THE HONG KONG ELECTRIC CO LTD v. COMMISSIONER OF RATING AND VALUATION

   LDGA 224 / 2004 
& LDRA 358 / 2004
(Consolidated)

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

GOVERNMENT RENT APPEAL NO. 224 OF 2004

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D E C I S I O N

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A.   Introduction

1.  On 30 November 2009, the Tribunal handed down its judgment (“the Judgment”) concerning these 2 appeals.  In allowing the appeals, the parties are directed by the Tribunal to agree on the proper form and terms of the order, including the final figures on the rateable value and the resultant rates and Government rent. 

2.  The parties are now unable to agree on principally two aspects of the final form and terms of the order, and thus the present hearing seeking the Tribunal’s determination.    In this Decision, we adopt the abbreviations used in the Judgment.  The Decision should therefore be read together with the Judgment.

3.  The two outstanding issues are:

(1)  Whether the proportion attributable to the HT’s assets should be determined by reference to 31 December 2003 data or 31 March 2004 data.  We call this the split of asset issue.

(2)  Whether, and if so how much, interest should be payable on the overpaid rates and Government rent.  We call this the interest issue.

B.   The issues

B1. The split of asset issue

4.  This issue arises as follows.

5.  The Tribunal has decided in the Judgment that the tenant’s share to be deducted from the DB is to be calculated by reference to PR x ANFA of the HT’s assets.  Thus, for this purpose, it is necessary to determine the assets split between the HT and the HL. 

6.  At the same time, section 7A(2) of the Rating Ordinance (Cap 116) (“RO”) provides that the rateable value (“RV”) of the tenement is to be ascertained by reference to the relevant date (ie., 1 October 2003) and that is to be assumed that at the date the tenement was in the same state as at the time when the list came into force (ie., 1 April 2004).

7.  For the purpose of the final order, the CRV therefore says that one should use the data provided in the unaudited accounts of HEC dated 31 March 2004 to determine the proportion attributable to the HT’s assets, as this is the best proxy for the state of the assets as at 1 April 2004.

8.  HEC however seeks to rely on the audited accounts dated 31 December 2003.  HEC says that this is preferred for the following reasons:

(1)  The 31 December 2003 figures are audited data, which forms the basis for HEC’s annual financial statements, whereas the 31 March 2004 figures are based on unaudited management accounts.

(2)  This is consistent with the valuation exercise adopted by HEC’s expert (Mr Parsons), as he had relied on the same set of data (i.e., the 31 December 2003 audited figures) to arrive at the various facets of the valuation under the R&E method in his reports.

9.  At this juncture, it is worthy to note that the difference in the actual rateable values based on the two dates respectively is relatively small:

(1)  If the 31 December 2003 figures are used, the RV is $3,930m and the Government rent is $1,580m.

(2)  If the 31 March 2004 figures are used, the RV is $3,945m and the Government rent is $1,586m.

10.  Notwithstanding HEC’s submissions, we are of the view that the parties should adopt the 31 March 2004 data for the purpose of finalizing the order.  This is so as we accept CRV’s submissions that the 31 March 2004 data represents the best proxy for the position of the assets as at 1 April 2004, which is consistent with the intention of the statute to arrive at an rating valuation as at 1 April 2004. In coming to this conclusion, we also accept CRV’s further submissions that (a) there is no evidence to suggest that the unaudited figures of 31 March 2004 are in any respect unreliable or inaccurate and thus should not be relied upon, and (b) the consistency argument raised by HEC should not prevail over the statutory requirement to arrive at a rating valuation reflecting the position as at 1 April of the relevant year of assessment.

B2. The interest issue

B2.1   The parties’ position

11.  HEC asks for interest on the overpaid rates and Government rent.  It says that it should be entitled to interest at the rate of 1% over prime rate for the period from the dates when HEC paid^[1] the originally assessed rates and Government rent until the date of the Judgment, and thereafter at judgment rate until full repayment by CRV of the overpaid sums^[2].

12.  HEC relies on section 12B of the Lands Tribunal Ordinance (Cap 17) (“LTO”) to advance its case that the Tribunal may award interest on any part of the overpaid rates and Government rent for such period and at such rate as it thinks fit.  S. 12B provides as follows:

“(1)  In proceedings (whenever instituted) before the Tribunal for the recovery of a debt or damages there may be included in any sum for which judgment is given simple interest, at such rate as the Tribunal thinks fit or as rules made under section 10(3) may provide, on all or any part of the debt or damages in respect of which—

(a)    judgment is given; or

(b)    payment is made before judgment.

(2) Interest under subsection (1) may be awarded for all or any part of the period between the date when the cause of action arose and—

(a)    in the case of any sum paid before judgment, the date of the payment; and

(b)    in the case of the sum for which judgment is given, the date of the judgment.”

See also:  BP Exploration v Hunt (No. 2) [1983] 2 AC 352 at 373F; Niceboard Development Ltd v CLP Ltd [1995] HKDCLR 27 at 38: 3-5, 40: 30-31, 38-42, 41:22-25; Bloch v Bloch (1981) 180 CLR 390 at 398; Smith v In Shoppe Pty Ltd (1976) 33 FLR 107 at 116 (lines 1-10)

13.  Mr Bernard Man for the CRV does not appear to dispute that the Tribunal has the discretion to award interest on any overpaid rates and Government rent under s. 12B of LTO.  However, he contends principally that:

(1)  No interest should be awarded for the pre-judgment period because HEC’s “cause of action” was not properly constituted or completed until the Judgment was handed down.

(2)  Alternatively, if there should be interest for the pre-judgment period, it should not be awarded for the entire period as asked for by HEC since there was a delay of some 3 years by HEC to pursue the appeals.

(3)  In any event, the interest rate should not be 1% over prime rate, but the actual rates of borrowing HEC could obtain in the market.  These were 3.19%, 4.63%, 4.38%, 4.19%, 1.97% and 1.64% respectively for the years between 2004 and 2009. 

14.  We will deal with these sub-issues as follows.

B.2.2     When were HEC’s causes of action completed

15.  The CRV’s arguments under this question run as follows:

(1)  A “cause of action” means a factual situation the existence of which entitles a person to obtain a remedy against another person.  It includes every fact which is material to be proved to entitle the plaintiff to succeed, and every fact which the defendant would have a right to traverse, but not every piece of evidence:  Halsbury’s Laws of England (Vol. 11), 5^th ed, para 21; Letang v Cooper [1965] 1 QB 232 at 242-3 per Diplock LJ.

(2)  Under s. 12B of the LTO, the Tribunal has a discretion to award interest for all or any part of the period between the date “when the cause of action arose” and the date of judgment.

(3)  HEC’s “cause of action” for the refund of rates would only arise upon the Tribunal’s order of the proper RV of the tenement because:

(a)  The CRV has no power to amend the valuation list until the Tribunal makes an order to that effect upon an appeal under s. 42 of the RO. 

(b) In particular, ss. 22(3A) and 42A of the RO make it clear that rates shall remain payable under s. 18 notwithstanding any notice of appeal under section 42 unless the CRV orders that payment of such rates or any part thereof be held over pending the determination of the appeal.

(c)  It is only upon the determination of an appeal in HEC’s favour that overpaid rates ought to be refunded to HEC.

(d) The Tribunal’s determination of a RV lower than that appealing in the valuation list is an essential fact which has to come into being before HEC can obtain a refund.

(e)  S. 31 of the RO, which provides for the CRV’s obligation to refund rates, only provides that the CRV shall make a refund if she is satisfied that the rates charged were otherwise than in accordance with the valuation list.  The obligation to refund rates under this section therefore only arises upon the amendment of the list, and there is no provision that a refund should be made with interest.

(4)  Similarly, HEC’s cause of action for refund of Government rent is only complete upon the Tribunal’s determination of the correct RV because:

(a)  Under ss. 15(4) and 29 of the Government Rent (Assessment and Collection) Ordinance (Cap 515) (“GRACO”), the Government rent demanded remains payable at all times before the appeal is determined.

(b) In any event, on a true construction of the applicable lease (with the covenant provided for in section 6(2)(d) of GRACO)^[3], the CRV is only obliged to refund overpaid rent, but not interest or other consequential loss.

16.  With respect to Mr Man, we reject the above submissions, and accept the following submissions of Mr Godfrey Lam, SC:

(1)  It is incorrect to say that HEC’s cause of action in challenging the CRV’s determination of the RV is only complete upon the Tribunal’s determination of the appeal because effectively the CRV has no power to refund any overpaid rates until an order to that effect is made by the Tribunal:

(a)  CRV’s contention ignores the power of the CRV to make alterations to the list either with or without agreement with the ratepayer pursuant to a proposal by the ratepayer under ss. 37-39 of the RO.  HEC did make a proposal in April 2004.

(b) The CRV does have the power under s. 42A of the RO not to require payment of rates pending appeal.  In this case, the CRV decided to require HEC to pay and keep the payment notwithstanding the appeal.

(c)  The CRV is in a position to make an interim refund of overpaid rates by way of interim payment under s. 10(1)(h) of LTO.  In the present appeal, as mentioned above, the CRV did make an interim refund in April 2009.  It cannot be seriously suggested now by the CRV that this refund was unlawfully made.

(d) S.31 of the RO is significant only “if [an overpaid amount] is not recoverable apart from this section”.  The reference to recovering overpaid rates under some other section can only be a reference to the power of the Tribunal under s. 44, as there is no other relevant provision.  This is consistent with HEC’s submission that, where there is an appeal to the Tribunal, the overpaid amount is recoverable by order of the Tribunal made under s.44, while as part of the “non-appeal regime” under s. 31, s. 33 provides for an appeal to the District Court under the “non-appeal regime” if the CRV has failed to refund.

(2)  Similarly, it is also incorrect to say that the CRV has no power to make any refund of any overpaid Government rent until HEC’s appeal against that is determined:

(a)  The CRV has power to make alteration under s.20 or s. 21 under GRACO when the taxpayer makes a proposal under s. 17.  HEC had made such a proposal, but the CRV refused to make any alteration.

(b) The CRV also has power not to require payment of rates pending appeal, but she decided to require full payment in the present case.

(c)  The CRV could also make an interim refund by way of interim payment under s. 10(1)(h) of LTO.  The CRV did make such an interim refund in April 2009.

(d) The covenant to be implied into the government lease under s. 6(2)(d) of GRACO (which precludes interest from being paid), on a proper construction, relates to refunds made on a voluntary contractual basis.  Further, this provision is expressly subject to other provisions:  s. 27 of GRACO provides for the orders that can be made on appeal to the Tribunal, and s. 26 provides that the LTO (and thus including s. 12B) applies.

17.   For these reasons, we conclude that HEC’s causes of action under these appeals were completed and constituted at the time when they were lodged but not only when their determinations were made. 

B2.3   The period of interest

18.  The CRV submits that there was a delay of almost 3 years between end of 2004 and October 2007 whereby HEC had failed to prosecute the appeals which were lodged in October 2004.

19.  As such, the CRV says that the Tribunal should exercise its discretion not to allow any interest on the overpaid rates and Government rent for the delayed period, as it is trite that interest can be disallowed if the claimant is guilty of delay:

(1)  As said by Watkins LJ in Birkett v Hayes [1982] 1 WLR 816, at 825:

“It is … wrong that interest should run during a time which can properly be called unjustifiable delay after the date of the writ.  During that time the plaintiff will have been kept out of the sum awarded to him by his own fault.  The fact that the defendants have had the use of the sum during that time is no good reason for excusing that fault and allowing interest to run during that time.”

(2)  These principles are further stated by Jackson J in Claymore Services Ltd v Nautilus Properties Ltd [2007] BLR 452 at 460:

“(1)  Where a claimant has delayed unreasonably in commencing or prosecuting proceedings, the court may exercise its discretion either to disallow interest for a period or to reduce the rate of interest.

 (2)  In exercising that discretion the court must take a realistic view of delay.  In the case of business disputes, litigation is for all parties an unwelcome distraction from their proper business.  It is not reasonable to expect any party to take every litigious step at the first possible moment, or to concentrate on litigation to the exclusion of all else.  Delay should only be characterised as unreasonable for present purposes when, after making due allowance for the circumstances, it can be seen that the claimant has neglected or declined to pursue his claim for a significant period.

 (3)  When determining what disallowance or reduction of interest should be made to mark a period of unreasonable delay, the court should bear in mind that the defendant has had the use of the money during that period of delay.”

20.  Applying the above principles, we are not satisfied that HEC is guilty of any unjustifiable delay as suggested by the CRV:

(1)  On 25 November 2004, the appeals were adjourned sine dine by a consent applications made by both parties, with liberty to restore by either party. 

(2)  On 25 September 2007, HEC’s solicitors were liasing with the Department of Justice about a call-over hearing and stated that HEC aimed to be ready to submit its experts reports as soon as possible after the call-over hearing, and contending that the CRV’s proposal for exchange of reports by 1 September 2008 was unacceptable.  Although this letter related to the 2006/07 assessment, it also shows that it was by then the parties’ consensus that those appeals should be heard together with the appeals relating to the previous years of assessment (thus including the 2003/04 assessment).

(3)  On 29 January 2008, HEC applied to restore the call-over hearing.

(4)  In our judgment, taking a realistic view of and giving allowances for the circumstances that (a) both parties by consent agreed to adjourn these appeals sine dine in November 2004, with liberty to restore by either party, and (b) the parties were then discussing on having all the appeals relating to different years of assessment be heard together, the “delay” by HEC not to have taken any active steps in the appeals between November 2004 and October 2007 cannot be characterized as unjustifiable or unreasonable as now suggested by the CRV. 

21.  For the above reasons, it also cannot be said that HEC was by its own fault kept out of the sum eventually awarded to it.  We therefore hold that HEC should be entitled to interest on the repaid rates and Government rent for the entire pre-judgment and post-judgment periods, subject to the terms set out in paragraph 11 and footnotes 1 and 2 above.

B2.4   The rate of interest for the pre-judgment period

22.  It is common ground that the overriding principle is that interest is awarded to compensate the claimant for being kept out of money which ought to have been paid to him:  London, Chatham and Dover Ry Co v South Eastern Ry Co [1893] AC 429 at 437 per Lord Herschell LC.

23.  These are further elaborated by Forbes J in Tate & Lyle Distribution v GLC [1982] 1 WLR 149 at 154 as follows:

   "One looks, therefore, not at the profit which the defendant wrongfully made out of the money he withheld - this would indeed involve a scrutiny of the defendant's financial position - but at the cost to the plaintiff of being deprived of the money which he should have had.  I feel satisfied that in commercial cases the interest is intended to reflect the rate at which the plaintiff would have had to borrow money to supply the place of that which was withheld.  I am also satisfied that one should not look at any special position in which the plaintiff may have been; one should disregard, for instance, the fact that a particular plaintiff, because of his personal situation, could only borrow money at a very high rate or, on the other hand, was able to borrow at specially favourable rates.  The correct thing to do is to take the rate at which plaintiffs in general could borrow money.  This does not, however, to my mind, mean that you exclude entirely all attributes of the plaintiff other than that he is a plaintiff.  There is evidence here that large public companies of the size and prestige of these plaintiffs could expect to borrow at 1 per cent over the minimum lending rate, while for smaller and less prestigious concerns the rate might be as high as 3 per cent over the minimum lending rate.  I think it would always be right to look at the rate at which plaintiffs with the general attributes of the actual plaintiff in the case (though not, of course, with any special or peculiar attribute) could borrow money as a guide to the appropriate interest rate.  If commercial rates are appropriate I would take 1 per cent over the minimum lending rate as the proper figure for interest in this case."

See also: The Pertamina [1984] HKLR 219 at 223, where the Hong Kong Court of Appeal specifically approved and adopted this passage.

24.  It was also said by Webster J in Shearson Lehman v Maclaine Watson (No. 2) [1990] 3 All ER 723 at 733 that the practice of awarding interest at prime rate plus 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.

25.  In the present case, there is evidence (filed by HEC)^[4] before this Tribunal that its actual rate of borrowing for the years ending 2004 – 2009 were 3.19%, 4.63%, 4.38%, 4.19%, 1.97% and 1.64% respectively.  These rates were substantially lower than prime rate plus 1%.

26.  In light of the evidence, we come to the view that it would be unfair to the CRV if we were to award HEC interest on the rate of 1% plus prime rate.  Applying the above legal principles, it is thus only fair to award interest on the actual borrowing rate of HEC set out in the evidence.  This is also HEC’s alternative position to claim interest on these actual borrowing rates.

C.   Conclusion

27.  For the above reasons, we conclude that:

(1)  In determining the tenant’s share, the proportion attributable to the HT’s assets should be determined by reference to the 31 March 2004 data.

(2)  HEC is entitled to interest on the overpaid portions of the rates and Government rent for the period between the dates when parts of the rates and Government rent were paid respectively and the date of Judgment, taking into account of the interim refund made by the CRV in April 2009.  The interest rates are at HEC’s actual borrowing rates of 3.19%, 4.63%, 4.38%, 4.19%, 1.97% and 1.64% respectively for the years between 2004-2009.

(3)  HEC is further entitled to interest on the overpaid sums at judgment rate from the date of judgment until full payment. 

28.  As HEC has substantially succeeded in the present application, there should also be an order nisi that cost of the application be to HEC to be taxed if not agreed.  Unless any of the parties applies to vary it by way of Summons, the costs order nisi shall be made absolute 14 days from today.

29.  We thank Counsel for their helpful assistance

[1] HEC paid the rates and Government rent for 2004/05 in several instalments, as demanded on, 30 April, 31 July and 30 October 2004 and 31 January 2005 respectively.

[2] The CRV made an interim refund in April 2009 before the substantive hearing of HEC’s appeals.  HEC accepts that interest would cease to accrue on the amount so refunded.

[3] S. 6(2)(d) of GRACO provides: “subject to any specific provisions of this Ordinance, any refund of Government rent is payable only for a refund of the Government rent paid in excess of the Government rent payable for the land leased.”

[4] The 3^rd Affirmation of Felicia Lee, para 5.