The Secretary for Justice v. Sonics Development Ltd.

Headnote

Section53A of the Landlord and Tenant Ordinance--failure to comply with the condition imposed by the Lands Tribunal---developer at fault disposed of the property---assessment of penalty to be imposed on successor---that the successor was not at fault is not necessarily a mitigating factor

The predecessor of the respondent obtained an order of possession on ground of re-building. Before completion of the new building, the property was sold to the respondent who was misled into believing that the foundation work done so far was sound. In fact the foundation work was defective. Despite its effort the respondent failed to meet the deadline for completion of the project. The respondent was not culpable for the delay. The respondent therefore argued that this is a good mitigation factor and only nominal penalty should be imposed,

Held:

1. In assessing penalty, the proper approach should be to take an overall view of the progress of the redevelopment as if it had been under the control of the one and the same developer throughout;

2. The fact that the successor developer was not delinquent was not a mitigating factor;

3. The successor should have the benefit of any mitigating factors available to its predecessor;

4. The burden of proof that the breach of condition was excusable lied on the respondent

5. In the particular circumstances of the case, the difficulty of the respondent in offering any explanation of delay on the part of its predecessor, if any, was a mitigation factor.

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LD MR32 0f 98

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Judgment

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1. On the ground of re-development, the predecessor of the respondent obtained an order for possession of certain blocks of building evicting the then existing tenants. At the time of granting the order the Tribunal imposed, among other conditions, a deadline for completion. The deadline was not met and the Tribunal has, on the application of the respondent, reviewed its order and extended the deadline. By these proceedings the applicant is applying under section 53A(5)(b)(ii) of the Landlord and Tenant Ordinance for the imposition of a penalty for breach of condition.

2. Section53A(3) provides in effect that the condition imposed by the Tribunal shall be binding and enforceable against the successor respondent. Notwithstanding that the original order has been reviewed and the deadline extended, the respondent concedes liability to a penalty. The respondent argues that only a nominal penalty should be imposed.

3. Mr. Yeung, on behalf of the respondent, relies on facts deposed to in various affirmations to show that the respondent is not culpable for the breach and therefore only nominal penalty should be imposed. The culpability is not seriously contested by the applicant. Looking at the affirmations, I am satisfied that the respondent is not at fault and has done everything reasonable within its power and resources. The respondent is not guilty of any delinquency since it took over the development project from its predecessor.

4. However I cannot accept the submission that simply becasue the respondent is not at fault, it should not be punished. The purpose and intent of the penalty section would be defeated if the submission is right. A delinquent developer can easily avoid any penalty by selling the land to an innocent party or even to a another company under its control.

5. On the true interpretation of the section53A, the tribunal must not only look at the conduct of the successor since it took over the project but the entire sequence of events since obtaining the order for possession. Subsection(3) clearly provides that the condition shall be binding and enforceable against the successor.

6. It is not in dispute that by the time the respondent purchased the land, the project could not have been completed before the deadline and a breach of the condition is inevitable. The main reason is the defective foundation work. At the time the respondent did not know about this. Its predecessor refused to have site tests to be conducted before sale. Its advisors relied on documents which were misleading, to say the very least. For this the applicant submits that the respondent should have taken greater care and that it not unjust for them to take the blame for the delay caused by its predecessor. There is some force in this argument. However, the proper approach should be to take an overall view of the progress of the redevelopment as if it had been under the control of the one and the same developer throughout. If the delay is excusable, no penalty should be imposed. Otherwise, the Tribunal would look at the mitigating factors. The fact that a successor respondent is not itself delinquent is irrelevant. On the other hand, it should also have the benefit of the mitigating factors available to its predecessor.

7. In the present case, the respondent has convinced me that it has not been delinquent. However it has also the burden of explaining the delay, if it could, on the part of its predecessor. This it has failed to do. I presume that it is because this is the first application of its kind. There is no precedent laying down the principles of assessment of penalty. It can be forgiven that the respondent was under a wrong impression that the penalty should directly relate to its own culpability and not to the culpability of its predecessor. More importantly I believe that given the circumstances of the sale and purchase of the land no cooperation can be expected from its predecessor in providing useful information. No one knows for sure whether or not there were reasonable excuses for the delay on the part of the predecessor, or whether there were mitigating factors available to the predecessor and thus to the respondent. The respondent is in a difficult position and this is the mitigating factor I have to take into account.

8. Furthermore, I am satisfied that the transaction between the respondent and its predecessor is at arms length. There is no evidence to suggest that the respondent has acquired the land at a value which reflects the likelihood of a penalty to be imposed because of the inevitable breach. Any penalty imposed by the Tribunal would be unexpected at the time of the sale and purchase.

9. In the absence of explanation by anyone as to the delay at the initial stages of re-development, the applicant has rightly brought these proceedings and is entitled to costs. I hereby order the respondent to pay the costs of the applicant to be taxed, if not agreed. For all the reasons above, and in view of the order of costs made against the respondent, it is an appropriate case to be exceptionally lenient with the respondent. A nominal penalty of $1,000 would be appropriate and I so order.