GOOD FAITH PROPERTIES LTD AND OTHERS v. CIBEAN DEVELOPMENT CO LTD

LDCS 42000/2011

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION

NO. 42000 OF 2011

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D E C I S I O N

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1.  We handed down our judgment in this case on 31 May 2013 (“the Main Judgment”), granting an order for compulsory sale and made an order nisi that the respondent do pay costs of this case to the applicants with certificate for counsel, to be taxed if not agreed on party and party basis at High Court scale (“the Costs Order Nisi”). 

2.  As a result of the respondent’s application for a variation of the Costs Order Nisi, we handed down our decision (“the Costs Decision”) on 11 November 2013 allowing a variation of the costs order, ordering the respondent to pay the applicants costs in these proceedings except the costs for:

(a) satisfying the age and repair test;

(b) the initial EUV and RDV reports as well as the Updated RDV reports; and

(c) the application to adduce further report at the hearing on 6 November 2012,

with certificate for counsel, to be taxed if not agreed on party and party basis at High Court scale and there be an order nisi to be made absolute in 14 days that there should be no order as to costs of the application for variation of the costs order nisi dated 31 May 2013 (“the Varied Costs Order”).

3.  On 20 February 2014, leave to appeal is being granted to the respondent against the Varied Costs Order and there be a stay of execution of the Varied Costs Order until determination of the appeal. 

4.  After hearing the appeal, the Court of Appeal allowed the appeal, set aside the Varied Costs Order and remitted the matter back to this Tribunal for a proper determination of the question of costs in accordance with the compensation approach.  In the judgment of the Court of Appeal dated 22 September 2014 (“the CA Judgment”), it is held that :

(a) the compensation approach on costs in resumption cases is applicable to compulsory sale proceedings (§37);

(b) the making of the application is a necessary step if the majority owner(s) wish to take advantage of Cap 545 and the costs incurred by him in making the application is the price he has to pay in order to bring him to the point where a minority owner can be compelled by an order to sell through no fault on the part of the latter (§14);

(c) costs should not be dealt with in the same manner as ordinary hostile litigation and the expenses for the determination of the proper compensation for taking the land compulsorily are regarded as part of the reasonable and necessary expenses attributable to the acquisition process as a whole.  The starting point is that such costs should be paid by the acquiring authority (§27);

(d) The minority owner is quite entitled to insist on his right as private owner in rejecting any offers from the majority owner(s).  It should not be regarded as a legal wrong for a minority owner to reject an offer from the majority owner even though such an offer may meet the statutory reasonable step requirement under s 4(2)(b) of Cap 545 (§12);

(e) One should not be too ready to condemn the exercise of such rights to be heard by the minority owner as unreasonable conduct in resisting an application under Cap 545 (§17);

(f) The proper approach of the Tribunal for the costs of a successful claimant (ie a claimant who is awarded more than the amount of an unconditional offer by the respondent) should be that he is entitled to his costs incurred in the proceedings in the absence of some ‘special reason’ to the contrary (§28);

(g) The approach in Intelligent House Ltd v Chan Tung Shing [2008] 5 HKC 390 in distinguishing cases where a minority owner maintained a neutral stance (and put the majority owner to proof of its case) and cases where the minority owner put forward positive grounds of opposition is flawed (§38);

(h) If a minority owner raises objection and puts forward proper evidence to support his objections, he is only exercising his legitimate right to object as conferred by Cap 545.  He should not be penalized even though he is doing so for a motive which the applicant may, perhaps with some justification, characterize as an attempt to extract a ransom (§44);

(i) Only in very plain cases where the rejection of an offer or the pursuit of a line of opposition is obviously unreasonable that the Tribunal should consider imposing costs sanction (§44);

(j) The real concern is about the unreasonable conduct of proceedings and the delay and prolongation of the process under Cap 545 (with the attendant increase in costs) when a minority owner takes an obviously unmeritorious point to challenge the application (§47);

(k) Where a minority owner pursued an issue which had no real chance of success in an unreasonable manner, the Tribunal can, in addition to ordering that he be deprived of his costs in such pursuit, in a serious case, order him to bear the costs of the applicant in meeting such hopeless challenge (§46);

(l) In deciding whether it is a serious case, the Tribunal must also have regard to the position of the applicant (§46);

(m) Where the minority owner achieves a valuation in excess of the applicant’s offer, it would, prima facie, have been reasonable for him to have rejected that offer (§62); and

(n) The proper approach is to examine whether the respondent acted unreasonably in relying on the evidence of its expert, Mr Lai, so as to cause the proceedings to be unnecessarily prolonged or to cause the unnecessary expenditure of additional costs (§62).

Respondent’s Contention

5.  It is the contention of the respondent that by adopting the compensation approach in compulsory acquisition cases, the respondent should have costs of the proceedings, including costs of the application for variation of the Costs Order Nisi with interests to run from the date when costs should have been awarded to the respondent.

6.  It is submitted that the respondent could not have acted unreasonably in rejecting the offers from the applicants since it had achieved a valuation substantially exceeded what the applicants considered to be proper compensation at various stages.  Even though the respondent had failed in its opposition by the operation of a point of law since the Tribunal found that the applicants had taken reasonable steps under s 4(2)(b), rejection of legal arguments by the Tribunal did not amount to a special reason for making an adverse costs order against the respondent.  In any event, the argument on this point of law only took a relatively short time during closing submissions.

7.  As for the valuation-related issues concerning the quantum of the compensation, the respondent’s expert did not make an exaggerated claim nor adopt a valuation approach which no professionally competent valuer would have adopted :

(a) The “clear frontage” assertion is considered and accepted by the Lands Tribunal in other cases like Suen Ping Fat v The Director of Lands (LDLR 8 of 2007, 11 December 2008) and Lee Yun & Ors v Director of Lands (LDLR 12 of 2006, 22 December 2010);

(b) The proposed development model was not “unmarketable” or such that no competent valuer would have adopted it;

(c) The approach of relying on pre-sale comparables was taken by the Tribunal in earlier cases like Charmlink Ltd v Lee Tong Hing & Ors (LDCS 16000 of 2010, 29 November 2011) and Next Apex Ltd v The Personal Representatives of the estate of Wong Hing, deceased & Ors (LDCS 53000 of 2012, 5 July 2013) and it was the correctness of this approach which took up most of the trial time that was devoted to the subject of pre-sale comparables; and

(d) The use of the Centa-Citi Leading Index was merely as a cross-check and support for his view that there should be a 2% time adjustment for the period from December 2012 to February 2013.

8.  The respondent was not unreasonable or manifestly unreasonable in relying on the evidence of its expert.  Nor was the time spent on these subsidiary issues at trial substantial when cross-examination of the respondent’s expert only took slightly more than 1 day.

9.  The Tribunal should also consider the time and costs wasted on any issues improperly raised by the applicants, these are :

(a) The adoption of the reduced zoning method which was found in cases before the Lands Tribunal that the method should only be used as an exception;

(b) The reliance on a rateable value analysis to cross check the adjustments made;

(c) The rejection of suitable shop comparables and the adoption of wholly inappropriate comparables;

(d) The reliance and abandonment of the aged development comparables in his RDV assessment with substantial time and costs had been wasted; and

(e) The applicants’ repeated applications for leave to adduce expert evidence.

10.  And given the complexity of the issues in this case, it is proper and necessary to instruct leading counsel in this case.

Applicants’ Contention

11.  It is stressed that this Tribunal had already made some findings of unreasonable conduct against the respondent.

12.  As far as the issue on reasonable steps is concerned, this Tribunal had found that the respondent had pursued challenges which had no real chance of success in an unreasonable manner and it was a serious case of unreasonable conduct (§25 of the Costs Decision).  This had resulted in time being spent by the parties to prepare and argue the points raised and for the Tribunal to decide on each of the arguments.

13.  It is the contention of the applicants that costs of the issue on reasonable steps should be to the applicants.

14.  As far as the reliance by the respondent on the evidence of Mr Lai, it is also found by this Tribunal that “it was not reasonable for the respondent to pursue with the valuation issues” whilst the valuation issues taken up by Mr Chan “are not unreasonable and the time spent on these issues taken by Mr Chan are far from equivalent to the time spent on those issues … taken by Mr Lai” (§34 of the Costs Decision).

15.  And citing the findings by this Tribunal in the Main Judgment and the Costs Decision in support, it is submitted that the respondent’s unreasonable conduct in the valuation issues amounted to a serious case which would have entitled the applicants to be awarded costs of each issue :

(a) Approach of ‘clear frontage’, found by the Tribunal to be against common sense (§129 of the Main Judgment);

(b) Excessive assessment of RDV, found by the Tribunal to be far from reasonable and deviate from reality (§28 & 33 of the Costs Decision);

(c) Development model, found by the Tribunal to be unmarketable (§167 of Main Judgment);

(d) The use of pre-sale comparable exceeding 2 years old and the rejection of all post-October Government measure transactions without justification, found by the Tribunal to be fundamentally flawed, is most odd and unsatisfactory and unreasonable (§177-178, 182, 184-186 of the Main Judgment); and

(e) Reliance on the Centi-Citi Leading Index, found to be unreasonable (§193-194 of the Main Judgment).

16.  Having said so, since the issue of valuation constitutes “the second tier safeguard, the fair and reasonable compensation to the minority owner if an order for sale is to be made against his will” (§19 of the CA Judgment), the applicants submitted that the fair costs order to make in respect of the valuation issue should be no order as to costs.

17.  Furthermore, since the Tribunal accepted the respondent’s argument and made no order as to costs in respect of the applicants’ unsuccessful application to adduce further report at the hearing on 6 November 2012, it is submitted that the following applications (“Other Applications”) should attract the same treatment:

(a) On 1 November 2012, the applicants (notwithstanding the objection of the respondent) succeeded in getting leave to file the Supplemental Letter of Mr Chan;

(b) On 21 November 2012, the applicants succeeded in applying for leave to discuss with Mr Chan (who was being cross-examined) whether to file a further RDV report before the resumption of trial on 18 February 2013;

(c) On 18 February 2013, the applicants applied for leave to file Mr Chan’s Supplemental Report on RDV dated 7 February 2013 and the Letter dated 17 February 2013 and succeeded without opposition;

(d) On 18 February 2013, the applicants had succeeded in getting §3.2.17 to 3.2.20 of Mr Lai’s expert report being expunged; and

(e) On 26 February 2013, the applicants had succeeded in the argument raised by the respondent as to whether there was a certain agreement reached between the parties.

18.  And it is also the submission of the applicants that there should only be certificate for 1 counsel since this is not a complicated case when compared to other applications under Cap 545 and it is not necessary or proper to instruct a leader (adopting the meaning of proper and necessary in the case of Xinyuan Trading Co Ltd v N P H Petrochemical Limited HCA 18159/1998 unreported, Master Poon).

19.  It is the applicants’ stance that the proper costs order should be :

(a) The applicants shall pay the respondent costs in these proceedings with certificate for 1 counsel, to be taxed if not agreed on a party and party basis at High Court scale;

(b) The respondent shall pay the applicants costs in these proceedings incurred in connection to the issue of reasonable steps with certificate for 1 counsel, to be taxed if not agreed on a party and party basis at High Court scale; and

(c) there shall be no order as to costs for the valuation issue as well as the Other Applications.

Issue re. Reasonable Steps

20.  Adopting the compensation approach in land resumption cases, we agree with the respondent’s contention that it should be entitled to have its costs incurred in this issue.

21.  According to the CA Judgment, the respondent is entitled to insist on his right as a private owner in rejecting any offers from the majority owner even though such an offer may meet the statutory reasonable step requirement.  The respondent had achieved a valuation in excess of the applicants’ offer and it would have been reasonable for the respondent to have rejected that offer and put the statutory requirement in issue.  The award exceeds the figure put forward by the applicants in its offer and at the hearing by a substantial margin.  The respondent must be considered as the successful party and in the normal course should be entitled to have its costs.  This is a fact that had not been considered by this Tribunal in the Costs Decision and a point which the Court of Appeal found to be relevant in the consideration of the reasonableness of the conduct of the respondent in the proceedings.

22.  And even though the respondent had failed in its legal argument on the issue of reasonable steps, having considered the judgments relied upon by the respondents (at §11-12 of its written submissions), we accept that the rejection of legal arguments by the Tribunal did not amount to a special reason for depriving the respondent of its costs or making an adverse costs order against the respondent.  It would not be unreasonable for the respondent to raise this issue which depended on the determination of a legal argument concerning a legislative provisions still in its infancy.  And quoting the words of Potter LJ in Purfleet Farms [2003] 1 P & CR 20, the respondent “could not reasonably have refrained from making submissions if they chose, as they did, not to accept the offer made to them” (at §25).

23.  In any event, we also agree that the legal argument only took a relatively short time during closing submissions at trial and had not resulted in a substantial escalation in costs.

24.  We do not agree with the applicants that the respondent had pursued with a line of opposition that is obviously unreasonable, resulting in costs unreasonably incurred or increased in the disposal of this issue which should deprive the respondent of its costs in this issue.  Nor are we convinced that this is a serious case that the respondent should be ordered to bear the costs of the applicants in this issue.

Valuation Issue

25.  This issue turns on whether the valuation approach taken by Mr Lai and relied upon by the respondent at trial justified an order depriving the respondent of its costs or a costs sanction against the respondent.  As found by Lam J. in the CA Judgment, “the proper approach is, as explained by Chadwick LJ, to examine whether for the respondent acted unreasonably in relying on the evidence of Mr Lai so as to cause the proceedings to be unnecessarily prolonged, or to cause the unnecessary expenditure of additional costs” (at §62). 

26.  According to the judgment of Potter LJ in Purfleet Farms [2003] 1 P & CR 20 :

“[29] … the costs of a successful claimant (ie a claimant who is awarded more than the amount of an unconditional offer by the respondent) should be that he is entitled to his costs incurred in the proceedings in the absence of some ‘special reason’ to the contrary… special reasons should only be regarded as established where the Tribunal considers that an item of costs incurred or an 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 the disputed compensation…

…

[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….

[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; and (d) the amount or proportion of the costs disallowed is proportionate to the time wasted.”

27.  So, this Tribunal should consider, whether :

(a) There was exaggeration in the claim of the respondent which no professionally competent valuer would have adopted;

(b) This caused a substantial waste of time and costs beyond reasonable limits;

(c) There is no equivalent or near equivalent proportion of the proceedings that has been spent dealing with issues unreasonably and unsuccessfully raised by the applicants; and

(d) The reduction of costs is proportionate to the time wasted.

28.  As rightly pointed out by Mr Mok for the applicants, this Tribunal had dealt with the reasonableness of the approach adopted by Mr Lai in the Costs Decision (at §33-34).  We stand by our findings in the Costs Decision and the Main Judgment in this regard and bearing in mind the findings in the CA Judgment, we find that these findings answered the questions stated at §27 above.

29.  The findings against Mr Lai’s approach at §33 of the Costs Decision is merely a reciting of our findings in the Main Judgment which is not overturned.  We do not think that it is now open to the respondent to argue the same otherwise.  We find that the findings at §33 of the Costs Decision did point to the fact that no professionally competent valuer would have adopted the approach suggested by Mr Lai and it is not just a difference in opinion. 

30.  We also find the time spent on issues unreasonably or unsuccessfully raised by the applicants is far from equivalent to the time spent on issues taken by Mr Lai as revealed from the Summary Table 1 and 2 prepared by the respondent in its written submissions for this hearing.  As can be seen from the Summary Table, more than 15 hours (commensurate to 3 days’ court time) had been spent on the issues taken by Mr Lai, which compared to the length of the trial, cannot be said to be not substantial or insignificant.

31.  Having considered the above, we find that there was exaggeration of the claim in this case by the respondent.  Such exaggeration was due to the respondent’s reliance on the expert evidence of Mr Lai in these issues which should have been recognized as unreliable.  Such reliance had resulted in a waste of substantial time and costs.  Hence, the respondent should be deprived of the costs incurred in the issues unreasonably taken by Mr Lai only but not all the costs for the valuation issue.  To deprive the respondent of all the costs incurred for the valuation issue will be disproportionate to the time wasted.  We find a 15% reduction of the respondent’s costs should be sufficient to reflect the unreasonableness of the respondent in relying on Mr Lai’s expert opinion.

Other Applications

32.  We find that the matter involved in these Other Applications should be considered as part and parcel of the costs the applicants would have to incur in proving its case, thus the respondent should have costs of them as well in adopting the compensation approach.

33.  And this should include the argument in respect of the applicants’ unsuccessful application to adduce further report at the hearing on 6 November 2012 as mentioned by Mr Mok (particularized at §17 above) since no costs order has been made as far as this application is concerned at the hearing (as revealed from the record of proceedings).

Counsel’s Certificate for 2 Counsel

34.  Having considered the relevant factors considered by Master Poon (as he then was) in the case of Xinyuan Trading Co Ltd (supra), we agree with the respondent that the nature, complexity and the issues involved in this case did point to the conclusion that 2 counsel being instructed in this case is proper and necessary and well justified.

Order

35.  It is ordered that :

(a) The respondent be awarded 85% of its costs of the proceedings, and costs of the application for variation of costs order nisi dated 31 May 2013 with interests at judgment rate to run from 11 November 2013; and

(b) Costs awarded to be taxed if not agreed, with certificate for 2 counsel on party and party basis at High Court scale.