SECRETARY FOR JUSTICE v. THE HONG KONG & YAUMATI FERRY CO LTD AND ANOTHER

HCA 15329/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15329 OF 1999

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J U D G M E N T

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1. This is the defendants' application for further and better particulars by summons dated 3 December 2003.

The background

2. The background to the plaintiff's claim in this action is that from 1 April 1984 to 31 March 1999, the 1st defendant held a franchise from the Government to operate specific passenger ferry services comprising inner harbour and outlying islands routes.

3. On 27 April 1990, the Government gazetted its proposed reclamation works along the Central and Wanchai waterfront. As these affected the ferry piers being used by the 1st defendant, Hong Kong & Yaumatei Ferry Co. Ltd. ("HYF"), HYF lodged an objection. After the reclamation was authorised in 1992, HYF lodged its claim for compensation. The parties entered into discussions regarding the redevelopment of the ferry piers.

4. Part of the reclamation work required to be carried out at the Central District waterfront involved the relocating and re-provisioning of certain ferry piers to four new piers which were to be constructed. These works were entrusted to the Mass Transit Railway Corporation ("MTRC") by the Entrustment Agreement dated 26 August 1993 and pleaded at para. 23 of the amended statement of claim. By the Reclamation Contract pleaded therein MTRC employed a contractor to carry out such works.

5. In or prior to 1993 HYF and its parent company, the 2nd defendant, Hong Kong Ferry (Holdings) Co. Ltd. ("HKF") wanted to undertake a development above the new piers and they submitted various proposals to the Government for undertaking a commercial and residential development above the proposed new piers including the provision of public open spaces and facilities. As is pleaded at para. 11 of the amended statement of claim, the defendants submitted proposals to the Government for a private treaty grant "against payment of a full market premium" of the land above the proposed new piers for the purpose of the commercial and residential development.

6. In August 1993 the defendants submitted the HYF Proposal pleaded at para. 16 of the amended statement of claim to which the Government was prepared to consider. A number of issues, however, had to be considered before a decision could be made as to whether the HYF Proposal would be accepted. However, if the HYF Proposals were to be accepted the reclamation works then proposed, in particular the piling design, would not have been sufficient to accommodate the requirements of the HYF Proposal. An alternative piling design was also proposed to the Government in the event that the Government accepted the HYF Proposal as the original piling design for the new piers would have been insufficient to support the structures envisioned by the HYF Proposal. But the reclamation works had to start before the various issues could be resolved and accommodating the HYF Proposal after the reclamation works had commenced would have involved significantly greater costs than would be the case if the reclamation works accommodated the HYF Proposal at the outset. In those circumstances on 28 September 1993 HYF, HKF and the Government entered into the Indemnity Agreement pleaded at paras. 27 and 28 of the re-amended statement of claim whereby HYF agreed to reimburse the Government the additional costs which the Government became liable to pay as a result of causing the Reclamation Contract to be carried out in such a way as to accommodate the extra works necessitated by the HYF Proposal. Such reimbursement was guaranteed by HKF.

7. The Indemnity Agreement was subject to two subsequent amendments as pleaded at paras. 33 to 36 of the amended statement of claim. The plaintiff's case is that all of these made it plain that the Government was entitled to reimbursement of the additional costs whether the Government ultimately accepted or rejected the HYF Proposal.

8. The defendants also contend that there was a collateral agreement between the Government and them in the terms pleaded at para. 66 of the re-amended defence and counterclaim. It was in consideration of the collateral agreement that the Indemnity Agreement was entered into.

9. It is also contended that by a Side Letter issued by the Territory Development Department to HYF on 28 September 1993 certain specific agreements were recorded between the Government and HYF and that the Side Letter constituted a collateral agreement to the Indemnity Agreement.

10. The reclamation works were duly carried out in such a manner as to accommodate the HYF Proposal and extra costs were thereby incurred.

11. The plaintiff's case is that the Government and the defendants were unable to agree on a number of matters relating to the pier development package in addition to the question of the amount of premium to be paid for the private treaty grant.

12. The defendants' case is that the only outstanding matter was the question of the amount of premium to be paid for the private treaty grant.

13. In June 1998 the Government was seeking a premium in the sum of $1,771.64 million. The defendants were prepared to offer only $191 million. There was a substantial difference between the parties.

14. Negotiations on the premium continued. However, in September 1998 the Government decided not to proceed with the HYF Proposal or modifications of the same.

15. In this action the Government seeks to recover, pursuant to the Indemnity Agreement as amended, reimbursement of the additional costs that it incurred as a result of causing the Reclamation Contract to be carried out so as to accommodate the HYF Proposal and its modifications.

16. There are a multitude of issues raised in the pleadings. It is not necessary to refer to all of these for the purpose of this application. One of the main defences raised by the defendants is that the Government was in breach of implied terms. It is contended by the defendants that the Indemnity Agreement as amended was subject to the various implied terms pleaded at paras. 64 and 65 of the re-amended defence and counterclaim. These are denied by the Government.

17. Of relevance to this application for further and better particualrs are the implied terms (c) and (d) pleaded at para. 64 as follows :

“ (c) The Government shall assess and offer the full market premium payable in accordance with its normal practice and principles taking into account all the factors relevant to the development under the HYF Proposal.

(d) The Government shall not, without proper or reasonable cause, refuse to consider, review, negotiate and offer the full market premium payable".

18. The other implied terms pleaded included terms to the effect that the Government should act fairly and reasonably in considering, reviewing and negotiating matters related to the HYF Proposal and that the Government should use its best endeavours to facilitate HYF in its pursuance of the HYF proposal with a view to getting it approved or implemented.

19. The defendants contend that the premium in the sum of $1,771.64 million that the Government was seeking in June 1998 was not a fair and reasonable nor full market premium as it failed to take into account, inter alia, the proper construction costs to be applied in the calculation of the full market premium to be paid and the reasonable construction period to be used to calculate the full market premium (paras. 99 and 123 of the re-amended defence and counterclaim).

20. As I have said, the defendants were prepared to offer only $191 million for the land premium. This was considered too low by the Government. It is pleaded at para. 55 of the amended statement of claim that

“ The Government considered that the counter offer of $191 million did not reflect the full market premium for the Lot and was not acceptable."

21. The documents disclosed by the Government and referred to in the affidavit of Mr. Darryl Clyde Yee show that the Government considered that $1,771.64 million represented a fair market value. This can be seen, for instance, in the document exh. "DCY-8" to the said affidavit.

22. On 21 July 1998 the Executive Council ("Exco") decided that HYF should be given until mid-August 1998 to accept the terms set out in the Exco paper Annex A to the Exco Memorandum XCC (98) (para. 74 of amended statement of claim). By a letter dated 21 July 1998 the Government sent a copy of Annex A to the defendants and requested the defendants written acceptance of the terms or otherwise by 15 August 1998 at the latest.

23. By letter dated 14 August 1998 the defendants informed the Government that they did not accept the terms set out in Annex A.

24. Prior to that, however, the Government internally reviewed the land premium at a Valuation Conference on 10 August 1998 where the Government revised its assessment of the premium down from $1,771.64 million to $1,059.25 million. However, this lower premium was never offered to the defendants. At a meeting between the Government and the defendants on 26 August 1998 the $1,771.64 million was still offered when the Government knew that the premium should be reduced to $1,059.25 million.

25. On 15 September 1998 Exco decided that the Government's negotiations with the defendants should cease immediately.

26. The defendants also contend that the Government made false representations and/or deliberately misled Exco in coming to its decision in July 1998 and September 1998 (para. 122 of the re-amended defence and counterclaim). One of the particulars relied on by the defendants is that the Government failed to refer the substantially lower premium of $1,059.25 million to Exco before it came to its decision on 15 September 1998. The defendants contend that it was on the basis of the Government's misrepresentations and misleading statements to Exco that Exco made the decision on 15 September 1998 that negotiations with the defendants on the land premium should cease immediately.

27. By para. 99 of its re-amended defence and counterclaim the defendants aver that the premium offered in the sum of $1,771.64 million was not a fair and reasonable full market premium as it failed to take into account the matters set out in para. 123 thereof. It is contended that in breach of the implied terms of the Indemnity Agreement as amended and/or in breach of the collateral agreement, the Government failed to act fairly and reasonably and/or in good faith and/or used its best endeavours to consider, review and negotiate the premium relating to the development under the HYF Proposal with a view to getting it approved and implemented, and without proper or reasonable cause, refused to consider, review, negotiate and offer to the defendants the full market premium payable. Alternatively, it is contended that the Government deviated from its normal practice and principles when assessing the full market premium payable. The particulars of the breaches are given under para. 123 of the defendants' re-amended defence and counterclaim. In particular it is contended that in calculating the premium, the construction costs and the construction period need to be taken into account.

28. There is also a counterclaim for damages.

The application

29. The application before me relates to two requests for further and better particulars.

The first request

30. The first request is in relation to the land premium. By para. 88 of the re-amended reply and defence to counterclaim the plaintiff admitted that there was a meeting held on 26 August 1998 between the Government and the defendants and that during the meeting the Government did not inform the defendants of the revised premium of $1,059.25 million as assessed by the Lands Department on 10 August 1998 for the reasons pleaded therein.

31. The defendants requested further and better particulars of, inter alia, para. 88 of the re-amended reply and defence to counterclaim. The requests made under para. 88 was in respect of the allegation :

“ ... it is admitted that there was a meeting held on 26 August 1998 between the Government and the Defendants and that during that meeting the Government did not inform the Defendants of the revised premium of $1,059.25 million as assessed by the Lands Department on 10 August 1998...The Government decided not to offer the revised premium of $1,059.25 million to the Defendants for the following reasons:-

...

(2) At the Valuation Conference of the Lands Department held on 10 August 1998 (following the Defendants' appeal against the Lands Department's previous premium offer of $1,771.64 million made in June 1998), ...although a premium review was justified in view of the change in market conditions since June 1998. The revised premium was eventually agreed by the members at that Valuation Conference."

32. The requests 1 and 2 that were made were :

“ 1. State whether it is Government's case that as at 10 August 1998, the full market premium is $1,059.25 million.

2. If the answer to the above is in the negative, state the Government's case as to what is the full market premium as at 10 August 1998."

33. Pursuant to a consent order the plaintiff supplied the following answer to the said request 1 by the further and better particulars dated and filed on 18 August 2003 :

“ The precise 'full market premium' as at 10 August 1998, whether in the amount $1,059.25 million or any other figure, is immaterial to the Government's case, either for the purpose of its claims against the Defendants which are based on the Indemnity Agreement as amended or for the purpose of its defence to the Defendants' counterclaim herein. The Government says that whatever might have been the precise amount of the full market premium of the lot as at August 1998, the offer of $191 million made and maintained by the Defendants was so unreasonably low that it could not be the 'full market premium' and the Government took the view, in August 1998, that having regard to the magnitude of the difference between the parties on the premium, there was no realistic possibility that the difference could be bridged and there was thus no point for the Government to engage in further negotiations with the Defendants on the premium.

In paragraph 88(2) of the Re-Amended Reply and Defence to Counterclaim, the Government is simply pleading that as a matter of fact the Lands Department, at the valuation conference held on 10 August 1998, reviewed the premium previously arrived at in June 1998 and came up with the revised figure of $1,059.25 million. As more particularly set out in the 'Valuation Conference Decision' dated 10 August 1998 (disclosed at pages nos. 412001-412002 of the Plaintiff's Fourth Supplemental List of Documents dated 2 May 2001), the Lands Department at the said valuation conference decided that a premium review was justified in view of the market movement since the matter was last considered on 18 June 1998 and more importantly having regarded to the latest costs advice given by the Architectural Services Department (ASD) in respect of the proposed development permissible on the lot. The ASD's latest costs advice was derived from the project costs provided by the Defendants, and also took into account the expected high quality of the proposed development. Numerous factors were taken into account in arriving at the revised premium of $1,059.25 million, as more particularly set out in the 'Revised Assessment' for the said valuation conference (disclosed at pages nos. 412003-412004 of the Plaintiff's Fourth Supplemental List of Documents dated 2 May 2001) and summarised in Answer 3 below."

34. In answer to the said request 2, the Government simply repeated the answer to request 1 above. The answers were repeated in the further and better particulars dated and filed on 20 October 2003.

35. Ms Cheng SC, for the defendants, submitted that it was wrong to suggest that the full market premium was immaterial to the Government's case.

36. Mr. Strachan, for the plaintiff, submitted that nothing that the plaintiff has pleaded in para. 88 puts in issue any case of the Government as to the question of the full market premium and that as answered, it is immaterial to the Government's case whether the full market premium as at 10 August 1998 was $1,059.25 million or any other figure. The Government's case is that the defendants' offer of $191 million was derisorily low and so far from any figure that the Government would accept that there was no point in continuing with the negotiations.

37. At para. 125 of the re-amended defence and counterclaim the defendants pleaded, inter alia, that the substantially lower premium of $1,059.25 million was not offered to the defendants. At para. 130 of the re-amended reply and defence to counterclaim the plaintiff denied para. 125 same as pleaded in para. 88 to 113 of the re-amended reply and defence to counterclaim. By para. 88 of the re-amended reply and defence to counterclaim, the plaintiff pleaded, inter alia, that the Government decided not to offer the revised premium of $1,059.25 million assessed on the 10 August 1998 to the defendants for the reasons pleaded therein. It is not pleaded that $1,059.25 million was the full market premium.

38. In response to para. 88 of the re-amended reply and defence to counterclaim the defendants pleaded at paras. 13(3)(k) and (l) of their rejoinder to the re-amended reply and defence to counterclaim that the premium of $1,059.25 million was not fair and reasonable and did not represent the full market premium for the development under the HYF Proposal and that the premium of $191 million offered by the defendants represented a full market premium.

39. Mr. Strachan also submitted that nowhere have the defendants pleaded that $191 million, was, on the defendants' case, the full market premium. I am, however, unable to accept this submission. It is clear that in the rejoinder to the re-amended reply and defence to counterclaim, the defendants have done precisely that at para. 13(3)(l). They also pleaded at para. 13(3)(k) that $1,059.25 million was not fair and reasonable and did not represent the full market premium.

40. I am satisfied that on the pleadings there is clearly an issue between the parties as to whether $1,059.25 million represented the full market premium as at 10 August 1998. The defendants are entitled to know the Government's case on this. In my view, the plaintiff cannot simply avoid this by stating that the precise full market premium as at 10 August 1998, whether in the sum of $1,059.25 million or any other figure, is immaterial to the Government's case. This is something that the court at trial will have to determine and the defendants are entitled to know the Government's case on this.

41. As regards the first request, I accept Ms Cheng's submissions and reject Mr. Strachan's submissions. I am satisfied that the plaintiff should answer the first request. The defendants are entitled to an order to that effect.

The second request

42. The second request is a request for further and better particulars of the plaintiff's further and better particulars of the plaintiff's re-amended reply and defence to counterclaim filed on 18 August 2003 as requested in the letter dated 10 September 2003 from the defendants' solicitors to the plaintiff's solicitors.

43. The second request is in relation to the construction period that should be adopted in calculating the full market premium. By the particulars (i) and (j) under para. 123 of the re-amended defence and counterclaim, the defendants asserted that the Government should use a reasonable construction period which HYF estimated to be 8 years. However, the Lands Department stated in their letter dated 28 June 1998 that a 6 year period was used. It is asserted that HYF agreed to the 6 year construction period as a compromise to reach agreement with the Government on the land premium (particulars (ma) under para. 123 of the re-amended defence and counterclaim). By particulars (n) the defendants asserted that the Government failed to take into account such reasonable construction period or the 6 year construction period proposed by the Government and agreed to by HYF. It is also asserted by particulars (o) that the Government in reality actually used a shorter construction period than the 6 year period in the calculation of the premium.

44. By para. 127 of the re-amended reply and defence to counterclaim the plaintiff pleaded as follows :

“ Paragraph 123(o) is denied. Further or in the alternative, the Lands Department did not have to adopt the proposed building covenant period of 6 years in the premium assessment. I would, instead, use a reasonable construction period for this purpose having regard to the scale of the development. In the premium assessments made on 19 June 1998 and 10 August 1998, the Lands Department adopted the reasonable assumption that the whole development would be carried out in 3 phases and completed in 4.5 years."

45. The defendants requested further and better particulars under para. 127 of the re-amended reply and defence to counterclaim. By request 10 under the 2nd request for further and better particulars of the plaintiff's re-amended reply and defence to counterclaim which request was dated and filed on 14 July 2003, the request was as follows :

“ Identify all facts and matters relied upon in support of the assertion that the assumption that the whole development would be carried out in three phases and completed in 4.5 years is "reasonable" for each of the premium assessment made on 19 June 1998 and 10 August 1998."

46. By the consent order made on 12 August 2003 the plaintiff agreed to provide answers to, inter alia, that request. The answer given to the said Request 10 which was set out in the further and better particulars dated and filed on 18 August 2003 was as follows :

“ In estimating the development time that the proposed development would take, regard was to the scale of the proposed development, site condition and the time required in other developments of similar scale."

47. The defendants' solicitors then asked for further and better particulars of "other developments of similar scale" that the Lands Department had regard to.

48. The reply to the further request was set out in the letter dated 25 September 2003 from the plaintiff's solicitors. These were repeated in the further and better particulars of the plaintiff's re-amended reply and defence to counterclaim dated and filed on 20 October 2003. The answer given was as follows :

“ In estimating the development time that the proposed development would take, regard was to the scale of the proposed development, site condition and the time required in other developments of similar scale.

At the 2 valuation conferences, the members or participants did not, as a matter of fact, discuss or refer to or rely upon any specific developments in coming to the view that it was reasonable to assume that the whole development would be carried out in 3 phases and completed in 4.5 years.

In forming this view, the members or participants at the 2 Valuation Conferences relied upon their general experience and expertise regarding other developments of similar scale. They did not have in mind any specific comparable development."

49. Ms Cheng submitted that the answer is unclear and refers to other developments of similar scale. That is contained in the first paragraph of the original answer and has been repeated in the answer subsequently given. Mr. Strachan submitted that the answer is sufficiently clear. In particular, the last paragraph of the answer subsequently given makes it plain that in forming the view as to the construction period of 4.5 years for the whole development the members of the Valuation Conferences did not have in mind any specific comparable development. They relied upon their general experience and expertise regarding other developments of similar scale. Mr. Strachan also submitted that the plaintiff is unable to provide any further particulars than those provided as has been made plain to the defendants.

50. It seems to me that it has clearly been stated that the members of the Valuation Conferences did not have in mind any specific comparable development in coming to the view that it was reasonable to assume that the whole development would be carried out in 3 phases and completed in 4.5 years. The plaintiff has also clearly stated that as a matter of fact the members of the Valuation Conferences did not discuss, refer or rely upon any specific development in coming to the view that it was reasonable to assume that the development would be carried out in 3 phrases and completed in 4.5 years.

51. I am unable to accept Ms Cheng's submission that the defendants would only be able to meet the case on whether the assumption of 4.5 years was reasonable unless the Government states what other developments of similar scale gave the members of the 2 Valuation Conferences "the general experience and expertise". I am also unable to accept her submission that a valuer would be unable to provide an expert's report on the full market premium without the particulars sought.

52. It seems to me that sufficient particulars have been given by the plaintiff and the defendants know what case they have to meet. The defendants' valuer can in my view plainly address the issue of the reasonableness or otherwise of a construction period of 4.5 years. The members at the 2 Valuation Conferences did not have in mind any specific comparable development of similar scale. The plaintiff has clearly stated this. The plaintiff is bound by the particulars given. The valuer will have to make his own assessment of the relevant construction period and take into account relevant matters and such comparables as he sees fit.

53. In my view the defendants are not entitled to an order that the second request be answered.

Conclusion

54. In respect of the summons dated 3 December 2003 I make an order that within 21 days from to-day the plaintiff do provide the further and better particulars under para. 1 of the summons. Para. 2 of the summons is dismissed.

55. I have not heard arguments on costs of the application. It seems to me that it was necessary for the defendants to issue the summons. As they have partially succeeded on their application, I make an order nisi that the plaintiff should pay the defendants 50% of their costs of the application in any event.