TAKCO LTD v. SECRETARY FOR JUSTICE

HCA196/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 196 OF 2007

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BETWEEN

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J U D G M E N T

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Introduction

1.  This action concerns a dispute between the Government as landlord and the plaintiff company, Takco Limited (“Takco”) as its tenant of certain land in Cha Kwo Ling, Kowloon.  Takco contends that, by reason of certain alleged representations or a collateral agreement, the Government is not entitled to serve a notice to quit on it to terminate the tenancy under which it occupies the relevant land.  For its part, the Government contends that the notice to quit is valid and that Takco is obliged to deliver up vacant possession of the land.

The parties

2.  The plaintiff, Takco, is a company incorporated in Hong Kong on 8 July 2002.  One of its directors is Mr Chan Kin Hung (“Mr Chan”).  He is also a director of Xun Xiang Iron & Steel Limited (“Xun Xiang Iron & Steel”), which is a company within a group of companies referred to as the Xun Xiang Group of Companies.  The Xun Xiang Group also includes Xun Xiang Metalware Company Limited.

3.  The Government is the owner of a site off Wai Yip Street, Cha Kwo Ling, Kowloon on which, at various times, four different sites of varying size have been designated.  These have been referred to in these proceedings as the 1^st Premises, the 2^nd Premises, the 3^rd Premises and the 4^th Premises.  The present dispute concerns the 4^th Premises.

The background facts

The 1993 Tenancy Agreement

4.  By a Tenancy Agreement No. KX1766 dated 12 May 1993 (“the 1993 Tenancy Agreement”), the Government granted Xun Xiang Iron & Steel a tenancy of the 1^st Premises for a one-year term commencing on 21 April 1993 at an annual rent of $1,240,000 and thereafter continuing on a quarterly basis until such time as the tenancy might be terminated by three months’ notice in writing served by either party.

5.  The First Schedule of the 1993 Tenancy Agreement provided that the purposes for which the 1^st Premises might be used was for “open storage of non-dangerous goods (excluding storage of containers) and/or parking of vehicles owned by the Tenant”.

6.  The 1993 Tenancy Agreement was supplemented by an agreement dated 19 June 1997 between the Government and Xun Xiang Iron & Steel (“the 1997 Supplementary Tenancy Agreement”).  Under the 1997 Supplementary Tenancy Agreement, Xun Xiang leased the 2^nd Premises from the Government, in substitution for the 1^st Premises, but the tenancy continued to be governed by the terms of the 1993 Tenancy Agreement which otherwise remained in full force and effect.

7.  The 1993 Tenancy Agreement came to an end on 25 June 2002.

The May 2002 Tenancy Agreement

8.  On 31 May 2002, the Government granted Xun Xiang Iron & Steel a monthly tenancy of the 2^nd Premises at a rent of $276,500 per month terminable by one month’s notice served by either party but otherwise subject to the same conditions and terms as set out in the 1993 Tenancy Agreement (“the May 2002 Tenancy Agreement”).

The tenancy of the 3^rd Premises

9.  Shortly prior to the May 2002 Tenancy Agreement, the Government reviewed the intended use of the area where the 1^st and 2^nd Premises were located.  A District Land Conference on 25 April 2002 decided that the 3^rd Premises would be put to open tender for a short term tenancy (“STT”) of three years certain and thereafter quarterly, for waste recycling purposes.  Accordingly, by a Tender Notice No. LND KE KX2235 issued in July 2002 (“the 2002 Tender Notice”), the Government invited tenders for a tenancy of the 3^rd Premises.

10.  There is a dispute between the parties as to whether, prior to the issue of the 2002 Tender Notice, the Government made certain representations to Mr Chan and Xun Xiang Iron & Steel to the following effect :

(1)     the Government was committed to promoting waste prevention and recycling and facilitating the development of the recycling industry;

(2)     the 2^nd Premises would be divided into two lots, one of which, namely the 3^rd Premises, would be used for long-term environmentally related operations; and

(3)     the Government would not change the user of the 3^rd Premises until the Government required it for planned development.

It will be necessary to return to this subject in greater detail later in this judgment and I will refer to each of these representations as the 1^st, 2^nd and 3^rd Representations respectively and, collectively, as the Representations.

11.  On 26 July 2002, Takco, which was incorporated on 8 July 2002, submitted a tender under the 2002 Tender Notice and its tender was successful.

12.  By a Tenancy Agreement No. KX2235 dated 30 September 2002 (“the September 2002 Tenancy Agreement”), the Government granted Takco a lease of the 3^rd Premises for a term of three years commencing on 20 November 2002 and thereafter quarterly until terminated at an annual rent of $2,500,000.

13.  The September 2002 Tenancy Agreement provided, in its First Schedule, that the purposes for which the 3^rd Premises might be used was for the :

“Operation of a business in connection with the recovery or recycling of metals, paper, plastics, glass or wood found in municipal solid waste as defined in Condition 2 of the Technical Schedule annexed hereto or any combination of the above”.

And, to like effect, Condition No. 2 of the Technical Schedule provided that :

“Subject to the terms and conditions of this Agreement, the Premises or any part thereof shall not be used for any purpose other than for the recovery or recycling of metals, paper, plastics, glass or wood found in municipal solid waste or any combination of the above.”

14.  Takco alleges that there was a collateral warranty, alternatively a collateral agreement arose between it and the Government, that the Government would not change the user of the 3^rd Premises until it required the 3^rd Premises for planned development (“the Collateral Agreement”).  As with the alleged representations, it will be necessary to return to this subject later in this judgment.

Re-tender of the 3^rd Premises, notice to quit and ensuing litigation

15.  From about February 2005, in light of the impending expiry of the September 2002 Tenancy Agreement on 19 November 2005, the District Lands Office/Kowloon East (“DLO/KE”) gave consideration to whether to put the 3^rd Premises to re-tender.  After taking the concerns of the Kwun Tong District Council and residents of the area into account, the Environmental Protection Department (“EPD”) supported the allocation of the site for recycling purposes but excluding ferrous metals.

16.  Hence, by a Tender Notice No. LND KE KX2421 issued in January 2006 (“the 2006 Tender Notice”), the Government invited tenders for a tenancy of the 4^th Premises with the user being :

“Operation of a business in connection with recovery or recycling of waste paper, plastics, non-ferrous metals, glass, electrical and electronic appliances, textile and old clothes, rubber tyres, wood and furniture found in municipal solid waste or any combination of the foregoing.”

17.  In response to the issue of the 2006 Tender Notice, by a letter from its solicitors dated 26 January 2006, Takco threatened to seek judicial review of the decision to change the proposed user under the tender.  On 3 March 2006, Takco issued proceedings against the Government in HCA467/2006 (“the 1^st Action”) seeking, amongst other things, a declaration that the Government was not entitled to change the existing user of the 3^rd Premises until those premises were required for planned development.  Takco’s case in the 1^st Action asserted the representations and collateral warranty or agreement relied upon in this action.

18.  On 8 April 2006, the Government served on Takco a notice to quit (“the 1^st Notice to Quit”) requiring it to quit and deliver up the 3^rd Premises to the DLO/KE on 9 July 2006.

19.  In response to the issue of the 1^st Notice to Quit, on 3 May 2006, Takco issued proceedings against the Government in HCA961/2006 (“the 2^nd Action”).  In that action, relying on substantially the same allegations as in the 1^st Action, Takco sought, amongst other things, a declaration that the Government is estopped from serving the 1^st Notice to Quit before the Government should require the 3^rd Premises for planned development.

The 2006 Tenancy Agreement

20.  On 17 February 2006, in response to the 2006 Tender Notice, Takco submitted a tender to rent the 4^th Premises.  This submission was made notwithstanding Takco’s solicitors’ letter of 26 January 2006 and despite the Government’s statement in a letter from the DLO/KE dated 13 February 2006 that the 2006 Tender Notice would not be modified or withdrawn.  Takco contends the tender was submitted without prejudice to and expressly preserving its pleaded position in the 1^st Action and the 2^nd Action.

21.  On 9 May 2006, the Government accepted Takco’s tender and, by a Tenancy Agreement No.KX2421 dated 12 June 2006 (“the 2006 Tenancy Agreement”), the Government granted Takco a lease of the 4^th Premises for a fixed term from 10 July 2006 to 31 December 2008 and continuing thereafter quarterly until terminated. 

22.  By a letter dated 9 May 2006 from the DLO/KE to Takco, by which the Government accepted Takco’s tender, Takco was reminded that it must comply with the terms and conditions of the 2006 Tenancy Agreement which did not permit the recovery or recycling of ferrous metals.  By Clause 2(b) of the 2006 Tenancy Agreement, Takco agreed :

“Not to use or permit or suffer the use of the Premises or any part thereof for any purpose other than such purposes as are specified in the First Schedule hereto”.

The purposes for which the 4^th Premises might be used, as specified in the First Schedule, were for the :

“Operation of a business in connection with recovery or recycling of waste paper, plastics, non-ferrous metals, glass, electrical and electronic appliances, textile and old clothes, rubber tyres, wood and furniture found in municipal solid waste as defined in Condition No.2 of the Technical Schedule annexed hereto or any combination of the foregoing.”

And, in turn, Condition No. 2 of the Technical Schedule provided that :

“Subject to the terms and conditions of this Agreement, the Premises or any part thereof shall not be used for any purpose other than for the operation of a business in the recovery or recycling of waste paper, plastics, non-ferrous metals, glass, electrical and electronic appliances, textiles and old clothes, rubber tyres, wood and furniture found in municipal solid waste or any combination of the foregoing.”

23.  Pursuant to the 2006 Tenancy Agreement, Takco took possession of the 4^th Premises on 10 July 2006.  However, it maintained, through its solicitors, that it had a right to use the 4^th Premises for the recovery or recycling of ferrous metals.

Dispute as to user of the 4^th Premises and notice to quit

24.  Clause 4(b) of the 2006 Tenancy Agreement provided that :

“… if it is at any time shown to the satisfaction of the District Lands Officer that the Tenant has failed or ceased to use the Premises for the purposes as are specified in the First Schedule hereto on a scale to the satisfaction of the District Lands Officer (the decision of the District Lands Officer in this respect shall be final and binding upon the Tenant), the Landlord shall be entitled to terminate the tenancy hereby created by giving to the Tenant written notice to such effect to expire at any time (whether within the fixed term in the First Schedule hereto or otherwise) without payment of compensation or refund of any rent paid or any part thereof. Upon expiry of such notice and without prejudice to any right of action of the Landlord in respect of any antecedent breach, non-performance or non-observance of other terms and conditions herein contained, the tenancy shall cease and determine and the Tenant shall quit and deliver vacant possession of the Premises in accordance with the terms and conditions of this Agreement”.

25.  The Government conducted various site inspections of the 4^th Premises in July, August, September and October 2006 and concluded that Takco was carrying out ferrous metal operations there.  Accordingly, by a letter dated 4 December 2006, the DLO/KE wrote to Takco asserting that the latter was thereby in breach of the 2006 Tenancy Agreement and requiring it to cease all recovery and/or recycling of ferrous metal operations at the 4^th Premises and to strictly comply with the 2006 Tenancy Agreement, failing which the Government would take action including terminating the tenancy and re-entering the 4^th Premises.

26.  Further site inspections were taken out which, the Government maintains, confirm that, notwithstanding the letter of 4 December 2006, Takco continued the recovery or recycling of ferrous metal at the 4^th Premises.

27.  On 19 January 2007, the Government accordingly issued and served on Takco a notice to quit (“the 2^nd Notice to Quit”) requiring it to quit and deliver up the 4^th Premises on 2 February 2007.

28.  Notwithstanding the 2^nd Notice to Quit, Takco has remained in occupation of the 4^th Premises and has continued its ferrous metal operations.  Pursuant to a consent order made on 24 April 2007, it paid and has been paying the sum of $175,000 per month for the period from 1 April 2007 by way of interim payment and on account of its liability in respect of its use and occupation of the 4^th Premises until final judgment or further order in this action.

The issues for determination

29.  The parties agreed that the main issue for determination is whether the Government, by various officers of DLO/KE and the EPD, made the Representations alleged to Mr Chan and Xun Xiang Iron & Steel, as set out above.

30.  If that issue is determined against Takco and in favour of the Government, Takco’s claim falls away and it will then be necessary to proceed to consider the following questions :

(1)     whether the Government is entitled to the declaratory relief claimed in its Counterclaim, in substance upholding the validity of the 2^nd Notice to Quit;

(2)     whether vacant possession of the 4^th Premises should be delivered up by Takco; and

(3)     what is the amount of mesne profits/damages to be awarded to the Government, an issue which involves ascertaining the open market rental of the 4^th Premises as at 10 July 2006, when the 2006 Tenancy Agreement commenced, on the assumption its use included the recovery or recycling of ferrous metals.

31.  If the Representations were in fact made as alleged, the following subsidiary issues will fall to be determined :

(1)    Whether the Representations :

(a)    were actionable representations of fact, as opposed to statements of intention;

(b)    were made to Takco; and

(c)    induced Takco to act in reliance on them to its detriment.

(2)    Whether the alleged Collateral Agreement as alleged was made or exists and is binding on the Government.

(3)    Whether the 2006 Tender Notice was a breach of the alleged Collateral Agreement by the Government, alternatively whether the Government acted wrongfully in resiling from the alleged representations in publishing the 2006 Tender Notice.

32.  If the answer to any of the questions posed in the preceding paragraph are yes, it will then fall to determine whether the plaintiff :

(1)     is entitled to any of the declarations sought by it; and

(2)     is entitled to damages for misrepresentation or breach of the alleged collateral agreement and, if so, in what amount.

Were the alleged Representations made?

33.  The alleged Representations are set out in paragraph 10 above. Takco’s pleaded case[1] as to the making of the Representations is as follows :

“(a) The Representations were made by Mr. Lawrence T.K. Wong, Principal Environmental Projection Officer and Dr. Sam W.K. Choi, Environmental Projection Officer of the Environmental Protection Department, to Mr. Chan and Mr. Anthony Chan of Xun Xiang Metalware in a meeting held on 88 Victoria Road, Kennedy Town, Hong Kong shortly before 21^st March 2002.

(b) The Representations were again made by Ms. Karen Poon for the Government’s District Lands Officer, Kowloon East, (‘DLO/KE’) to Mr. Chan and Mr. Jove Wu of Xun Xiang Iron & Steel in a meeting held at the District Lands Office, Kowloon East on the 10^th Floor of the Yaumatei Carpark Building, 250 Shanghai Street on 21^st March 2002 (‘the 21^st March Meeting’).

(c)   The Representations are also evidenced by a letter in Chinese from Xun Xiang Iron & Steel to DLO/KE dated 26^th March 2002 wherein Xun Xiang Iron & Steel put on record that at the 21^st March 2002 Meeting, DLO/KE had represented, inter alia, that the 2^nd Premises would be divided into two lots one of which, namely, the 3^rd Premises, would be used for environmentally related operations (‘the 26^th March letter’).”

34.  It was common ground that the meeting between Dr Wong and Dr Choi of the EPD with Mr Chan and Mr Anthony Chan took place at 2.30 pm on 19 March 2002.  The address in Kennedy Town at which the meeting took place is the address of the EPD’s offices.  As for the meeting at the DLO/KE, it was also common ground that, in addition to Ms Poon, whose then post was Estate Surveyor/South East Kowloon, Ms Anita Lam, then a Senior Estate Surveyor/South East Kowloon, also attended the meeting.

35.  Before addressing the parties’ evidence as to the content of the two crucial meetings, it is necessary to set out the factual context in which the meetings took place.

The context of the meetings

36.  A major plank in Takco’s case as to the representations was that, since going into possession of the 1^st Premises in or around May 1993 pursuant to the 1993 Tenancy Agreement, Xun Xiang Iron & Steel had at all material times, with the full knowledge, acquiescence and/or consent of the Government, been using the 1^st Premises (and, since around 21 April 1996, the 2^nd Premises) for its business of recovering and/or recycling metal, including ferrous metal, and paper, notwithstanding that the First Schedule of the 1993 Tenancy Agreement provided that the purposes for which the 1^st Premises and 2^nd Premises might be used was for open storage of non-dangerous goods (excluding storage of containers) and/or parking vehicles owned by Xun Xiang Iron & Steel.

37.  In its pleaded case[2], the Government denied that it had at any time prior to March 2002 any knowledge of, acquiesced in or consented to the use of the 2^nd Premises for the business of recovering and/or recycling metal and paper by Xun Xiang Iron & Steel.

38.  The contemporaneous documents support Takco’s case as to the nature of the operations conducted by Xun Xiang Iron & Steel on the 1^st Premises and 2^nd Premises, and also suggest that the Government was aware of this sometime earlier than March 2002 :

(1)     In a letter to DLO/KE dated 13 March 2002, Xun Xiang Iron & Steel advised DLO/KE that they had been “conducting various environmental related operations with certain government departments on the land” and asked the DLO/KE to allow it “to continue our operation on the land subject to a revised rent”.

(2)     In an e-mail addressed to Dr Ellen Y.L. Chan of the EPD dated 13 March 2002, Xun Xiang Iron & Steel referred to the fact that it was renting the 1^st Premises and 2^nd Premises since 1993 as a “comprehensive recycling site … (including waste paper, ferrous and non-ferrous metals)”. 

(3)     In the minutes of a meeting of the Environment and Food Bureau (“EFB”) held on 19 March 2002 to discuss the provision of STT sites for the recycling industry, it is recorded that the existing tenant of the 2^nd Premises was operating a recycling business at the site and that the site was already being used for recycling activities involving mainly sorting and bailing.

(4)     By an e-mail dated 20 March 2002, Xun Xiang Iron & Steel provided Dr Wong of the EPD with data as to the volume of iron, metal and waste papers handled by it on a monthly basis, which was said to be then unable to be handled by any other independent recycling company in Hong Kong in view of their inadequate manpower and equipment.

(5)     In the minutes of a District Lands Conference held on 25 April 2002 to discuss the proposal to offer the 3^rd Premises on a STT for waste recycling purposes, the Chairman is recorded as having noted that the tenant of the 2^nd Premises had used the site for waste recycling purposes and that the site might have been used for those purposes for quite some time.

(6)     Finally, in a letter from the EFB to Mr Chan dated 31 May 2002 there is reference to the recycling operations currently being undertaken at the 2^nd Premises and also to the need to rectify the situation by designating the site for recycling use.

39.  The Government witnesses who participated in the two crucial meetings on 19 and 21 March 2002, namely Ms Karen Poon, Ms Anita Lam, Dr Lawrence Wong and Dr Sam Choi did not expressly deny knowledge on the part of the Government of the nature of Xun Xiang Iron & Steel’s operations on the 2^nd Premises prior to March 2002 in their witness statements.  At the outset of her cross-examination, Ms Poon initially accepted that she knew Xun Xiang Iron & Steel was carrying on a metal and paper recycling business at the site in May 2001 when she visited the 2^nd Premises shortly after her transfer to DLO/KE.  I am inclined to think, though, that this may have been a point of confusion on her part since she immediately corrected her answer to say that she only knew of the nature of Xun Xiang Iron & Steel’s activities after the meeting with Mr Chan.  However, she either accepted or did not challenge the truth of the statements in the documents I have referred to in the preceding paragraph suggesting that Xun Xiang Iron & Steel had been carrying on environmental and recycling operations on the site, and that these had been going on for some time.  This was also broadly the position in respect of Ms Lam, Dr Wong and Dr Choi.  Specifically, Ms Lam agreed that the fact recorded in the minutes of the EFB meeting on 19 March 2002 that the site was currently being used for recycling came as no surprise to anyone in attendance.  In addition, Dr Choi gave examples of other Government departments with which Xun Xiang Iron & Steel was working on environmentally related operations on the land, namely : (1) the Transport Department, who would collect old vehicles and send them to Xun Xiang Iron & Steel to scrap; and (2) various contracts with primary and secondary schools, on the introduction of a Ms Mabel Mak of the EPD, to recycle their waste paper and aluminium cans.

40.  In the face of the statements from Xun Xiang Iron & Steel in the correspondence referred to, there is no evidence of the Government having responded in correspondence or otherwise to challenge the suggestion that Xun Xiang Iron & Steel was using the site for recycling or that it had been doing so for some time.  In the circumstances, I accept that the Government was aware, at some time before March 2002, that Xun Xiang Iron & Steel was operating a business of recovering and/or recycling metal and paper on the site.  I am unable to fix a precise date by which the Government had this knowledge but I am satisfied that there was knowledge on the part of, at least, the EPD of the nature of Xun Xiang Iron & Steel’s business on the site and that it would have had this knowledge for some time before March 2002.  However, since there was no evidence of the date from which Xun Xiang Iron & Steel had been working with the Transport Department and various schools, I am unable to fix the time from which the Government would have had this knowledge.

41.  Takco did not rely on the Government’s knowledge to found any claim of waiver, estoppel or acquiescence and, hence, the significance of this finding is limited to one of setting the context of the meetings on 19 and 21 March 2002.  By that date, I am satisfied that Ms Poon, Ms Lam, Dr Wong and Dr Choi were all aware of the fact that Xun Xiang Iron & Steel was claiming that it had been carrying out the business of recovering and/or recycling metal and paper on the site for some time and none of them was in a position to challenge this, nor did they seek to challenge Mr Chan on this assertion at either of the meetings.

The 1^st Representation

42.  The 1^st Representation was not particularly controversial.  It would hardly be a matter of surprise for it to be said that the Government is committed to promoting waste prevention and recycling and facilitating the development of the recycling industry.  Indeed, it would be surprising if it were not so committed.  The Government’s commitment in this regard is supported by the EFB letter to Xun Xiang Iron & Steel dated 31 May 2002.  That letter was signed by Ms Annie Choi, who, according to Dr Wong’s evidence, held the rank of Principal Assistant Secretary of the EFB and was responsible for waste management policy within EFB.  It is also supported by the minutes of the EFB meeting on 19 March 2002, held in the morning before the meeting between Dr Wong and Dr Choi with Mr Chan.

43.  The Government’s pleaded position is that at the meeting with Mr Chan on 19 March 2002, Dr Wong mentioned “by way of general introduction”, amongst other things, “the Government’s policy to reduce and recycle waste and to promote the development of local recycling industry”[3].  Dr Wong’s oral evidence confirmed that this was discussed at that meeting.  Dr Choi also accepted, in his evidence, that he and Wong discussed the Government’s commitment to promoting the recycling industry at that meeting. 

44.  So far as the meeting on 21 March 2002 is concerned, Ms Poon denied that she spoke about Government policy to promote waste prevention and recycling but agreed that she would have said that the land was to be used for environmentally related use.  She did not challenge the suggestion that Xun Xiang Iron & Steel’s representatives mentioned Government policy to promote waste prevention and recycling or that she did not contradict them as to their statement of that policy.  Ms Lam’s evidence was slightly more equivocal.  She said that she and Ms Poon focused on land matters and that she did not think they discussed the Government recycling policy.  She accepted that Mr Chan may have mentioned the Government’s commitment to promoting waste prevention and recovery but said it was not discussed, although she would not have disagreed with Mr Chan if he had raised it.  Her evidence is consistent with her file note of the meeting, which does not record any discussion of the Government’s policy to promote waste prevention and recycling.

45.  In the light of the evidence, I am satisfied that the 1st Representation was made by Dr Wong, and possibly also Dr Choi, at the meeting on 19 March 2002.  I am not satisfied that Ms Poon or Ms Lam made the 1^st Representation at the meeting on 21 March 2002.  Although the minutes of the meeting at the EFB on 19 March 2002 noted that the District Officer for Kwun Tong should stress to District Council members the importance of supporting waste recovery, this was not a matter that the DLO/KE was identified in the minutes as being responsible to action.  Moreover, although Ms Lam was in attendance at that meeting, Ms Poon was not.  I think it is more likely that the discussion at the meeting on 21 March 2002 would have focused more specifically on land use matters and the terms on which the site might be made available for the recycling industry.

The 2^nd Representation

46.  The Government’s pleaded position is that at the meeting with Mr Chan on 19 March 2002, Dr Wong mentioned that “the current plan was that half of the 2^nd Premises would be allocated exclusively for recycling operation under short term tenancy and the other half for recycling or open storage”[4].  As such, it will be apparent that the nub of the dispute between the parties concerns whether it was represented that use of the 3^rd Premises for environmentally related operations would be long-term.  To some extent this overlaps with the question of user, which is the subject of the 3^rd Representation, but I shall focus firstly on the question of whether the 2^nd Representation was made and deal separately with the 3^rd Representation since each is relied upon as a free-standing representation.

47.  Dr Wong summarised the points discussed in the 19 March 2002 meeting in an e-mail dated 20 March 2002 to Ms Annie Choi.  One of the points recorded by Dr Wong was “[H]e [i.e. Mr Chan] noted that half of the site would be allocated exclusively for recycling operation under STT and the other half for recycling or open storage”.

48.  In his oral evidence, Dr Wong agreed he talked about the proposal to divide up the lot then occupied by Xun Xiang Iron & Steel and that the southern portion would be used exclusively for environmentally related operations.  He accepted he did not put a time limit on that use.  His evidence was that the EPD’s concern was to see if the site was earmarked for continuous use for recycling use.  Dr Choi’s evidence was consistent with this.

49.  In her oral evidence, Ms Poon agreed she mentioned the proposal to divide the site into two, with the southern part being used for environmentally related operations.  She accepted in cross-examination that she never told the Xun Xiang representatives that the Government wanted the land back in three years’ time and that she left the question of user open-ended.  Ms Lam confirmed that the proposal to split the site was raised at the meeting on 21 March 2002.

50.  I accept the oral evidence from the Government’s representatives at the meetings on 19 and 21 March 2002 that they did not use the adjective long-term in their description of the proposed split of the site and the earmarking of the southern part exclusively for recycling operations.  Despite a tendency at times to take what might be described as a somewhat narrow or bureaucratic point of view in their cross-examination, which sometimes caused them to appear argumentative, I accept that Ms Poon, Ms Lam, Dr Wong and Dr Choi were generally truthful witnesses in giving their evidence about the meetings on 19 and 21 March 2002.  This conclusion, that they did not say that the 3^rd Premises would be used for long-term environmentally related operations, is also supported by the absence of that adjective in Xun Xiang Iron & Steel’s letter to the DLO/KE dated 26 March 2002 following up on the 21 March 2002 meeting with Ms Poon and Ms Lam.  In that letter, Xun Xiang Iron & Steel suggested a consensus had been reached, namely “the captioned site would be re-tendered by open tender shortly, and the site will be divided into two with one to be tendered for environmental-related uses (recycling site)”.  This is clearly a reference to the subject-matter of the 2^nd Representation and it will be apparent that there was no reference to the environmental user being long-term.

51.  It was submitted, on behalf of Takco, that its case as to the 2^nd Representation has a ring of truth about it in the light of Xun Xiang Iron & Steel’s use of the 1^st and 2^nd Premises for their business of recovering and/or recycling metal and paper, the purpose of designating the 3^rd Premises to rectify the situation and the Government’s stated policy that it would continue to make available STT sites for exclusive use by the recycling industry.  However, none of these factors, in my view, provide a compelling reason to reject the evidence of the Government’s witnesses that they did not make the 2^nd Representation, specifically that they did not refer to long-term environmental user.  Xun Xiang Iron & Steel’s occupation of the site was always under the terms of an STT.  The very nature of an STT is that it may come to an end in the short term and is therefore not long-term.  The Government’s commitment to finding suitable sites for exclusive use by the recycling industry must be viewed in the context of its policy to make available STT sites for that purpose.  Thus, the commitment was subject to the in-built limit of the use of STTs.

52.  Even if, contrary to my finding above, the adjective long-term had been used by the Government representatives at either of the meetings, the DLO/KE’s response to Xun Xiang Iron & Steel’s letter of 26 March 2002, by letter dated 27 March 2002, provided an immediate response on the part of the Government in respect of the subject-matter of the 2^nd Representation to clarify that what had been discussed was “currently a proposal yet to be considered by the government”.  In those circumstances, any representation to the effect that the environmental user being long-term would cease to be an operative representation since, having been qualified in that manner, it could no longer be said that any such representation had been made clearly and unequivocally.

53.  I therefore do not find that the 2^nd Representation, as pleaded by Takco, was made at either meeting on 19 or 21 March 2002.  It remains to consider whether the statement that I accept was made concerning the proposal to split the site and allocate part exclusively for recycling operations lends support to the making of the 3^rd Representation.

The 3^rd Representation

54.  This representation is the most critical of the three representations relied upon by Takco, since it is essentially the crux of the case challenging the Government’s right to issue the 2006 Tender Notice and the 2^nd Notice to Quit.  The dispute is whether the Government represented that the permitted user of the 3rd Premises under the September 2002 Tenancy Agreement would not change even after the three year term under that tenancy had expired unless the site was required for planned development.

55.  Takco’s evidence supporting the 3^rd Representation consisted of Mr Chan’s oral evidence.  However, he agreed that at the 19 March 2002 meeting, Dr Wong told him the Government’s plan at that time was to split the site into two with one part being allocated exclusively for recycling under an STT.  As I have noted above, the use of an STT carries with it the implication of an in-built limitation in terms of its duration.  He accepted that the EPD officers at the meeting on 19 March 2002 did not have authority to implement the then proposed plan and that the terms on which land would be leased out was a matter for the Lands Department.  He was aware that, when the fixed term of an STT was due to expire and the land was available for temporary use for the next three years, it was the Lands Department’s general policy to re-tender the site by open bidding.  It was put to Mr Chan that Dr Wong never told him that the user of the site would not change after the proposed tender.  His answer to this point was as follows :

“I agree to this point but wish to add further. Mr Wong emphasized time and again that, for the recovery of land, the Government policy was that unless the land would be used for redevelopment otherwise they would strive to have the land used for recovery purpose. That’s what he had clearly stated to me.”

Mr Chan accepted that EPD would strive its best, because it was not up to the EPD to determine the user of the land.  He also agreed that Dr Wong said to him that the nature of the recycling activities and type of waste materials allowed in the new STTs would be reviewed before the sites were re-tendered.

56.  This evidence falls short, in my judgment, of establishing Takco’s case that the 3^rd Representation was made at the 19 March 2002 meeting by Dr Wong or Dr Choi and it is an important consideration in evaluating the evidence as a whole and the submissions made on behalf of Takco in support of the case that the 3^rd Representation was made at that meeting.

57.  As regards the 21 March 2002 meeting, Mr Chan accepted that Ms Poon did not tell him that the site, whether divided into two or not, would be used for long-term recycling operations.  He accepted she was only talking about the forthcoming tender for three years, so it would not be on a long-term basis.  Mr Chan said he asked Ms Poon if the land was not to be developed after the expiry of a three-year STT, would the Government follow established practice and tender it for the same purpose.  In part of his lengthy explanation of this part of the discussion between him and Ms Poon, Mr Chan said :

“… Poon’s reply was very positive. If the land was not to be developed, the Government would follow established practice and tender it for the same purpose. I wish to emphasise one point, Ms Poon never said the land use could not be changed. But at the same time, she did not say the land use could be changed. …”

He later sought to suggest that Ms Poon’s answer to his question was that if, after three years there was not to be development of the land, the Government would put it up for tender “for the purpose of waste recovery”.  And in his re-examination, Mr Chan said this :

“Ms Poon had never said to me or made any promise to me that the Government would not exclude any use of the land. She only clearly stated to me that if the land was not required for development then it would be tendered for environmental protection purpose or the tenancy would be renewed. My understanding was that they would adhere to the original land use for environmental protection purpose and that would be the understanding of any person. In fact, after three years the Government had tendered for environmental protection purpose because the land was not required for development. So that proved what I said before, if the land was not required for development then it would be leased again. But the Government excluded the land to be used for ferrous metal and that is very unreasonable and no explanation was offered to me.”

58.  Taken as a whole, I do not find Mr Chan’s evidence to be supportive of the making of the 3^rd Representation.  Insofar as Mr Chan accepted that Ms Poon did not say the land use could not be changed but did not say it could be changed, the position is simply ambivalent or left open.  If Mr Chan assumed this meant that the user of the 3^rd Premises would not be changed absent planned development, that was not the result of a positive statement on the part of Ms Poon.  Furthermore, it is not Takco’s case that the Government was in breach of any duty to correct a possible misunderstanding on his part.  Insofar as Ms Poon may have said the Government would put the land up for tender for the purpose of waste recovery or for environmental protection purposes after three years, this statement is consistent with what the Government in fact did in the 2006 Tender Notice, since the user of the 4^th Premises was still that of waste recovery, albeit different to the user under the September 2002 Tenancy Agreement.  Again, Mr Chan’s oral evidence is an important consideration in evaluating the evidence as a whole and the submissions made on behalf of Takco in support of the case that the 3^rd Representation was made at that subsequent meeting.

59.  Takco submitted that the making of the 3^rd Representation at the 19 and 21 March 2002 meetings is supported by the contemporaneous documents and admissions of the Government’s witnesses in cross-examination.

60.  As to the contemporaneous documents, Takco relies first on a memo dated 8 March 2002 prepared by Ms Poon and proposing a STT for the 3^rd Premises for waste recycling purposes.  That memo noted that the comprehensive Feasibility Study for the Revised scheme of South East Kowloon development found that it was proposed to built a new road on the south-western part of the site after 2005 and the extension of the Kwun Tong Preliminary Sewage Treatment Works would not be required before 2011.  Takco submitted that this showed that, subject to these two riders, it was not envisaged by the Government, in 2002, that the site would be required for development.  That may be so, but that does not mean that the 3^rd Representation would have been made.  The purpose of Ms Poon’s memo was to explain the circumstances that justified earmarking the 3^rd Premises as a site suitable for a STT for waste recycling purposes, i.e. the site would be available for temporary use for the next three years.  Given that it was common ground that it was Government policy to re-tender tenancy sites that were available for three years or more, there is no reason to convert Ms Poon’s contemplation that there would be no permanent development before 2011 into a propensity to make the 3^rd Representation.  This is simply a non-sequitur, in my view.

61.  It was submitted, on behalf of Takco, that it was critical that Ms Poon admitted in cross-examination that Mr Chan already knew that the site was not required for permanent development.  In my judgment, whilst this may have been critical to the possibility that Mr Chan might assume that the user of the 3^rd Premises would not be changed absent planned development, it does not provide a strong reason for finding that Ms Poon made the 3^rd Representation.  Nor does it follow, in my judgment, that the fact the subject of whether the Government would require the site for permanent development was a subject discussed at the 21 March 2002 meeting (as Ms Poon accepted), would make it more likely than not that Ms Poon would have represented that the Government would not change the land user absent planned development.  In my judgment, this suggestion ignores the important fact that the context of the meeting, and therefore a good indication of what was in Ms Poon’s contemplation, was the proposed grant of a STT, i.e. a tenancy of limited duration.

62.  Each of the Government witnesses denied making the 3^rd Representation at the respective meetings attended by them.  In respect of the meeting on 19 March 2002, it was put to Dr Wong that he did not tell the representatives of Xun Xiang Iron & Steel that the Government would require the land for permanent development after three years and he agreed.  He similarly agreed that he did not tell the Xun Xiang representatives that they would not be allowed to process metals after three years.  However, this falls far short of evidence supporting a finding that he made the 3^rd Representation during that meeting. 

63.  For his part, Dr Choi said that at the meeting he mentioned that at the end of three years the STT would either be renewed or re-tendered and the EPD would liaise with the DLO/KE to continue the land use as before.  Far from supporting the making of the 3^rd Representation, as was submitted, this evidence shows, in my judgment, that Dr Choi contemplated that the decision as to user was up to someone else.  In those circumstances, I think it very unlikely he would have made the 3^rd Representation, since that was a matter which lay outside his area of responsibility and authority.  It was submitted that Dr Choi’s evidence that he told Mr Chan during the meeting that the type of materials to be recycled had to be re-considered should be rejected as being incredible since there would be no reason for him to say this and it would fly in the face of the earlier EFB meeting on 19 March 2002 which focused on the activity of metals recycling.  Since the Government was keen to encourage Xun Xiang Iron & Steel to continue metal recycling on the site, it was submitted that it would not make sense to say that the type of materials to be recycled would need to be reconsidered.   So far as I understood Dr Choi’s evidence, however, what he said was that, at the end of the period of any STT over the 3^rd Premises, the nature of the recycling activities and the type of waste materials allowed in any further STT would be reviewed before the site was re-tendered.  This was addressed in Dr Wong’s witness statement as one of the matters discussed at the meeting and I do not consider it to be incredible.  I think it probable that the question of what might happen after the expiry of the proposed STT would have been a subject discussed at the meeting.  However, I consider that Dr Choi’s statement that the type of materials to be recycled would have to be reviewed, which I accept he made, is consistent with the fact that the user under a STT would be a matter for the Lands Department to determine in consultation with other Government departments.

64.  In respect of the meeting on 21 March 2002, I have already addressed aspects of Ms Poon’s evidence above.  As regards Ms Lam, it was put to her, and she agreed, that she never told representatives of Xun Xiang that the land use would be changed.  That, however, is a far cry from evidence supporting the making of the 3^rd Representation.  I would add that it was not Takco’s pleaded case that Ms Lam made any of the representations at the 21 March 2002 meeting.

65.  Tacko submitted that the context of the meetings in March 2002 supported a finding that the 3^rd Representation was made as alleged.  As I have found above, Xun Xiang Iron & Steel was carrying on a metals and paper recycling business at the 1^st and 2^nd Premises for some time before 2002 and this was known to the Government, certainly by the time of the March 2002 meetings.  However, the splitting of the site into two and the designation of the 3^rd Premises exclusively for recycling operations was simply a proposal as at 19 and 21 March 2002.  It still remained for the DLC to consider the proposed STT at its meeting.  That meeting did not take place until 25 April 2002, over a month after the meeting at which the representations were alleged to have been made.  Although the DLC eventually approved the proposal, it does not follow that the arguments rehearsed at the DLC on 25 April 2002 would have been fully in the contemplation of the EPD and DLO/KE representatives who met with the Xun Xiang representatives on 19 and 21 March 2002.  Even accepting the DLC noted that the quantity of waste processed by Xun Xiang Iron & Steel on the 2^nd Premises accounted for about 10% of all types of waste materials and 20% of metals processed in Hong Kong as a whole, it does not follow that the Government would, in effect, promise at the meetings in March 2002 that the permitted user of the 3^rd Premises would not change even after the three-year term of the STT to be granted (assuming the proposal was approved by the DLC) had expired.  I accept the submission made on behalf of the Government that the purview of the DLC was whether the land was required during the following three years and, if not, what use it ought to be put to under the STT that would consequently be offered by open tender.  It was not the purpose or function of the DLC to make any decision as to the user of the land after that STT: that would be the function of another DLC to consider the site after the expiry of that STT.  This is precisely what happened in fact in respect of the 3^rd Premises, with the convening of another DLC on 1 December 2005.

66.  There is nothing in the contemporaneous note of the 19 March 2002 meeting constituted by Dr Wong’s e-mail to Ms Annie Choi or in the file note of the 21 March 2002 meeting prepared by Ms Anita Lam to support the making of the 3^rd Representation.  Whilst this is not determinative, it provides supports, in my judgment, for the oral evidence of the Government’s witnesses denying the making of the 3^rd Representation.  Those contemporaneous records are entirely consistent with Mr Chan and the other Xun Xiang representatives being told that the proposal to grant an STT in respect of the 3^rd Premises was still a proposal, so that the proposed user for recycling was still to be considered.  In those circumstances, it seems unlikely in principle that the Government representatives would have made positive representations as to the user of the land under a future STT not yet in contemplation.

67.  The letter of 26 March 2002 from Xun Xiang Iron & Steel to the DLO/KE, pleaded by Takco as supporting the representations, does not suggest any statement was made that the user of the land would not be changed in the future.  Even if this was intended to be covered by the consensus alleged to have been reached in that letter, it was immediately corrected by the DLO/KE’s letter dated 27 March 2002 to which I have already referred.

68.  It was submitted on behalf of Takco that, if and insofar as Ms Poon stated that “if the land was not required for development then it would be tendered for environmental protection purpose”, the phrase “environmental protection purpose” should be viewed in context and understood as a reference to ferrous metal recovery and/or recycling.  Even if Ms Poon made the statement attributed to her, which I do not accept (for the further reasons developed below), I do not consider that the phrase “environmental protection purpose” would require to be read as Takco contends.  The letter from Xun Xiang Iron & Steel to DLO/KE dated 13 March 2002, which Takco relied on for this context, does not specifically refer to any particular environmental operations being conducted by Xun Xiang Iron & Steel on the site and I do not think the evidence shows that DLO/KE, as opposed to the EPD, had knowledge of the specific type of operations being carried on by Xun Xiang Iron & Steel.  The other documents which Takco relied on for context in this regard were either not sent to the DLO/KE or post-dated the 21 March 2002 meeting.

69.  In addition to the above reasons, I also consider that the open-tender nature of the bidding process whereby the STT was offered is a factor that weighs against the inherent probabilities that the Government’s representatives would have made the representations alleged.  Tenders were invited from the public on the express terms of the 2006 Tender Notice.  There is no evidence to suggest that Xun Xiang, or any company in which it had an interest, would be bound to win the tender.  Some other party might eventually be the tenant of the 4^th Premises following the 2006 Tender Notice.  The making of a discrete promise to Xun Xiang Iron & Steel in relation to the 4^th Premises, but not to any other party that might be interested in participating in the tender process, does not seem particularly likely.

70.  A further point militating against the fact that the representations were made as alleged is that the evidence appears to suggest that, even before the 19 and 21 March 2002 meetings, Xun Xiang Iron & Steel was very keen to stay on the site and to continue its operations there.  This is clear from its letter to the DLO/KE dated 13 March 2002 asking that the DLO/KE not change the land use and allow it to continue its operation on the land subject to a revised rent.  This is not a case where the Government was having difficulties finding a tenant such that it would need to induce Xun Xiang Iron & Steel to show interest in the land by means of the representations alleged.  Nor does it seem likely that, but for the representations, Takco would not have tendered for the site and entered into the September 2002 Tenancy Agreement.

71.  Finally, although this is not a decisive factor, I consider it telling that the alleged representations were not canvassed in Takco’s solicitors’ letter dated 26 January 2006 objecting to the 2006 Tender Notice.  And when the representations were first put on record, in the 1^st Action, Takco’s case was that the representations were made by Ms Poon at the 21 March 2002 meeting.  This remained the pleaded position in the 2^nd Action and also in this action until the amendment of the Statement of Claim on 11 June 2009, when it was then alleged that the representations were made by Dr Wong and Dr Choi at the earlier meeting on 19 March 2002.  In my view, this inconsistency in the way the case as to the representations has been advanced undermines Takco’s case that they were in fact made.

72.  For all the above reasons, I find that the 3^rd Representation was not made by Dr Wong or Dr Choi at the meeting on 19 March 2002 or by Ms Poon at the meeting on 21 March 2002, as claimed.

Was the Government entitled to serve the 2^nd Notice to Quit and to vacant possession of the 4^th Premises?

73.  In the light of my findings that the 2^nd Representation and 3^rd Representation were not made as alleged, it follows, in my judgment, that the terms of the 2006 Tenancy Agreement contain the operative and effective terms and conditions upon which Takco occupied the 4^th Premises as from 10 July 2006.  Although I have found that the 1^st Representation was made, that representation does not affect this conclusion.  I have set out above the terms of Clause 2(b) of the 2006 Tenancy Agreement, the relevant part of the First Schedule of the 2006 Tenancy Agreement and Condition No. 2 of the Technical Schedule.

74.  There is no dispute that Takco has been using the 4^th Premises for the recovery or recycling of ferrous metals since 10 July 2006.  This allegation was, however, initially disputed and a Notice to Admit Facts was served in respect of the fact that Takco had been operating a business in connection with recovery or recycling of, amongst other things, ferrous metals on the 4^th Premises between 10 July 2006 and 19 January 2007.  In addition, evidence in the form of witness statements from two officers of the EPD was filed on behalf of the Government concerning certain inspections of the 4^th Premises.  Ultimately, however, Takco did not dispute this fact and I therefore accept that Takco was in breach of the terms of the 2006 Tenancy Agreement, such that the Government was entitled to serve the 2^nd Notice to Quit and demand vacant possession of the 4^th Premises.

75.  I therefore conclude that the Government is entitled to the claimed declarations, namely that it was entitled to serve the 2^nd Notice to Quit to terminate the 2006 Tenancy Agreement on 2 February 2007 and that the 2^nd Notice to Quit is valid and effective.  It is also entitled to vacant possession of the 4^th Premises.  I shall address below the question of mesne profits or damages.

Mesne profits/damages

76.  It was not disputed that the normal measure of mesne profits or damages is the difference between the open market rental or ordinary letting value of the premises occupied or used during the period of wrongful occupation or user, on the one hand, and the amount actually received, on the other : see Lau Wing Keung v Ng Ah Kiu [1984] HKLR 241.

77.  I also accept that the basis of the assessment of mesne profits is the actual user, rather than the permitted user, so that the occupation of the 4^th Premises should be valued on the basis of its user for ferrous metal operations, even though that user was prohibited under the terms of the 2006 Tenancy Agreement: see Camsilx v High Fashion Corner, HCA5122/1989, unrep., 29.6.90 at pp.2-3.

78.  Both parties adduced expert evidence in respect of the open market rental of the 4^th Premises on the basis its user was the same as that under the September 2002 Tenancy Agreement, i.e. ferrous metal operations were not excluded.  Takco’s expert, Mr Liu King Tong, opined that the value was $175,000 per month, whereas the Government’s expert, Mr Mak Siu Ming opined that the value was $3,200,000 per annum (or $266,667 per month).

79.  Mr Liu is the Managing Director of K.T. Liu Surveyors Limited and qualified as a Chartered Surveyor in 1974.  He is a Fellow of the Royal Institution of Chartered Surveyors, a Fellow of the Hong Kong Institute of Surveyors and a Registered Professional Surveyor (General Practice).  For his part, Mr Mak is an Estate Surveyor employed in the DLO/KE of the Lands Department.  He has been a Member of the Hong Kong Institute of Surveyors (General Practice Division) and a member of the Royal Institution of Chartered Surveyors since 2005, and a Registered Professional Surveyor since 2006.

80.  I am satisfied that both Mr Liu and Mr Mak are qualified to give expert evidence as to the rental value of the 4^th Premises and it was not suggested otherwise.  However, it was submitted on behalf of Tacko that Mr Mak’s position as an employee of the Government, on whose behalf he was called to give evidence, meant that he was not a truly independent witness.  Reliance was placed on the judgment of Lam J in Hong Kong Air Cargo Terminals Ltd v Commissioner of Rating and Valuation [2004] 2 HKLRD 703 and of the Court of Appeal in Tang Ping Choi & anor v Secretary for Transport [2004] 2 HKLRD 284 (per Rogers VP) at 291A-F.  It was common ground that the effect of these authorities is that the fact an expert is employed by a party is a factor that goes to the weight of his evidence rather than its admissibility.  I shall return to this question below.

81.  It was common ground between the experts that the appropriate and generally accepted method for valuation is the direct comparison method.  Although Mr Mak identified a number of other sites used for the business of recovery and/or recycling in Kowloon East (three sites) and the New Territories (six sites) as possible comparables (in Appendices II and III to his report dated 23 March 2009), one of the sites in Kowloon East (site A3) was the 3^rd Premises under the September 2002 Tenancy Agreement.  Mr Mak concluded that the 3^rd Premises under the September 2002 Tenancy Agreement provided the most suitable comparable for the 4^th Premises on the assumption the recycling of ferrous metals was permitted under the 2006 Tenancy Agreement.  After adjusting the rent for size (since the 4^th Premises are larger than the 3^rd Premises and so would attract a lower unit rate) and for time (for which Mr Mak used the rental index for private flatted factories provided by the Rating and Valuation Department), he arrived at a unit rate of $320 per square metre per annum, i.e. $3,200,000 per annum.  There is certainly a strong case, in my opinion, for taking the 3^rd Premises as a suitable comparable and making appropriate adjustments to it, since that is the very location of the 4^th Premises and the rental value of the 3^rd Premises was based on the same user as Takco’s continued operations.

82.  It was submitted on behalf of Takco that Mr Mak’s methodology was fundamentally flawed for a number of reasons.  First, it was suggested that the range of permitted user under the September 2002 Tenancy Agreement was materially different to that under the 2006 Tenancy Agreement.  Adjustment would be required but, in cross-examination, Mr Mak said he was not sure what adjustments should be made.  Hence, it was submitted that the rent for the 3^rd Premises under the September 2002 Tenancy Agreement was not a reliable comparable.  I do not agree with this argument.  The valuation exercise with which I am concerned is a valuation of the 4^th Premises on the assumption the user clause was such as to permit Takco to continue carrying on its ferrous metal recycling operation that it had previously carried on under the September 2002 Tenancy Agreement.  I acknowledge that the range of user under the two tenancies is different but I do not see why, for the purposes of the valuation exercise on which the Court is engaged, it is necessary to adjust the rent under the September 2002 Tenancy Agreement for the purposes of assessing the value of the continued occupation of the 4^th Premises when that is being done on the assumption the same user as that under the September 2002 Tenancy Agreement was permitted.  On the contrary, the user under the September 2002 Tenancy Agreement is precisely the user which is relevant to the valuation exercise since it is that user clause which permitted Takco to carry out the business it is still carrying out on the site.

83.  Next, it was contended by Takco that Mr Liu’s evidence, in his supplemental report, was that there might be a structural change between 2002 and 2006 in the rental value of a large piece of open land let on a short term basis for recycling.  This was one of Mr Liu’s two main reasons for rejecting the 3^rd Premises as a suitable comparable.  However, in cross-examination, Mr Liu was unable to identify what structural changes he was referring to.  In the circumstances, I regard this reason for rejecting the 3^rd Premises as a comparable as being somewhat speculative and I would not regard this as a reason for rejecting the use of the 3^rd Premises as a suitable comparable altogether.  However, his supplemental report does state that the structural changes would be dependent on many factors, including supply and demand.  In this regard, there was evidence that, whereas there were about 20 STT sites available for recycling operations in 2002, there are currently about 40 such sites.  This would suggest that the supply of such sites had increased, which may be a factor suggesting a downward adjustment from the rental value calculated by reference to the rent of the 3^rd Premises.

84.  Mr Liu also suggested that the 3^rd Premises might not provide a suitable comparable since the behaviour of the movement of rent for open land for recycling might not correspond to the rental movement of private factory buildings.  Mr Mak had used the rental index for private flatted factories provided by the Rating and Valuation Department in order to adjust the rent of the 3^rd Premises for time.  It was submitted on behalf of the Government that Mr Liu’s evidence was equivocal (“might not correspond”) and therefore should not be regarded as a good reason for rejecting the 3^rd Premises as a suitable comparable.  It is, however, appropriate to question the use of the rental index for private flatted factories, which would seem clearly to be of a different nature to open land used for recycling.

85.  Mr Mak’s reliability was also challenged on the basis that his opinion that the open market value of the site, assuming it allowed for the recycling of ferrous metal, should be higher than the market rent of the 4^th Premises under the 2006 Tenancy Agreement was inconsistent with his evidence in cross-examination that there is no hard and fast rule that user including ferrous metal recycling necessarily translated into a higher rental.  This point is important for Takco since Mr Liu’s valuation of $175,000 per month for the site is the same value as that paid by Takco for the 4^th Premises under the 2006 Tenancy Agreement, i.e. he does not think the inclusion of ferrous metal recycling in the user makes any difference.  I do not regard the inconsistency identified in Mr Mak’s evidence as one which undermines his evidence to a significant extent.  It would seem that there is a scarcity of sites in the urban area for ferrous metal recycling and there is certainly a strong demand for such sites, as evidenced by Xun Xiang Iron & Steel’s correspondence with the Government in March 2002 and Takco’s desire to take up the 4^th Premises under the 2006 Tender Notice.  This may suggest that sites allowing ferrous metal recycling are more valuable than those that do not allow such recycling.  However, more significantly, in my view, Mr Liu provided examples (by contrasting (1) his comparable (a) with Mr Mak’s comparable B5, (2) his comparable (f) with Mr Mak’s comparables B3 and B4, and (3) his comparable of the 4^th Premises under the 2006 Tenancy Agreement with Mr Mak’s comparable A1) to show that sites on which ferrous metal recycling is permitted do not necessarily attract a higher value of rent when compared to sites where ferrous metal recycling is not permitted.

86.  Having reflected on the expert evidence as a whole, I am not satisfied that the comparables identified by Mr Liu in his first report provide a particularly useful guide for the rental value of the 4^th Premises.  None of the sites, except comparable (d), is located in Kowloon.  Those located in Tseung Kwan O are a considerable distance from the 4^th Premises and this is also the case in respect of comparable (a) which is in Fanling.  The user of comparable (d) is considerably restricted when compared to the user under the September 2002 Tenancy Agreement and so that does not appear to me to provide a useful comparable.  I also consider that upward adjustment from Mr Liu’s valuation of $175,000 is required since this does not appear to reflect any difference in value for the fact that the actual user on the site is for ferrous metal recycling and I do not accept his assessment, in effect, that there is no difference in value whether ferrous metal recycling is permitted on the site or not.  The scarcity of ferrous metal recycling sites in the urban areas must, in my view, be a factor of some importance in arriving at the value of the site. 

87.  I therefore accept that the comparable used by Mr Mak of the 3^rd Premises under the September 2002 Tenancy Agreement is the most appropriate comparable but I consider that some downward adjustment should be made to Mr Mak’s valuation.  It is relevant, in my view, to take into account that the rental value based on the September 2002 Tenancy Agreement was fixed at a time when there were only 20 STT sites available for the recycling industry whereas there are now about 40.  As I indicated above, this at least shows a larger supply of such sites.  It would be reasonable to expect that larger supply to have a downward impact on the rental value.  I am also not satisfied that the adjustment he has made for time is appropriate, being based on an index for a different type of property.

88.  Approaching the adjustment to Mr Mak’s valuation on a broad brush basis (bearing in mind that it is common ground that valuation is an art and not a science), I propose to retain Mr Mak’s adjustment for size but to adjust his time factor downwards to nil, since the positive adjustment Mr Mak has made is based on a rental index for a different type of property.  This results in an assessment of the open market value of the 4^th Premises assuming a user clause the same as that in the September 2002 Tenancy Agreement of $2,850,000 per annum or $237,500 per month.

89.  I return to the question of Mr Mak’s position as a paid employee of the Government, on whose behalf he is giving expert evidence.  I accept there is no question of Mr Mak being motivated by any financial gain in giving evidence otherwise than impartially.  As a salaried civil servant, he has no interest in the outcome of the Government’s claim for mesne profits.  However, I accept Takco’s submission that the perceived lack of independence on the part of Mr Mak should lead the Court to reflect carefully on the weight to be given to his evidence.  I have taken this into account in reaching my assessment in the preceding paragraph.

Subsidiary issues

90.  In the light of my findings in respect of the core issue of whether the Representations were made, it follows that the subsidiary issues are academic.  However, I shall briefly state my views on the questions raised and the principal reasons for reaching them.

(1)     Were the alleged representations actionable representations made to Takco and was it induced to act in reliance on them to its detriment?

91.  There is no plea that the Representations were false.  As such, Takco does not advance a case that the Representations were misrepresentations that might be actionable because they were made fraudulently or negligently.  The complaint Takco makes is that the Government has resiled from the Representations, thereby suggesting that the Representations were true when made but that the Government has simply reneged on its part of the bargain.  It therefore follows, in my opinion, that Takco’s case on the Representations could only constitute a claim that the subject of the Representations became terms of the 2006 Tenancy Agreement or constituted a collateral agreement between it and the Government.

92.  Furthermore, I am not satisfied that the evidence shows that, at the time the Representations were allegedly made, it was contemplated by the Government that Takco, the plaintiff, would be incorporated and would therefore rely on the Representations.  Although it is noted in Spencer Bower, Turner and Handley, Actionable Misrepresentation (4^th Ed.) at §166 on p.104 that :

“A representation made to a company promoter with the intention that it should be acted upon by the company when formed becomes a representation to the company …”,

the cases cited in support of the proposition suggest that the representor must at least have the intended company in mind at the time of the representation for it to be said to have been intended to induce the company to act.  Thus, in Leslie Leithead Pty Ltd v Barber (1965) SR (NSW) 172, it was common ground that the purchase of shares induced by a false representation was to be made by a company to be formed by the person to whom the representation was made.  The draft agreement for the sale so induced was prepared in respect of “a company to be formed” (see p.175).  And in Gould and anor v Vaggelas and ors (1983-1985) 157 CLR 215, the purchase of a tourist resort by a company formed by a husband and wife who were induced to make the purchase by misrepresentations proceeded with contracts being executed by the husband and wife “on behalf of Gould Holdings Pty. Ltd. a company yet to be incorporated or their nominee” (see p.233).

93.  In the present case, the correspondence at the time of the meetings in March 2002 at which the Representations were alleged to have been made contains no reference to Takco or any contemplated company to be established by any of its shareholders (namely Xun Xiang Metalware Company Limited, Fook Woo Waste Paper Company Limited and a Mr Yip, the latter two shareholders not being part of the Xun Xiang Group).  Instead, the correspondence proceeds on the basis that Xun Xiang Iron & Steel, which is not a shareholder of Takco, would participate in the proposed tender for the 3^rd Premises.  In the circumstances, I would have concluded, even if I had found the Representations were made, that they were not made to Takco and therefore not actionable by it.

(2)     Was there a Collateral Agreement and is it binding on the Government?

94.  For similar reasons that would have led me to conclude that the Representations, even if made, did not give rise to actionable representations on the part of Takco, I would have been disinclined to conclude that they gave rise to a collateral contract as between the Government and Takco.  The Representations as alleged were made three months before the 2002 Tender Notice which offered the 3^rd Premises for lease on terms that did not reflect, and indeed were inconsistent with, the Representations.  I am not satisfied the evidence is sufficient to lead to a finding that the Representations, if made, were made on the basis that they would override the written terms of the 2006 Tenancy Agreement to be granted in respect of the 3^rd Premises.  Furthermore, given the different corporate personality of Takco, I do not think the evidence is sufficient to support the conclusion that the Representations, if made, were intended to constitute a separate, binding contractual promise as between the Government and Takco.

(3)     Was the issue of the 2006 Tender Notice a breach of the Collateral Agreement or wrongful in the light of the alleged representations?

95.  In view of my conclusions on the first two subsidiary issues addressed above, I would not have held that the issue of the 2006 Tender Notice was a breach of the Collateral Agreement or wrongful even if the Representations had been made as alleged.

(4)     Is the plaintiff entitled to the declarations sought and to damages for misrepresentation or breach of the Collateral Agreement?

96.  The answer to this question, in the light of my conclusions stated above, is no.  I would add, however, that the evidence of expenditure falls far short of establishing that the claimed expenditure of approximately $17.2 million was made in reliance on the alleged Representations.  All but one of the receipts put forward by Takco in support of its claim for damages was in the name of some other entity.  Mr Chan stated, in cross-examination, that Takco was not involved in the investment and that, other than being a tenant under the 2002 Tenancy Agreement, it carried on no active business.  An examination of the nature of the expenditure claimed shows that many of the items listed consist of machinery and equipment bought by other companies owned or controlled by Mr Chan and, as such, remain assets of those other companies.  In any event, given the other operations of the Xun Xiang Group, it does not follow that the expenditure on those items was wasted.  A number of other items of expenditure, such as utilities, are relatively minor and would have been incurred in any event in respect of the 2002 Tenancy Agreement.

Disposition and costs

97.  For the reasons set out above, I dismiss Takco’s action.  I grant the declarations sought by the Government and award mesne profits in respect of Takco’s occupation of the 4^th Premises from 10 July 2006 at the rate of $237,500 per month.  Whilst this will be the rate of mesne profits for which judgment will be entered, credit will have to be given by the Government for the interim payments made by Takco.  I leave it to the parties to seek to agree interest on the mesne profits, failing which agreement, I grant liberty to apply.

98.  I see no reason why costs should not follow the event and I therefore make an order nisi that the costs of the action, including the costs of the counterclaim, be paid by the plaintiff to the defendant, to be taxed if not agreed.