KEENRICH TRADING LTD v. THE DIRECTOR OF LANDS

LDLR 1/2022

[2024]HKLdT65

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO 1 OF 2022

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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 31 January 2024 (“the Judgment”).

2.  In the Judgment, it was ordered that :

(1)  the Respondent do pay the Applicant compensation for the Property (which was resumed) in the sum of HK$14,400,000 (“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 (§65 of the Judgment).

3.  The parties dispute on the matters of interest, professional remuneration and costs in this case.

Undisputed Events

4.  The Applicant was the former registered owner of the Property at Ground Floor, No 89 Oak Street, Kowloon, Hong Kong, being 1/10^th equal and undivided share of and in Kowloon Inland Lot No 10422 on which a 10-storey tenement building was erected.

5.  By a notice of resumption dated 4 September 2020 and published in Gazette Notice No 4979, the Government informed the Applicant that the Property would be resumed for the implementation of the Urban Renewal Authority Development Project YTM-011 at Oak Street/ Ivy Street, Tai Kok Tsui, Kowloon. The date of reversion would be 5 December 2020.

6.  Whereas under section 6 of the Ordinance, the Respondent shall within a period of 28 days from the date on which land reverts to the Government writes to the former owner and to any person having an estate or interest in the land immediately before reversion under an instrument registered in the Land Registry, making an offer of compensation in respect of the resumption of the land, the Respondent did so on 24 December 2020. He made an offer to pay HK$14,046,000 (comprising HK$13,638,000 being the value of the Property and HK$408,000 being a solatium payment) to the Applicant for statutory compensation which the latter did not accept.

7.  On 22 March 2022, the Respondent made an offer to pay HK$14,874,000 (comprising HK$14,466,000 being the value of the Property and HK$408,000 being a solatium payment) to the Applicant for statutory compensation. The Applicant accepted the offer of a provisional payment in the sum of HK$ 14,466,000.

8.  On 16 May 2022, the Applicant filed a Notice of Application to Determine Compensation for Land Resumed under the Ordinance, requesting the Tribunal to determine the amount of compensation payable in respect of the resumption of the Property.

9.  On 6 October 2022, the Applicant and the Respondent entered into an agreement pursuant to which it was agreed that the Respondent would make provisional payment of statutory compensation in the sum of HK$14,466,000 to the Applicant (“Provisional Payment”) pending full and final settlement of the Applicant’s claim for statutory compensation to be determined by the Tribunal. The Provisional Payment was paid to the Applicant on 6 October 2022 and interest thereon in the amount of HK$265.91 was paid to the Applicant on 17 July 2023.

10.  On 10 July 2023, the Respondent made a sealed offer to pay HK$16,161,000 to the Applicant in full and final settlement of the Applicant’s claim for statutory compensation (“Sealed Offer”). The Applicant failed and/ or refused to accept the Sealed Offer by the deadline of 7 August 2023.

11.  At trial on 6 November 2023, the Applicant claimed the market value of the Property in the sum of HK$20,350,000 while the Respondent contended that the market value of the Property should be HK$14,594,000 only.

12.  As afore-said in §2 above, on 31 January 2024 when the Judgment was handed down, the Compensation as determined by the Tribunal was HK$14,400,000:

	Amount Claimed by Applicant	Amount Contended by Respondent
	$20,350,000	$14,594,000
Difference from Award	$5,950,000 (41.32%)	$194,000 (1.35%)

Interest for Provisional Payment

13.  The rate of interest on compensation in land resumption cases is governed by section 17 of the Ordinance, which has recently been amended in 2023.

14.  Mr Francis Chung (“Mr Chung”), counsel for the Applicant, referred to section 23(3) of the Ordinance which has been added as “Transitional provisions for Development (Town Planning, Lands and Works) (Miscellaneous Amendment) Ordinance 2023”. It states as follows:

“If any land has reverted to the Government under section 5 before 1 September 2023, sections 16A[1] and 17 as in force immediately before that date continue to apply in relation to the compensation in respect of the resumption of the land as if sections 17 and 18 of the Amendment Ordinance had not been enacted.”

15.  Since the date of reversion in the present case was 5 December 2022 (ie before 1 September 2023), section 17 as at the date of reversion continues to apply. Section 17(3) of the then 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 bears 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 is payable on any costs or remuneration.”

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

17.  Under section 17(3B) of the then Ordinance, it sets the minimum rate of interest being the lowest of the interest rates paid on deposits at 24 hours’ call by note-issuing banks in Hong Kong.

18.  Notwithstanding the above, Mr Chung referred to sections 2 and 17(3A)(a) of the Ordinance, where for land reversion after 1 September 2023, the interest rate payable would be 1-month Hong Kong Dollar Interest Settlement Rate published by the Hong Kong Association of Banks by the close of business on a day.

19.  Mr Chung then referred to Happy Dragon Restaurant Limited v Director of Lands [2014] 3 HKC 538 where the Tribunal adopted Prime +1% to be the pre-judgment interest rate:

“42. We accept that our discretion is governed by section 17(3), (3A) and (3B) of the LRO and we are not bound by the long established practice, which remains being a practice, not law that we must follow. It is purely guesswork that the court of appeal had followed the long established practice as it did not give any reason for its decision on the interest rate. 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.”

20.  Mr Chung submitted that the Tribunal in Halesweet Limited v Director of Lands, LDLR 8/2015 (unreported, dated 24 January 2018) and Chiu Yuen Yin v Director of Lands, LDLR 1/2019 (unreported, dated 11 August 2021) had followed and applied Happy Dragon Restaurant in awarding Prime + 1% as the pre-judgment interest rate as a starting point.

21.  However, Mr Chung had been aware that there were other cases where the Tribunal awarded the minimum interest rate given the applicant’s unreasonable conduct in the circumstances.

22.  In Tsan Luk Yuk Yin v Secretary for the Environment, Transport and Works, LDMR 3/2005 (unreported, dated 4 September 2014), the Tribunal fixed the lowest interest rate because of the applicant’s unreasonable behavior/ conduct which included:

(a)  The claim was grossly exaggerated up to $78,606,000 when the counsel for the claimant conceded that the compensation payable would only be $20,600,000 if NTEH development was the optimal development for the purpose of assessing the value of the Lots;

(b)  The pre-action conduct of the claimant was unprofessional and unreasonable in prolonging the proceedings and the applicant only took out a claim 8 years after the date of resumption;

(c)  The first claim based on the 2003 scheme was unprofessional in disregard of the existence of a right of way; and

(d)  The claimant unreasonably declined any reasonable offer and unreasonably persisted in claim based on the 2009 scheme.

23.  In Tze Chan Fai & Another v Director of Lands, LDLR 10/2018 (unreported, 2 September 2021), the land in question reverted to the Government on 16 January 2016 and the award of compensation in the sum of HK$18,000,000 on 5 November 2020 was lower than the provisional payment of HK$19,415,334 which was paid on 26 May 2017. There was also a sealed offer in the sum of HK$19,625,000. Thus, the claimants had unreasonably declined the sealed offer. They were overpaid by HK$ 1,415,334 and kept this sum for a period of 4 years and 3 months.

24.  Hence, in the present case, the Applicant had been likewise overpaid by HK$66,000. While Mr Chung conceded that this overpayment should be refunded to the Respondent at the lowest interest rate paid on deposit at 24 hours’ call by the note-issuing banks for the period from 6 October 2022 until payment, he submitted that the Applicant is entitled to a higher rate of interest at Prime + 1% on the compensation amount of HK$14,400,000 from 5 December 2020 to 5 October 2022 for the following three reasons:

(1)  The Applicant had been kept out of the money for the period from the date of reversion to the date of receipt of the Provisional Payment where the HSBC’s prevailing best lending rate plus 1% was appropriate. In the Legislative Council Brief for the latest amendment of the Ordinance[2], it was acknowledged on p 14 of Annex B that the minimum interest rate may fall short of that required to compensate claimants for being kept out of the money. From the administration’s perspective, it was stated that it is necessary to improve the rate on one hand, and to define it in more definitive terms on the other hand to provide certainty and facilitate timely conclusion of compensation matters. It would be too mechanical and hence misconceived for the Respondent to ask for the lowest interest rate simply when the Provisional Payment totaling HK$14,466,000 only exceeded the Compensation by a slight margin of HK$66,000. If the HSBS’s prevailing best lending rate plus 1% is adopted, Mr Chung submitted, it is estimated that the Applicant is entitled to over HK$1.5 million:

Period	Number of Days	HSBC Prime rate	HSBC Prime rate + 1%	Calculation of Interest	Amount of Interest for the period (HK$)
05.12.2020 to 31.12.2020	27	5.000%	6.000%	$14,400,000 x 6.000% x 27/366	$63,737.705
01.01.2021 to 31.12.2021	365	5.000%	6.000%	$14,400,000 x 6.000% x 365/365	$864,000.000
01.01.2022 to 22.09.2022	265	5.000%	6.000%	$14,400,000 x 6.000% x 265/365	$627,287.671
23.09.2022 to 05.10.2022	13	5.125%	6.125%	$14,400,000 x 6.125% x 13/365	$31,413.699
				Total:	$1,586,439.705

(2)  The present case is distinguishable from Tze Chan Fai, supra, where the applicants in that case were overpaid a large sum of HK$1,415,334 (as opposed to only HK$66,000 in the present case) and kept the sum for a long period of 4 years and 3 months (as opposed to only 1 year and 9 months in the present case). Also, unlike Tsan Luk Yuk Yin, supra, the Applicant in the present case had proceeded with the case expeditiously. Mr Chung submitted that the period of 17.5 months from the date of application (ie 16 May 2022) to the date of commencement of trial on 6 November 2023 was one of the shortest in recent land resumption cases.

(3)  The Applicant should not be deprived of its entitlement of a higher rate of interest simply because it did not accept the Sealed Offer. After all, valuation is not an exact science. In the Judgment, Mr Chung submitted, the Tribunal had not made any findings that the Applicant’s claim was frivolous or unreasonable. There was no suggestion that no competent valuer could reasonably have (a) chosen the comparables adopted by the Applicant’s experts. Mr Cheung or (b) valued the Property as Mr Cheung did. In the same vein, there were no finding that the Applicant’s arguments are wholly illegitimate or unmeritorious. In any event, the Provisional Payment was made before the Sealed Offer. Even if the Tribunal finds that it was unreasonable for the Applicant to reject the Sealed Offer, the Tribunal should not penalize the Applicant with the lowest rate of interest for the Provisional Payment which was made before the Sealed Offer. In the latter regard, Mr Chung referred to Chiu Yuen Yin v Director of Lands, LDLR 1/2019 (unreported, 11 August 2021) at §11:

“[The Tribunal] agree with Mr Lee that there is no rule requiring an applicant in resumption cases to accept provisional payment offers. Although Mr Ng has commented that the applicant had unreasonably rejected the Provisional Payment Offers, he has not made further submissions in this regard. Nevertheless, [The Tribunal] consider the applicant should have accepted the Sealed Offers, which he could receive $549,000 more in compensation. Accordingly, [The Tribunal was] of the view the applicant should have interest at prime plus 1% from the date of resumption to the deadline for acceptance of the Sealed Offer only, and the interest thereafter up to the date immediately before the judgment should be fixed at the minimum rate of interest under section 17(3B) of the Ordinance. [The Tribunal] consider that the applicant’s rejection of the Sealed offers and at the same time enjoyment of a higher interest rate would be unfair to the respondent.”

25.  Ms Ebony Ling (“Ms Ling”), counsel for the Respondent, however disagreed. She submitted that the 24 hours’ call rate should be adopted in the present case because:

(1)  The Provisional Payment received by the Applicant exceeded the Compensation;

(2)  The Applicant had unreasonably declined the Sealed Offer; and

(3)  The Compensation failed to beat the Sealed Offer.

26.  Nevertheless, I consider Ms Ling’s submission that the Provisional Payment received by the Applicant exceeded the Compensation misleading. As submitted by Mr Chung, the Provisional Payment totaling HK$14,466,000 only exceeded the Compensation by a slight margin of HK$66,000. What is more important is that the Provisional Payment was paid to the Applicant only on 6 October 2022. That is the Applicant was kept out of the Compensation from 5 December 2020 to 5 October 2022, ie a total of 1 year and 305 days. The Applicant in the present case had proceeded with the case expeditiously. For instance, the Applicant had filed the Notice of Application to Determine Compensation for Land Resumed on 16 May 2022 even before the Provisional Payment was paid. The trial soon commenced on 6 November 2023 without much hassle and the Judgment was handed down on 31 January 2024.

27.  For the same reason, I agree with Mr Chung that whether the Applicant had unreasonably failed to accept the Sealed Offer made on 10 July 2023 is entirely irrelevant insofar as interest on the Compensation up to 5 October 2022 is concerned.

28.  I note that on the basis of the 24 hours’ call rates during the period, mere HK$265.91 was paid to the Applicant on 17 July 2023. This was nominal. I agree that the 24 hours’ call rates fell short of that required to compensate the Applicant for being kept out of the Compensation. I am prepared to award therefore interest on the Compensation at HSBC’s prevailing best lending rate plus 1% for the period from 5 December 2020 to 5 October 2022. The amount of interest as calculated by Mr Chung as stated in §24(2) above is HK$1,586,439.705.

Professional Fees and Costs

29.  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.”

30.  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).”

31.  Here, Mr Chung emphasized the compensation approach in land resumption cases and referred to Able Wide Corp Ltd v Makharia Alka [2023] 2 HKLRD 1344 at §46:

“The principles comprised in the Compensation Approach referred to in Good Faith can broadly be summed up as follows:

i) A respondent, (as compared to a successful claimant, i.e. a claimant who is awarded more than the amount of an unconditional offer by the acquiring parties in an application in the Lands Tribunal or more properly the Upper Tribunal (Lands Chamber) as is now called in UK), should be entitled to his costs incurred in the proceedings in the absence of “special reason” to the contrary;

ii) Whether there is any “special reason” is a judgment of the tribunal;

iii) Wasted, or unnecessary costs incurred because of conduct of the respondent such as abandoned issues, unnecessary adjournments, failure to comply with directions, etc may qualify as “special reasons”;

iv) “Special reasons” should only be regarded as established where the item of costs or 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 disputed compensation;

v) 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;

(b) Their effect on the conduct of the claim.

vi) For (a), if the reasons are defensible, in the sense that there was a legitimate, albeit unsuccessful, argument put forward in support of a figure, that does not justify a sanction in costs;

vii) For (b), if, in any event, the effect on the proceedings in terms of time spent and costs incurred in disposing of the issue or argument concerned is relatively insignificant, adverse order is unlikely;

viii) If exaggerated claim is based on valuation opinion, it will rarely be appropriate to make an adverse order against the successful claimant because valuation is an inexact science;

ix) If the exaggeration is due to choice of comparables because there is no close or obvious comparables available, there is bound to be legitimate room for argument and difference of opinion. That should not ordinarily invite a penalty in costs on grounds that its assertion or resultant discussion has taken up the time of the tribunal unnecessarily;

x) That, however, does not lead to the conclusion that the claimant’s conduct in exaggerating his claim can be of no relevance;

xi) 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 proceedings has been spent dealing with issues unreasonably and unsuccessfully raised by the acquiring party;

(d) The amount or proportion of the costs disallowed is proportionate to the time wasted.

xii) Costs sanction can be imposed in plain cases where the rejection of an offer or pursuit of a line of opposition is obviously unreasonable, e.g. the exaggeration was the product of the claimant’s reliance on expert evidence which should have been recognized as unreliable; and that the decision to rely on that evidence had led to the waste of substantial time and expense. The sanction can range from depriving the claimant of costs and even asking it to bear the applicant’s costs in a serious case for those hopeless challenges;

xiii) If experts engaged by both sides have adopted polarized positions and there have been lack of realistic offer and/or counter-offer, it may be appropriate to order each party to bear his own costs.”

32.  Mr Chung submitted that there should be no dispute that the Respondent should pay the Applicant’s costs and professional remuneration of this application before the expiry of the Sealed Offer, ie 7 August 2023. As regards the costs after the expiry of the Sealed Offer, Mr Chung submitted that the Applicant’s conduct of the proceedings is not so unreasonable that it should be penalized.

33.  Mr Chung repeated that the Tribunal had not made any findings that the Applicant’s claim was frivolous or unreasonable. There was no suggestion that no competent valuer could reasonably have chosen the comparables adopted by Mr Cheung or valued the Property as he did. There was also no finding that the Applicant’s arguments were wholly illegitimate or unmeritorious.

34.  Next, Mr Chung suggested that the trial of this application had been conducted efficiently. The period of 17.5 months from the date of application to the date of commencement of trial was one of the shortest in recent land resumption cases. There was no unnecessary adjournments or failure on the part of the Applicant to comply with the Tribunal’s directions. The trial proceedings were concluded within 2.5 days. There was no complaint about any prolix cross-examination or argument on any issue which would be a waste of time and costs. Experts on both sides had agreed on all the attributes of the Property and all comparables. The main difference between the opinions of Mr Cheung on behalf of the Applicant and Ms Ng on behalf of the Respondent only stemmed from the choice of comparables. During trial, the Applicant had rendered assistance to the Tribunal in understanding the neighbourhood and the use of the Property before the resumption by producing witness statement and relevant photographs. And as a matter of fact, the Tribunal had accepted some of the arguments put forward by Mr Cheung and the determination was not one-sided in favour of the Respondent. For instance, the Tribunal had accepted the Applicant’s (a) adjustments to return frontage, (b) adjustments to building age and (c) adoption of multiplication in total adjustment.

35.  Mr Chung submitted that the mere fact that there existed disparities between both experts’ opinions should not be a sufficient special reason for an adverse costs order against the Applicant. Mr Chung submitted further that both experts did not have large disparities in respect of the factors of adjustments and their respective opinions on the standard of adjustments were supported by caselaw. The main difference between the opinions of Mr Cheung and Ms Ng stemmed from the choice of comparables in respect of the locational characteristics of those comparables. Indeed, after the site inspection, Mr Cheung made concession to adopt comparables RE-C1, RE-C2 and RE-C5 taking into account the observations made by the Tribunal. Both experts agreed to drop comparable AE-3. Notwithstanding this, the Tribunal did not in fact agree with the location adjustments made by Ms Ng for her own comparables RE-C1, RE-C2 and RE-C5.

36.  Lastly, Mr Chung submitted that the mere fact that an award was lower than a Sealed Offer does not mean that the Applicant must pay costs incurred by the Respondent after expiry of the Sealed Offer. As the Applicant had reasonably relied on its valuation opinion, its rejection of the Sealed Offer from the Respondent (which exceeded the award) cannot be considered as unreasonable.

37.  In the above regard, Mr Chung referred to the acceptable margin of error for valuation of the Property which was a shop premises. The award (HK$14,400,000) only fell short of the Sealed Offer (HK$16,161,000) by $1,761,000 or 12.2%, which should be regarded as within an acceptable margin of error in valuation of shop premises.

38.  As a fallback, Mr Chung submitted that should the Tribunal take the view that the Applicant should not have rejected the Sealed Offer, given that it was not frivolous for the Applicant to rely on its expert opinion and that its conduct of the trial was not unreasonable, the Tribunal should consider no order as to costs from the expiry date of the Sealed Offer.

39.  In my opinion, Mr Chung had with respect downplayed the importance that the Respondent had made the Sealed Offer that the Applicant failed to accept; as it turned out, the Sealed Offer at HK$16,161,000 was higher than the Compensation awarded at HK$14,400,000.

40.  Remember the Sealed Offer was made in line with the policy objective of facilitating settlement of dispute in legal proceedings. Where the compensating authority made an offer of compensation and costs which should have been accepted by the claimant, which consciously rejected that offer, the Tribunal should be slow not to have the claimant borne the costs consequence. Otherwise, the claimant would be able to "have their cake and eat it".

41.  More importantly, that the award only fell short of the Sealed Offer by $1,761,000 cannot assist the Applicant. This some 12.2% difference only demonstrates that the Sealed Offer was reasonably made by the Respondent and of course it would only be higher than the market value of Property so as to attract acceptance and to protect his position on costs.

42.  On the other hand, by choosing to reject a reasonable Sealed Offer and pressing ahead with legal proceedings, the Applicant was presumed to have assessed the risk of costs being awarded against it in case the legal proceedings did not yield a result that could beat that offer.

43.  In the present case, Mr Chung, with respect, failed to compare the Compensation with amount claimed by the Applicant at HK$20,350,000 which had been grossly exaggerated by as much as 41.32%. Mr Chung’s referral to the margin of error in the valuation exercises cannot assist him because this exaggeration was much higher than the usual margin acceptable for shop premises. As summarised in K/S Lincoln v CB Richard Ellis [2010] EWHC 1156 (TCC) at §183, for a standard residential property, the bracket or the margin of error acceptable may be as low as plus or minus 5 per cent; for a valuation of a one-off property, the bracket will usually be plus or minus 10 per cent; if there are exceptional features of the property in question, the bracket could be plus or minus 15 per cent, or even higher in an appropriate case. In Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd [1996] 1 EGLR 119, however, a range of 14.5% to 23% was described as “absurd”.

44.  I do not lose sight of what Potter LJ had said in Purfleet Farms Ltd v Secretary of State for Transport, Local Government and the Regions [2003] 1 P & CR 20 at §36 that “exaggeration alone is not enough in the event of a large disparity between the sum claimed and the sum awarded”. In this case, it must be noted that the English Lands Tribunal determined the compensation at £6,660,000 which exceeded the figure put forward by the Secretary of State at the hearing at £3,750,000 and his sealed offer of £5,000,000. That is, the claimant was “the successful claimant” but the English Lands Tribunal found the claimants’ value was assessed at a particularly high figure and this should result in a reduction in costs. The appeal against this decision of the English Lands Tribunal was dismissed by the English Court of Appeal after following analysis:

“34. … the principal reason for the Tribunal’s progression/departure from the starting point that the claimants had been successful and should therefore receive their costs, was not simply that ‘the claimants’ value was assessed at a particularly high figure’, but that this resulted from the use by the claimants’ expert valuer of comparables ‘wholly dissimilar to the reference land and unreliable in other respects’. ... Shortly, the comparables which the Tribunal found of assistance were sites which yielded figures close to the value per acre put forward by the respondent’s expert. In order to counter this position, the claimants’ expert relied upon three particular ‘comparable’ sites all of which, if truly comparable, supported the very much higher figure for which he contended.

…

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.”

45.  In the present case, with respect, Mr Cheung did the converse of the claimants’ expert valuer in Purfleet Farms, supra.

46.  Mr Chung did note that both valuation experts, Mr Cheung and Ms Ng agreed to drop Comparable AE-3 but this was the comparable put forward by Mr Cheung in the first place. It appeared as comparable No 2 in his valuation report submitted to the Urban Renewal Section of Lands Department on 23 August 2021[3]. Ms Ng tried to discount the significance of this comparable by allowing -15% for location. However, the ground floor premises in the vicinity of this comparable were predominated by trades resembling those of a local wet market which is in completely different character from the subject locality. Therefore “(w)hile I had pointed out the above to the valuation experts during the course of inspection, both Mr Cheung and Ms NG agreed to drop it as comparable.”[4]

47.  Mr Chung failed to mention that another comparable adopted by Mr Cheung, being Comparable AE-1 was also dismissed by the Tribunal:

“For instance, the comparable itself is occupied as a real estate agency. Next to it are a convenience store, a bakery, an eatery, a mobile phone parts retail shop and an automobile shop. None of such shops exists next to the Subject Property on Oak Street. As well, the shop front of this comparable shop can be seen from a far distance even on Fuk Tsun Street. In addition, its saleable area comprises only 22.96 sq m which is less than half the size of the Subject Property[5]. Such a huge difference in size cannot be readily compensated by any size adjustment, not to mention Mr Cheung’s proposal of mere -3.4%. I agree with Ms Ng that this transaction should be disregarded as comparable.”[6]

48.  As a result of the above, Mr Cheung lost two out of his four comparables, leaving only the following:

Comparables	Unit Rate (/m2)	Location Adjustment		Assessments After Adjustment		Tribunal’s Determination
		Mr Cheung	Ms Ng	Mr Cheung	Ms Ng
AE-2	$485,437	-10.0%	-5.0%	$339,521 (-30.1%)	$320,874 (-33.9%)	$315,049 (-35.1%)
AE-4A & 4B[7]	$287,577 / $289,575	+10.0%	0.0%	$311,309 (+8.3%) / $311,815 (+7.7%)	$272,413 (-5.6%)	$254,810 (-11.7%)

49.  From the above, it is obvious that the Tribunal came up with determinations much in favour of Ms Ng despite the nitty-gritty in the adjustments. While the difference in location adjustment for Comparable AE-2 was marginal, I had analysed the difference in respect of Comparable AE-4A & 4B in §21 of the Judgment as follows:

“This comparable is a ground floor shop of Evernew Commercial Centre, the only commercial building in the vicinity that happens to be situated behind the Subject Property. While this Evernew Commercial Centre occupies the forefront of Pine Street at its the junction with Ivy Street, the ground floor of this commercial building accommodates for instance, a snack shop “香江美食”, estate agencies and a video game centre which is the occupier of this comparable. The latter just lies at about 12 metres from the street junction of Ivy Street and Pine Street. Opposite this commercial building across Pine Street is a relatively new composite commercial/ residential development known at Park Summit. Completed in 2012, this development comprises some 462 domestic units but most of its shop accommodation on the ground floor do not abut Pine Street but on Ivy Street and Beech Street further down the road. And next to Evernew Commercial Centre further down Pine Street is another new composite commercial/ residential development, ie L Living 23, which comprises some 142 domestic units built in 2021, ie after the relevant dated of 5 December 2020. Whereas this comparable is situated next to the entrance of Evernew Commercial Centre, it lies in proximity to the street junction of Pine Street and Ivy Street, the latter being a busy artery in the vicinity. I am of the view that Ms Ng’s location adjustment at 0% is more reasonable than that of Mr Cheung at +10%. As this comparable lies at the entrance of an office building. I am not persuaded by the submission of Mr Francis Chung (“Mr Chung”) on behalf of the applicant that pedestrian flow during office hours would be even lower.”

50.  Obviously from the above, this Comparable AE-4A & 4B was the best comparable to the Property in terms of location. It also happened to be the best comparable in terms of timing[8] and size[9]. Thus, as a prudent professional valuer, Mr Cheung should have paid more attention to it. If he had been careful enough, adopting his own average adjusted unit rate of $311,562 per sq m, he would have assessed the market value of the Property in the region of 56.49 sq m x $311,562 per sq m = $17,600,137 instead of $20,350,000.

51.  Of course, if Mr Cheung had not honestly thought that the Property, being situated in the middle of a street under an old tenement building, would enjoy a better location than this comparable situated under a relatively new commercial building close to the street junction, he would have come up with say 0% location adjustment as Ms Ng. Should this be the case, relying on this comparable alone, Mr Cheung should have arrived at a valuation of the Property at $16,000,000 or thereabout which would be just 11% over and above the Compensation awarded.

52.  Indeed, “that Ms Ng’s location adjustment at 0% is more reasonable than that of Mr Cheung at +10%” was a fair comment. Mr Cheung, in his report dated 18 October 2022, ie his Rule 20 Document at §8.2.2, recognised that Comparable AE-2 occupies the corner of Bedford Street and Fir Street. He applied a location adjustment of -10% in addition to the -15% for the return frontage. More particularly, by Exhibit A3, ie the photographs produced by himself, the junction between Oak Street, ie the street on which the Property was situated and Fir Street was occupied by Hang Seng Bank. All these should have alerted Mr Cheung that properties situated at and close to the street junctions with Fir Street should fetch higher values. It would be totally unrealistic for him to suggest that the Property enjoyed a better location than Comparable AE-4A & 4B.

53.  Certainly the market is imperfect and the reliance on a single transaction for valuation should be subject to caution. Therefore, Ms Ng rightly sought assistance from Comparables RE-C1, RE-C2 and RE-C5 which lie in the vicinity bearing similar characteristics as that of the Property. Here, Mr Chung’s suggestion that Mr Cheung had agreed to adopt these comparables is misleading because Mr Cheung assigned locational adjustments as much as +50% to +70%. At such significant adjustment level, this was tantamount to saying that these comparables were not comparable at all. I had commented in §§22-24 that such adjustments proposed by Mr Cheung were unrealistic.

54.  Having reviewed the above, I consider the Applicant’s claim, on the basis of Mr Cheung’s valuation or otherwise, was unrealistic and was greatly exaggerated.

55.  The Applicant did not accept the Sealed Offer which would have resulted in a greater sum in compensation than the amount of the Compensation Awarded. While legally represented, the Applicant should know that there was a risk as to costs if it proceeded to a hearing and lost. The Applicant achieved less by rejecting the Sealed Offer and going on with the legal proceedings. That also caused the Respondent to have to incur further costs that could have been avoided. In these circumstances I consider there being no special reason that the Applicant should not bear the costs of the Respondent so far as they were incurred after the Sealed Offer was made and was due to expire on 7 August 2023.

56.  On the other hand, I do not consider that the Applicant’s conduct has led to an obvious and substantial escalation in the costs of the Respondent relating to its defence of the claim. It does not appear to me that, in the period up to the Sealed Offer, they incurred costs in resisting the claim that they would not have incurred if it had been pitched at some lower level. It follows that there is no sufficient reason to deprive the Applicant of its costs prior to the date of the Sealed Offer.

Orders

57.  Accordingly, I order that:

(1)  The Respondent do pay the Applicant interest on the sum of HK$14,400,000 from the date of reversion (ie 5 December 2020) to 5 October 2022 at HSBC’s prevailing best lending rate plus 1% (which had been calculated at $1,586,439.705);

(2)  The Applicant do refund the overpayment of HK$66,000 to the Respondent plus interest at HSBC’s prevailing best lending rate plus 1% for the period from 6 October 2022 until payment; and

(3)  The Respondent do pay the Applicant costs and the professional remuneration reasonably incurred by the Applicant by virtue of section 6(2A) and 10(2)(e)(ii) of the Ordinance before 7 August 2023 to be taxed on High Court scale, if not agreed;

(4)  The Applicant do pay the Respondent’s costs and the professional remuneration from 7 August 2023 together with Certificate for Counsel, to be taxed on High Court Scale, if not agreed; and

(5)  There be no order as to costs relating to all submissions on the outstanding issues including the costs of and incidental to the disposal of the matters of interests, professional remuneration and costs as each party is partly successful in its submission in the present application.