329 and 331 Shau Kei Wan Road and Nos. 1 and 3 Nam On Lane, Shaukeiwan, Hong Kong (“the Property”) under section 10(2)(a) of the Lands Resumption Ordinance, Cap. 124 (“the Ordinance”).  The Property was resumed on 25 May 2005.

2. After hearing the application, the Tribunal determined the compensation for the Property in the sum of $17,094,000 and directed that the parties could make further applications in respect of other ancillary and consequential matters including professional fees, interest and costs.  The parties went into negotiation for these items of claims.

The present application

3. The Applicant submitted that as the negotiation between the parties broke down, the Applicant applied on 9 October 2007 for a hearing “to proceed to formal assessment of the interest on the awarded compensation payable by the Respondent”.  The matter was fixed for hearing on 7 December 2007.  Counsel gave submissions and no witness was called as there was no dispute on the facts adduced by the parties.  This written Decision sets out my decision on the application.

The agreed facts and the outstanding issue between the parties

4. It is not in dispute that: -

(1)	the Applicant took a provisional compensation payment of $12,954,000 from the Respondent on 5 October 2005 and further took the balance of the compensation money in the sum of $4,140,000 on 28 May 2007 (for this reason, the principal sum for interest calculation is agreed at $4,140,000, i.e., the difference between the Tribunal’s determined sum of $17,094,000 and the provisional payment of $12,954,000);
(2)	the period for interest calculation is from 26 May 2005 (the date of resumption) to 28 May 2007 (the date of payment of the balance sum of $4,140,000); and
(3)	(i)	the interest cost on the principal sum of $4,140,000 amounts to $410,015.81 if this Tribunal agrees with the Applicant’s case that this is the interest cost reasonably incurred by the Applicant in connection with the acquisition of the replacement property at Ground Floor, 211A Fa Yuen Street Kowloon” (“the Replacement Property”) under section 10(2)(e)(i) of the Ordinance; or alternatively,
	(ii)	the interest cost on the principal sum of $4,140,000 amounts to $189,674.37 if this Tribunal agrees with the Respondent’s argument that the Applicant should not be entitled to any interest more than “the lowest of the interest rates paid on deposits at 24 hours’ call by note-issuing banks” according to section 17 of the Ordinance.

5. Therefore, the only dispute between the parties is in relation to the applicable rate of interest on the principal sum of $4,140,000 for the period from 26 May 2005 to 28 May 2007.

The Applicant’s case

6. Counsel for the Applicant in his written submission stated that the hearing was restored for the determination of “the interest loss suffered by the Applicant” as a result of the acquisition of the Replacement Property under section 10(2)(e)(i) of the Ordinance or, alternatively, at the discretion of the Tribunal, under section 17 of the Ordinance

7. The Applicant further stated that the Replacement Property was acquired on 17 May 2005 for investment purposes (subject to an existing tenancy) for the sum of $17,280,000.  The Applicant confirmed that the Applicant only applied for the award of interest on the principal sum of $4,140,000, in the sum of $410,015.81 even though there is a difference between the compensation amount of $17,094,000 and the purchase price of the Replacement Property.

8. In addition, the Applicant submitted that this Tribunal has an “unfettered discretion” to fix a rate which is higher than “the lowest of the interest rates paid on deposits at 24 hours’ call by note-issuing banks” and given the circumstances of the present case, it is certainly just and equitable to do so.  Therefore, as an alternative to the parties’ computed interest costs, the Applicant submitted that this Tribunal has the discretion to fix a rate not necessarily the same as or similar to the actual interest rates of the Applicant’s commercial loan or the Respondent’s adopted rates of interest.  It would be suffice for this Tribunal to fix a rate that is just and equitable in the circumstance for compensating the Applicant, who was being kept out of its just compensation of $4,140,000 (being the balance of final compensation sum and the provisional payment) for about 2 years.  The Applicant suggested that, for example, a rate of 2 to 3% above the “24 hours’ call rate” would be a sufficient compensation for the Applicant. 

The Respondent’s case

9. The Respondent opposed the application in principle.  The Respondent stated at the outset that as the compensation for the Property had already been conclusively determined by the Tribunal and there had been no appeal against the Order of the Tribunal, this Tribunal has no jurisdiction to re-open the matter and make any order for interest cost or loss as being the amount of “expenses reasonably incurred” by the Applicant under section 10(2)(e)(i) of the Ordinance.  Any compensation payable under that particular section should have been treated as part of the compensation sum for the Property compulsorily acquired by the Government and dealt with in the original hearing.

10. Therefore, section 17(3) of the Ordinance is the only relevant statutory provision.  However, in the present case, similar to Gain Talent Development Limited v. Secretary for Environment, Transport and Works (unreported, LDMR7/2003), there is no justification for the Tribunal, to exercise its discretion under section 17(3A) of the Ordinance to warrant the imposition of a higher interest rate.  As a result, the interest cost should be computed under section 17(3B) of the Ordinance.  This gives a sum of $189,674.37.

11. The Respondent submitted that, “there is no allegation by the Applicant, or any evidence, that the Director had behaved unreasonably or by his conduct protracted the time taken in determining the compensation claim which would warrant the imposition of a higher interest rate.”  Hence, there is no reason for the Tribunal to exercise its discretion under section 17(3A), departing from the “24 hours call rate” laid down under section 17(3A) of the Ordinance.

12. Moreover, the Respondent submitted that the mortgage rates actually incurred by the Applicant for the Replacement Property is an irrelevant matter, or alternatively, even if it is relevant, it does not warrant the exercise of discretion by the Tribunal, under section 17(3A) of the Ordinance, for the adoption of a higher interest rate.  The Respondent suggested that as the Replacement Property was, according to the Applicant, acquired for the purposes of letting, it would be earning a stream of rental income from the date of its purchase.  There is therefore no reason that the Applicant should obtain double benefit by receiving the rental income as well as an additional interest based on the enhanced interest rate to be ordered by this Tribunal.

The relevant provisions of the Ordinance

13. Section 10(2)(e)(i) of the Ordinance provides: -

“	(2)	The Tribunal shall determine the compensation (if any) payable under subsection (1) on the basis of-
		(a)	……….
		(b)	……….
		(c)	……….
		(d)	……….
		(e)	in the case of land resumed under an order made under section 3 on or after the commencement of the Crown Lands Resumption (Amendment) Ordinance 1984-
			(i)	the amount of any expenses reasonably incurred by him in moving from any premises owned or occupied by him on the land resumed to, or in connection with the acquisition of, alternative land or land and buildings, but excluding any amount to which paragraph (d) applies;
			(ii)	………………….”

14. Section 17 of the Ordinance provides: -

“	(3)	Subject to section 16A(3), any sum of money payable as compensation by virtue of a determination of the Lands Tribunal or an agreement under this Ordinance shall bear interest from the date of resumption of the land until the expiration of the time specified in the notice referred to in subsection (2). No interest shall be payable on any costs or remuneration.
		(3A)	Subject to subsection (3B), the rate of interest for the purposes of subsection (3) shall be such rate as the Lands Tribunal may fix.
		(3B)	The rate of interest fixed under subsection (3A)-
			(a)	in respect of a working day must not be lower than the lowest of the interest rates paid on deposits at 24 hours' call by note-issuing banks at the close of business on that day; and
			(b)	in respect of a non-working day must not be lower than the lowest of the interest rates paid on deposits at 24 hours' call by note-issuing banks at the close of business on the last working day before that day.”

Whether the Applicant could claim the interest cost as an item under section 10(2)(e)(i) of the Ordinance

15. I agree with the Respondent that there is no legal basis for the Applicant to raise the argument at this stage that the Applicant suffered in interest cost payable to the bank when applying for a mortgage for the Replacement Property.  If the Applicant had considered this to be a relevant issue in the compensation claim, the Applicant should have included this in the original claim, as was, for example, the case in the resumption of a business premises where the owner occupier moved his business to a new premises and submitted claims for relocation expenses.   

16. Also I do not agree that the Applicant’s alleged claim of the “interest cost” under section 10(2)(e)(i) of the Ordinance falls within the ambit of para. 2 of the Order made by the Tribunal dated 26 February 2007.  To recap, that Order stated that, “the matters of professional fees, interest and costs be adjourned to a date to be fixed by the Registrar, with liberty to apply for other ancillary and consequential matter.”  Although the relevant section of the Ordinance was not cited in that Order, the word “interest” must logically and exclusively refer to the interest payable under section 17 of the Ordinance.  It could not be given the meaning of the mortgage interest or the difference between the mortgage interest payable by the Applicant to the bank and the interest payable under section 17, or the interest cost payable in acquiring the Replacement Property or the interest loss suffered by the Applicant.  Likewise, the reference to “the ancillary and consequential matters” could not be extended to cover the Applicant’s alleged additional interest cost or loss, whatever it may be.

17. It must be clear from the Judgment and the Order this Tribunal handed down that other than “the matters of professional fees, interest and costs”, the compensation amount payable by the Respondent to the Applicant was concluded, unless it is over-ruled by a higher court.  Of course, there was neither a review nor an appeal.  So the Applicant could not be allowed to re-open the matter in this application.  For this reason, this Tribunal does not even have to be concerned with and decide on the reasonableness or otherwise, on the part of the Applicant, of incurring additional interest by applying for and taking a commercial loan to top up the provisional compensation amount in the purchase of the Replacement Property.   This issue should have been taken up in the original hearing for the compensation for the acquired Property should the Applicant considered the alleged additional interest cost or loss to be compensatible.

Any justification for the Tribunal to impose a higher interest rate

18. The Applicant did not dispute with the Respondent that there was no allegation that any party has “behaved unreasonably” or “by his conduct protracted the time in determining the claim”.  Therefore, I agree with the Respondent that there was no legitimate reason for this Tribunal to exercise the discretion to impose a higher or a lower interest rate as set down under section 17(3B) of the Ordinance.  In this respect, I follow the decision of the Tribunal in the Gain Talent case, which, as submitted by the Respondent, has taken into the observation of Lord Nicholls in the Privy Council decision of Director of Lands v Shun Fung Ironworks [1995] 2 AC 111 at 139E-G, as follows: -

“

In their Lordships’ views, in requiring the tribunal to have regard to the lowest time deposit rate, the legislative purpose must be that this should be the rate fixed by the tribunal unless in the particular case there is good reason for departing from it.  The rate specified is a low one, but the legislature must be taken to have intended that ordinarily this should be adequate recompense to a claimant for being kept out of his money.  This would not cover a case where one of the parties has behaved unreasonably, and by his conduct protracted the time taken in determining the claim.  In a suitable case that could furnish good reason for the tribunal fixing a higher or lower rate, depending on who was at fault.” (emphasis added).

19. I also agree with the Respondent that although there was an amendment of section 17(3A) on 12 April 2001 a few year after the decision of Shun Fung case, that was “never intended to alter the basis upon which the discretion was to be exercised by the Tribunal” and should not affect the applicability of Lord Nicholls’ observation to the current section 17(3A).  Rather, the amendment was needed merely for a practical reason, i.e. to alter the benchmark interest rate from the Hong Kong Association of Bank’s rate to that of the note-issuing banks.

Relevance of the higher mortgage rate payable by the Applicant

20. Finally, I agree with the Respondent that this is an entirely irrelevant matter in the present application.  For this reason, I do not think that I even have to consider this matter in this Written Decision.

Conclusion

21. I find entirely in the Respondent’s favour and now give the following Orders: -

(1)	The Respondent do pay the Applicant interest on $4,140,000, being the difference between the previously determined compensation amount of $17,094,000 and the provisional compensation sum of $12,954,000 already paid to the Applicant, at the rate stipulated under section 17(3B) of the Ordinance, in the sum of $189,674.37;
(2)	Costs Order Nisi – The Applicant do pay the Respondent the costs of this application, to be taxed if not agreed; with Certificate for Counsel.  If application by either party to vary the costs order is not made within 14 days from today, the costs order shall become absolute.