ELTRON DEVELOPMENT LTD v. DIRECTOR OF LANDS

LDLR 4/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO. 4 OF 2013

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D E C I S I O N

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Background

1.  The application by the applicant for determination of compensation pursuant to 10(2) (a) of the Lands Resumption Ordinance, Cap 124 (“the Ordinance”) was heard by this Tribunal with judgment handed down on 21August 2015 (“the Judgment”).  The background of this case can be found in the Judgment and I am not going to repeat here.

2.  In the Judgment, it is ordered that :

(1) the respondent do pay the applicant compensation for the Property in the sum of $35,000,000 (“the Compensation”); and

(2) the matters of professional fees, interest and costs shall be adjourned to a date to be fixed, with liberty to apply for any other ancillary and consequential matters (§86 of the Judgment).

3.   By way of a consent order, parties agreed for the issue of professional fees, interest and costs (“Outstanding Issues”) to be dealt with by way of paper application. This is my ruling on the Outstanding Issues.

Professional Fees and Costs

4.  Section 6(2A) of the Ordinance provides that:

“Where, 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 (5 of 1984), an offer of compensation is made or a claim for compensation is submitted to or by any person under this section, such offer may provide for the payment by the Authority to that person of, or such claim may include a claim for, any costs or remuneration reasonably incurred or paid by him in employing persons to act in a professional capacity in connection with such offer or claim.”

5.  Further, section 10(2)(e)(ii) provides that the Tribunal shall determine the compensation payable on the basis of “the amount of any costs or remuneration mentioned in sections 6(2A) and 8(4).”

6.  On the other hand, the respondent submits a wealth of authorities, including KJ v KMLM, HCMC 4/2010 (unreported, dated 21 May 2014) and Pfeiffer v Cheung Hay Kit, CACV 245/2013 (unreported, dated 29 October 2014) suggesting that a Court (which according to the respondent includes the Tribunal) should be more ready to take an issue-based approach and depart from the general rule that costs will follow the event.

7.  In this regard, the respondent may have lost sight of the judgment of the Court of Appeal in Good Faith Properties Limited & Others v Cibean Development Company Limited [2014] 5 HKLRD 534 which has reviewed the “the compensation approach” and emphasized at the beginning of §27 that “(i)n compulsory acquisition cases, the general approach on costs is that it should not be dealt with in the same manner as ordinary hostile litigation.”

8.  The judgment then cited several paragraphs of the judgment of Potter LJ in Purfleet Farms Ltd v Secretary of State for Transport, Local Government and the Regions [2003] 1 P & CR 20 as follows:

“29 … the costs of a successful claimant (i.e. a claimant who is awarded more than the amount of an unconditional offer by the respondent) should be that he is entitled to his costs incurred in the proceedings in the absence of some “special reason” to the contrary … special reasons should only be regarded as established where the Tribunal considers that an item of costs incurred or an issue raised was such that it could not on any sensible basis be regarded as part of the reasonable and necessary expenses of determining the amount of the disputed compensation…

…

36 … exaggeration alone is not enough in the event of a large disparity between the sum claimed and the sum awarded. The matters to which the Tribunal should have regard are (a) the reasons for that disparity, and (b) their effect upon the conduct of the claim. As to (a), if the reasons are defensible, in the sense that there was a legitimate, albeit unsuccessful, argument put forward in support of the figure concerned, there can be no good reason to regard the claim as exaggerated in the pejorative sense necessary to justify a sanction in costs. …

37 … if the amount of the “exaggerated” claim is based on the valuation, opinion and evidence of the claimant’s expert witness, it will rarely be appropriate in my view to make an adverse costs order against the successful claimant. Valuation is an inexact science …

38 … in such cases, disallowance of a proportion of the claimant’s costs will usually only be justified where the Tribunal is satisfied that (a) no competent valuer could reasonably have regarded the comparable as of real relevance or assistance in the valuation exercise; (b) as a result of its introduction and discussion, a significant amount of the Tribunal’s time has been wasted and the proceedings unduly prolonged; (c) no equivalent or near equivalent proportion of the proceedings has been spent dealing with issues unreasonably and unsuccessfully raised by the respondent; (d) the amount or proportion of the costs disallowed is proportionate to the time wasted.”

9.  There is no dispute that the award of the Compensation in the sum of $35,000,000 exceeds the last offer by the Government on 18 December 2013 in the amount of $24,097,000 by a significant margin. In comparison, the expert on behalf of the applicant, Ms Sat Wei Ling (“Ms Sat”), upon trial, revised her valuation both on the 2-shop basis and on the 1-shop basis to $46,200,000 and $39,020,000[1] respectively. See §11 of the Judgment.

10.  Here the respondent takes issue that the applicant failed to persuade the Tribunal that the Property should valued on a 2-shop basis as opposed to a 1-shop basis. Despite that, I do not consider this a “special reason” that would justify a departure from the “the compensation approach” that the applicant be entitled to its costs and professional fees.

11.  Moreover, in Emslie & Simpson Ltd v Aberdeen District Council (No. 2) [1995] RVR 159; [1995] SC 264, Lord Morison of the Court of Session of Scotland said at §25 that:

“In most cases however it is perfectly reasonable that, having been put to the expense of establishing a right which has been disputed, a claimant should put forward his claim on the maximum basis which he can reasonably support and should be entitled to the expenses of doing so if he is successful in the general assertion of his right.” (emphasis added)

12.  Even the respondent acknowledges in its submission that the Tribunal proceeded initially with the determination of the market value of the Property on the 2-shop basis. Although the Tribunal did not adopt the 2-shop approach in the end, it was only through a comparison with the 1-shop basis that it found in §79 of the Judgment that “the difference between the 2-shop basis and the single-shop basis is not significant … but here I find the demand for mini-shops is not dominant.” The Tribunal did not suggest that the 2-shop basis is wholly without statutory basis or generally wrong in principle.

13.  To the extent that the respondent refers to the comparables put forward by Ms Sat on the 2-shop basis were not suitable, this is not entirely correct as the Tribunal adopted comparable A1.1 in the determination of the compensation payable. In contrast, most of the comparables put forth by Ms Sat on the 1-shop basis were adopted and provided a strong support of the valuation in the end.

14.  The respondent also suggests that the Tribunal had rejected Ms Sat’s adjustment for layout. This is misconceived. At §44 of the Judgment, the Tribunal stated: “… On the other hand, as this comparable has a depth as much as 10 metres or thereabouts whereas the Property has only 4.91 metres, I agree with the adjustment of 4% for layout proposed by Ms Sat.  Such adjustment was also conceded by Mr Faulkner during cross-examination.”

15.  What the Tribunal was not satisfied was the indiscriminate application of Ms Sat’s adjustment on size at 1% per 1 sq m difference because “the embarrassing result occurs only when too much emphasis is placed on the adjustment for frontage”. In this regard, the respondent should have realised that this “adjustment for frontage” at +/- 4% per 1 m difference was agreed by both experts instead of being proposed by Ms Sat alone. In any event, “valuation is an inexact science” and I do think it is fair for the respondent to take issue on that as regards either professional fees or costs.

16.  It is however correct that the Tribunal had held against the application of the return frontage by Ms Sat but I consider that the applicant had a legitimate reason for putting forward such an argument, albeit unsuccessful. The applicant was entitled to, legally speaking, the return frontage; it was only the finding of the Tribunal that the enjoyment of the return frontage if there were no resumption was remote and its value enhancement should be disregarded on the basis of market value. See §33 of the Judgment. This should not be taken as a good reason to regard the claim as exaggerated in the pejorative sense necessary to justify a sanction in costs or professional fees.

17.  All in all, the applicant has been awarded more than the amount of an unconditional offer by the respondent and there is no special reason why it should not be entitled to his costs incurred in the proceedings.

18.  Likewise, the respondent should pay the applicant the professional remuneration reasonably incurred by the applicant in, for instance, employing Ms Sat in this application.

Interest

19.  Section 17(3) of the Ordinance provides that:

“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) …”

20.  Under section 17(3A) of the Ordinance, the rate of interest “shall be such rate as the Lands Tribunal may fix”.

21.  Section 17(3B) of the Ordinance further provides for the fixing of the interest rate, being:

“(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.”

22.  The applicant submits that the correct interpretation of section 17 of the Ordinance is as that of the Court of Appeal’s decision in Happy Dragon Restaurant Limited v Director of Lands (No 2) [2013] 3 HKC 287, and the subsequent decision of the Tribunal in Happy Dragon Restaurant Limited v Director of Lands [2014] 3 HKC 538 (“Happy Dragon”) . In respect of the latter, the Tribunal observed (at 550C-D) that:

“However, the “broad brush” approach in awarding interest rate at Prime + 1% in the absence of any other evidence may still be relevant for our consideration, as it may well represent an amount that could compensate the applicant fairly and fully for being kept out of the money in accordance with the principle of equivalence.” (emphasis added)

23.  The Tribunal then went on to accept Prime +1% as the interest rate to be adopted until judgment and thereafter at judgment rate until payment. The applicant submits that the Tribunal should follow suit in the present application.

24.  Furthermore, the applicant refers to The World Food Fair Ltd & Another v Hong Kong Island Development Ltd, FACV 6/2006 (unreported) where Ribeiro PJ of the Court of Final Appeal, after referring to the Determination on interest and costs in  Polyset Ltd v Panhandat Ltd, FACV 28/2000 (unreported,  dated 25 April 2002), said at §12:

“There is no reason in this case to depart from the usual practice and accordingly the applicable rate of interest should be 1% above the HSBC best lending rate from the date of each relevant payment until judgment.”

25.  The respondent however refers to, for instance, section 16A(3) of the Ordinance to which section 17(3) is subject. This section provides that:

“(1) Where, 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 (5 of 1984), any offer of compensation made by the Authority to any person under this Ordinance in respect of any claim is not accepted, the Authority may, pending the determination by the Lands Tribunal of the compensation, if any, payable in respect of such claim under this Ordinance, pay-

(a) an amount as a provisional payment of the amount payable by virtue of such determination; and

(b) interest on any payment made under paragraph (a), for the period from the date on which the land reverts to the Government under section 5, until the date on which the payment is made, calculated on a daily basis according to subsection (1A).

(1A) For the purposes of subsection (1)(b), the rate of interest paid-

(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.

(2) Any payment made by the Authority under subsection (1) in respect of any claim shall be without prejudice to the claim or the submission thereof to, or the determination thereof by, the Lands Tribunal under this Ordinance; but the amount of compensation payable by virtue of such determination in respect of such claim shall be reduced by the amount of such payment.

(3) Where the amount of compensation payable by virtue of a determination of the Lands Tribunal under this Ordinance is reduced under subsection (2) by the amount of any payment made under subsection (1), such compensation shall not as from the date on which the payment is made bear interest except on the amount thereof as so reduced.

…..”

26.  The respondent refers to particularly an “Agreement as to Provisional Payment of Compensation and Indemnity in respect of Undivided Share in Land Resumed” (“the Agreement”) entered into between the parties on 14 December 2012. Pursuant to the Agreement, the respondent had paid a provisional payment in the amount of $20,764,000 on even date. Hence, the applicant can only claim interest on the reduced balance of compensation, ie $35,000,000 - $20,764,000 = $14,236,000.

27.  The respondent emphasizes that by virtue of the Agreement the respondent accepted the provisional payment “under section 16A of the Ordinance in respect of the value of the undivided share resumed and assessed in accordance with the Ordinance (bearing interest at such rate as shall be determined by the Director having regard to the lowest rate offered from time to time by the three note-issuing banks in Hong Kong on their 24 hours’ call deposits for the period from the date of resumption …)”[2]  The  respondent concedes that the latter wordings in the parenthesis is equivalent to the rate of interest under section 17(3B)

of the Ordinance.

28.  Further, the respondent submits that under Clause 2(iii) of the Agreement, the applicant irrevocably authorizes the respondent to deduct the provisional payment and any interest later paid thereon from any award of compensation and interest which may be made to it by the Tribunal. More particularly, the respondent refers to the following clauses of the Agreement whereby the applicant undertakes:

(a) in the event that the provisional payment together with any interest later paid thereon exceed the amount of statutory compensation and interest determined by the Tribunal, to repay on demand to the Government the amount of such excess;[3] and

(b) to pay or repay to the respondent upon demand by the respondent the sum(s) paid to it under the Agreement together with interest thereon in the event that the provisional payment and the interest have been wrongly paid to it in any circumstances, with the interest payable to be at the lowest rate offered from time to time by the note-issuing banks in Hong Kong on their 24 hours’ call deposits from the date or dates of payment by the respondent under the Agreement to the date of payment or repayment by it.[4]

29.  By reference to the above, the respondent submits that:

(a) The interest payable on the provisional payment from the date of resumption to the date of payment was calculated on

the lowest 24-hour call deposit rate paid by the 3 note-issuing banks.

(b) If there was any excess of payment, the applicant needs only repay the excess to the Government without interest.

(c) Even if there be any provisional payment advanced to the applicant by mistake or wrongfully, the applicant needs only pay interest at the rate calculated on the lowest 24-hour call deposit rate paid by the 3 note-issuing banks.

Therefore, the consideration of fairness, equality and mutuality would suggest that, in the event that amount of statutory compensation exceeds the provisional payment, the Government should similarly be called upon to pay interest at the same rate, ie the lowest 24-hour call deposit rate paid by the 3 note-issuing banks.

30.  While there is force in the above arguments, I do not agree that the applicant is bound by the Agreement to receive interest at the rate calculated on the lowest 24-hour call deposit rate paid by the 3 note-issuing banks.

31.  I agree firstly with the applicant’s reply that what is cited in §27 above is merely a preamble to the Agreement which cannot be taken as an operative part of the agreement in itself. Secondly the preamble provides that “… bearing interest at such rate as shall be determined by the Director having regard to the lowest rate …” instead of “at the lowest rate”.

32.  The modern approach on construction of contractual provisions should not be in dispute. The requirements for implying a term into a written contract were set out by Lord Simon in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of Shire of Hastings (1978) 52 ALJR 20 at 26D:

“Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied : (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

33.  This statement was applied by Ribeiro PJ of the Court of Final Appeal in Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 at §59.

34.  Thus, for a term to be implied, it is not enough that the court considers the term to be one that is reasonable or equitable for the parties to agree on.  It must be “necessary” in the sense that the court must be satisfied that it is what the contract actually means[5].  As the respondent concedes, the applicant’s acceptance of the Agreement would be without prejudice to its claim for compensation under the Ordinance and the payment of interest would be equivalent to the rate of interest under section 17(3B) of the Ordinance.[6]  No reciprocity would be necessarily implied for receiving interest at the lowest 24-hour call deposit rate paid by the 3 note-issuing banks only because (i) if there was any excess of payment, the applicant needs only repay the excess to the Government without interest or (ii) if there be any provisional payment advanced to the applicant by mistake or wrongfully, the applicant needs only pay interest at the rate calculated on the lowest 24-hour call deposit rate paid by the 3 note-issuing banks.

35.  Even if I am wrong in this regard, I note the applicant, as an affected owner in land resumption, was required to sign the Agreement in the form prescribed by the respondent before it was allowed to accept the provisional payment.  In interpreting the Agreement, therefore, I would invoke the contra proferentem rule of construction (§14-009 of Chitty on Contracts) so that the applicant is still entitled to the interest payment under section 17(3B) of the Ordinance in spite of the other terms which may render a contrary suggestion.

36.  In spite of the above, it does not necessarily follow that Prime +1%  should be the interest rate as suggested by the applicant. The Tribunal in Happy Dragon found at §57 of the judgment that:

“As held in The Hong Kong Electric Co Ltd v Commissioner of Rating and Valuation, supra, the practice of awarding interest at Prime +1% amounts to no more than a presumption which can be displaced if its application would be ‘substantially unfair either to one party or the other’. The burden of displacing this presumption lies on the party seeking to displace it”

37.  In consideration of the interest rate, therefore, I should pay regard to whether the respondent’s contention of the unreasonable behaviour of the applicant tends to displace the presumption of awarding interest at Prime +1% and the minimum rate stated in section 17(3B) of the Ordinance should be adopted instead.

38.  Nevertheless, as I have explained in §§9-17 above, I do not find any fault of the applicant that may justify the displacement of this presumption and thus, interest at Prime +1% should be adopted.

Conclusion

39.  Having regard to the above, I accede to all the reliefs sought by the applicant as regards the Outstanding Issues.

Orders

40.  Accordingly, I order that:

(1) That the respondent shall pay the applicant the professional remuneration reasonably incurred by the applicant by virtue of section 6(2A) and 10(2)(e)(ii) of the Ordinance, ie the professional remuneration of Ms Sat Wei Ling, expert for the applicant, with the amount to be determined by the Tribunal if not agreed;

(2) That the respondent shall pay the applicant interest on the sum of HK$20,764,000 (being the provisional payment made under section 16A of the Ordinance) from the date of reversion (ie 2 June 2012) to the date of payment, at the rate of 1% above HSBC’s prevailing prime rate (ie 6% per annum);

(3) That the respondent shall pay the applicant interest on the sum of HK$14,236,000 (being the balance of the statutory compensation under the Ordinance) from the date of reversion (ie 2 June 2012) to the date of the Judgment at the rate of 1% above HSBC’s prevailing prime rate (ie 6% per annum) and thereafter at judgment rate until payment;

(4) That credit be given to the payment of interests previously paid the applicant (if any); and

(5) That the respondent shall pay the applicant’s costs of this application (including all costs reserved together with this application) together with Certificate for Counsel, to be taxed on High Court Scale on party and party basis if not agreed.

[1] In her supplemental expert report dated 14 July 2014, Ms Sat assessed it as $35,067,000.

[2] See Recital (d) of the Agreement.

[3] See Clause 2(iv) of the Agreement.

[4] See Clause 2(v) of the Agreement.

[5] Recently in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2015] UKSC 72; [2015] PLSCS 341, the United Kingdom Supreme Court refined, at §21, that “a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”

[6] See Recital (d) of the Agreement.