KEEP POINT DEVELOPMENT LTD v. CHAN CHI YIM AND OTHERS

FACV No. 9 of 2002

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 9 OF 2002 (CIVIL)

(ON APPEAL FROM CACV NOS. 1027 OF 2000 AND 322 OF 2001)

_____________________

_____________________

_______________

J U D G M E N T

_______________

Chief Justice Li:

1. I agree with the joint judgment of Mr Justice Chan PJ and Sir Gerard Brennan NPJ.

Mr Justice Bokhary PJ:

2. I agree with the joint judgment of Mr Justice Chan PJ and Sir Gerard Brennan NPJ.

Mr Justice Chan PJ and Sir Gerard Brennan NPJ:

3. On 11 April 2003, this Court handed down a judgment setting aside the orders of the Court of Appeal and directing that the parties in these appeals, i.e. the defendants ("the unit holders") and the 2nd Third Party ("YSC"), should try to agree on a draft order to be submitted for approval by this Court. In the event, a draft order was submitted but there are differences between the parties on how the draft order should be drawn up. These differences have to be resolved and a formal order has to be drawn up before the assessment of damages which is pending before the Court of First Instance can proceed. With the assistance of written submissions and further submissions filed by the parties pursuant to the directions given at a directions hearing, the Court is able to direct what should properly be included in the formal order without a hearing. This is the judgment on these outstanding matters. It is simply an application of the principles discussed in paragraphs 25, 27, 28 and 29 of the judgment.

4. Before dealing with the matters in dispute, it is necessary to make three points. First, a court order is a formal document reflecting the decision of the Court for the purpose of carrying that decision into effect. Ultimately, it is what the Court has pronounced in the judgment which determines the rights and liabilities of the parties and which the parties and the judge conducting the assessment of damages must examine and follow. Secondly, the draft order is a document prepared by the parties submitted jointly for the approval of the Court. Before such approval, there is no question, as suggested in the submissions, of the parties being bound by any agreement on the draft or any part thereof, if it does not correctly reflect what the Court has decided in the judgment. There is also no question of the Court "interpreting" or "clarifying" any part of the draft order. Thirdly, the judgment of the Court only sets out the relevant principles and considerations as the basis of assessment of the various items of damages and does not purport to deal with the entitlements of individual unit holders (except D44 to D47 which will be discussed separately). The amount of their entitlements will be left to the judge conducting the assessment.

Allowances in respect of roof access and decoration

5. The first dispute arises from Clause 4.1 and 4.2 of the draft order which relate to the allowances in respect of roof access and decoration.

6. This Court held that the trial judge was right in holding that the capital value of the old unit of each unit holder is generally represented by the agreed market value of the old unit as stated in the joint valuation report dated 9 June 2000 prepared by FPD Savills (Hong Kong) Limited and Vigers Hong Kong Limited as at the date of its assignment by the respective unit holder to Full Country. This figure is clearly subject to adjustment due to any special features which might have existed in individual units and which had not been taken into account in the valuation report. The actual capital value of a particular unit may be more than the agreed valuation figure if such special features were present.

7. It was said in paragraph 53 of the judgment that, "some option agreements provided for the payment of additional sums on account of the particular unit's access to the flat roof of the old building and on account of the decoration of the unit which would have been lost to the unit holder on the holder's vacating possession. These factors added to the value of the units but, as the buildings had been demolished at the time when the valuers made the agreed valuation, they are not reflected in the agreed valuation figures". This is not to give effect to the provisions regarding allowances in respect of roof access and decoration contained in some of the option agreements. The basis of assessment is to restore the unit holders to the position in which they would have been if there had been no deal with the 1st Third Party ("Full Country"), that is, as if there had been no option agreements. The additional provisions in some of the option agreements are only relevant in tending to show that the capital value of the units to which an allowance for roof access or decoration applied was higher than the capital value of those units in respect of which no similar provision was made in the option agreements. Those provisions show that Full Country accepted that the value of a particular unit was enhanced if the holder had a right or privilege which he but not other unit holders enjoyed in having access to the roof top or flat roof. Equally, some of the option agreements show that Full Country accepted that the value of a particular unit was enhanced if the unit had been specially or recently decorated and the expenditure on that decoration would have been wasted when the unit holder moved out. If either or both of these features was or were special to a particular unit but not to the generality of other units, they ought to have been taken into account in assessing the capital value of that unit. And if they are not reflected in the agreed valuation figure, the judge in making an assessment should take them into consideration.

8. It is immaterial whether the access was to the roof top or to the flat roof (if there was one in the old building), so long as it was a valuable right or privilege which was not commonly shared with the generality of other unit holders but was special to the unit holder whose unit is being assessed for its capital value.

9. With regard to the value of decoration, every unit in the old building was bound to have some decoration inside, whatever its condition was. But it is clear that not every unit holder would be entitled to an enhancement of capital value because of the decoration in his unit. It is only in cases where there is evidence of special or recent decoration (for example, an agreement by Full Country to compensate the unit holders for such decoration by the payment of an extra allowance), that such a feature would be relevant and should be taken into account by the judge in assessing its capital value.

10. In both cases, it is a matter of evidence for the judge as to the existence of any special features in a particular unit, whether such features added any value to that unit and what the added value should be.

Removal expenses

11. The parties also dispute the scope of the award of damages for removal expenses. This is Clause 4.3 of the draft order.

12. This head of damages was dealt with in paragraphs 27, 51 and 60 of the judgment. For the reasons stated in paragraph 60, if a unit holder had actually incurred expenses in moving from his old unit to temporary accommodation, he would be compensated for the expenses he had incurred save to the extent that the amount was unreasonable. On the other hand, if he had enlisted voluntary assistance, the award would have to be an estimated figure, being a reasonable amount for the removal exercise. This also applies to removal expenses for moving from temporary accommodation to new permanent premises acquired by the unit holder. Interest runs from the date of payment of such expenses or the date of removal (when such expenses would have been incurred) to the date of judgment and thereafter at judgment rate.

Other expenses

13. In order to restore the unit holders to the position they would have been in had they been left owning and in possession of the old units, they must be awarded the sum which was needed to acquire new permanent premises similar to their old units. As stated in paragraph 66 of the judgment, the costs of purchasing new permanent premises consist of the purchase price of a unit similar to the unit sold to Full Country together with stamp duty, legal and other expenses involved in the purchase. The parties cannot agree on what should be included as "other expenses". (See Clause 4.4 of the draft order.)

14. It is quite clear that "other expenses involved in the purchase" refers to reasonable expenses which are incidental to the acquisition of new permanent premises in place of the old units (other than stamp duty and legal expenses which are already expressly referred to in paragraph 66). What is reasonable and what is incidental to the acquisition depends on the evidence and is a matter for the judge conducting the assessment. For example, other expenses could include estate agent commission where liability for commission was reasonably incurred, but would not include removal expenses which are separately dealt with in the judgment. Particulars of any such expenses will have to be provided before the assessment.

Cost of borrowing

15. In their written submissions on the draft order, the unit holders argue that the cost of borrowing should be included as an item of "other expenses". Such cost, in so far as it consists of interest on money borrowed to defray the conveyance costs for the purchase of new permanent premises, was dealt with in paragraph 68 of the judgment and is recoverable. However, the unit holders now seek to argue further that the cost of borrowing may "also include the costs of mortgage borrowing to finance the purchase of new permanent premises and the mortgage interest payable". This is a point which was not canvassed at the hearing of the appeals and did not feature in the judgment.

16. The costs of mortgage borrowing and mortgage interest are better considered as a separate head of damages rather than as an item of "other expenses". There may be cases where a unit holder, in order to mitigate his loss upon learning of the disposal of the property by Full Country, purchased new permanent premises before receiving compensation for his old unit but could only have done so with the help of a loan secured by a mortgage on the premises. In such a case, the costs of borrowing and the mortgage interest might be recoverable. This would depend on an examination of the financial and other circumstances of the unit holder at the relevant time. No doubt if such a claim is made, it will be particularized so that it could be argued and considered at the assessment hearing.

Cost of repurchase

17. The parties dispute under Clause 4.5 of the draft order whether paragraph 66 in the judgment is intended to be part of the reasoning or part of an award.

18. It is anticipated in that paragraph of the judgment that

"... [if] the market had gone up between the time of the assignment of the old unit and the time of the purchase of the new permanent premises or the time when new permanent premises could and should have been purchased by the unit holder, the additional cost would have been recoverable by the unit holder. That is not because an enhanced value is attributed to the old unit. It is because, without receipt of that addition, the unit holder who has gone into temporary premises awaiting the construction of the new units was induced to take that step by entering into the transaction and was not in a position to acquire new premises permanently until receipt of damages or was not expecting to have to get such premises prior to the time when Full Country sold the property."

19. This is indeed intended to be a separate item of damages. Upon first learning that Full Country had assigned the property and was no longer in a position to redevelop the property, the unit holders should have, if they could have, mitigated their loss by purchasing new permanent premises. This item of damages is intended to be an additional award to compensate those unit holders who, when they could and should have acquired new permanent premises of the same standard as the old premises, were faced with a market in which the dollar value of such new premises exceeded the dollar value of the old premises (assessed in accordance with the judgment). The time when a unit holder could and should have acquired new premises occurred when that unit holder should have discovered that there was no longer any realistic hope that Full Country was in a position to redevelop the property, or at such later time as the unit holder became able financially to acquire new permanent premises of the same standard as the old premises. Financial ability, in this context, must be determined by reference not only to a unit holder's available assets but also the holder's ability to borrow money on reasonable terms. Unit holders are entitled to be compensated by an additional sum for the purchase of a comparable unit in order to restore them to the position they would have been in had YSC discharged their duty.

20. Whether any additional sum is payable depends on a number of factors, including when the unit holders first came to know or ought to have had knowledge that Full Country had sold the property and was not in a position to redevelop the property, what would have been the reasonable time for them to acquire new permanent premises, whether, at that or some subsequent time, the unit holder was reasonably able financially to acquire a similar new unit and the change, if any, in the property market during the relevant period. These are matters of evidence for the consideration of the judge in the assessment exercise.

Rental allowance

21. Another dispute between the parties relates to the payment of rental allowance. See Clause 4.6 of the draft order.

22. The purpose of granting rental allowance to a unit holder is to compensate him for the loss of accommodation after he had vacated his old unit until he could and should have acquired new permanent premises. He is clearly entitled to such allowance for the period up to the time when he first came to know or ought to have known that Full Country had disposed of the property. After that, he had a duty to mitigate his loss. He should, if he had the financial ability, acquire within a reasonable time new permanent premises which are comparable to his old unit and rental allowance is only payable up to that time. If he had purchased new permanent premises even before receipt of compensation for the old unit, likewise the rental allowance should also stop. But until he had the financial ability to acquire new permanent premises, he is entitled to further rental allowance. (See paragraph 64 of the judgment.)

23. Interest is of course payable on the various items of damages, including the capital sum ascertained by reference to the agreed valuation (with possible adjustment as discussed above) less payments received from Full Country for which credit has to be given (see paragraphs 67 to 74 of the judgment). Every unit holder who is entitled to capital compensation for his old unit is also entitled to interest thereon from the date of assignment of his old unit to Full Country until the receipt of his compensation (see paragraph 72 of the judgment) unless he has received some part of that capital compensation in which case interest is thereafter payable only on the balance remaining unpaid. But if the unit holder has claimed and is awarded a rental allowance for that period or a part thereof, interest on such capital sum is not to be awarded during that period or part thereof (paragraph 68 and 69 of the judgment). Hence while it is a matter for each individual unit holder to elect the basis on which compensation is sought, this is subject to one important qualification. He has a duty to mitigate his loss. After the time when a unit holder could and should have acquired a new unit, no further rental allowance is recoverable. He cannot be awarded a further rental allowance in respect of a period when he could and should have acquired and gone into possession of new permanent premises or if he had in fact done so. In such a case, he is only entitled to claim interest on the amounts, or the balance of the amounts, to which he was then entitled. A unit holder cannot be awarded a rental allowance and interest on capital amounts in respect of the same period.

The 44th to 47th defendants

24. The position of D44 to D47 was dealt with in the 5th and 6th subparagraphs of paragraph 75 of the judgment. They were dealt with on the basis, as then indicated to the Court, that the parties had agreed that these defendants were acting as agents for D43 who was the owner of the relevant unit in the old building and that only D43 would be the claimant. The unit holders now seek to insert Clause 7 in the draft order to deal with these defendants on a different basis, that is, that there is no such agreement between the parties and that these defendants are now claiming in their own rights.

25. There is no evidence before this Court as to whether there is any agreement between the parties regarding the claims of D43 to D47. What was said in the relevant paragraphs in the judgment was said on the basis of what the Court was informed by the parties at the hearing. As this basis is likely to be disputed, the matter is best left to the judge conducting the assessment to ascertain whether these defendants are claiming in their own rights or as agents for D43, whether they are entitled to make such claims, what awards would be made in respect of such claims, and what adjustment should be made between the parties. There is no reason to insert an additional clause in the draft order.

Indemnity on costs

26. The trial judge ordered YSC to indemnify the unit holders for any damages which the unit holders were held liable to pay the Plaintiff ("Keep Point") in the main action and the proportion of the costs which the unit holders were ordered to pay Keep Point and to pay the unit holders' own costs (including costs reserved) of defending the main action on a common fund basis, to be taxed if not agreed by way of damages. These orders were affirmed by the Court of Appeal and upheld by this Court. They are now reflected in paragraphs 9 to 11 of the draft order. The dispute between the parties relates to the interest payable on the unit holders' own costs of defending the main action.

27. The intention of these orders is to compensate the unit holders for the loss which they had suffered in connection with the main action. The costs which the unit holders are required to pay Keep Point and their own costs in defending the main action are recovered as items of damages, but the assessment must take the form of taxation, with the taxation of the unit holders' own costs to be conducted on a common fund basis. Like all heads of damages, interest is clearly payable on these items. As with special damages, interest on these items is payable as from the date on which the amount is ascertained and paid. If the unit holders had already paid their own lawyers, interest runs from the date on which they made payment but only on the amount ascertained on a common fund taxation and not the full amount they had paid.

Costs of the appeals

28. In respect of paragraphs 14 and 15 of the draft order, the parties dispute what the Court has provisionally decided on the question of costs.

29. There were two appeals before the Court of Appeal, one by the unit holders and another by YSC (CACV 1027 of 2000 and 322 of 2001). The Court of Appeal dealt with the two appeals together. From the judgment of the Court of Appeal, the parties lodged two separate appeals to this Court by way of FACV 9 and 10 of 2002. Similarly, these two appeals were heard and disposed of together. This Court held in favour of the unit holders on some issues and in favour of YSC on other issues. Having regard to the issues taken and how they were disposed of by the Court of Appeal and this Court, and in order to save the trouble of having different bills of costs drawn up and taxed and having the parties' respective costs set off against one another after taxation, a global view was taken when making the order nisi for costs. The result is, as stated in paragraph 84 of the judgment, that the unit holders shall bear 20% of YSC's costs in the two appeals before the Court of Appeal and this Court.

30. The preparation of written submissions and the appearance at the directions hearing are part and parcel of the two appeals before this Court. Some of the outstanding matters are resolved in favour of the unit holders while others are decided in favour of YSC. Again taking a global view of the matter, it is appropriate that the costs of these submissions and appearance should be included in the costs of these appeals and be governed by the same formula as discussed in the preceding paragraph. The order nisi of costs is made absolute.

Sir Noel Power NPJ:

31. I agree with the joint judgment of Mr Justice Chan PJ and Sir Gerard Brennan NPJ.

Chief Justice Li:

32. The Court unanimously disposes of this matter in the manner as set out in the joint judgment of Mr Justice Chan PJ and Sir Gerard Brennan NPJ.