LI PO CHUN ESTATES LTD v. DIRECTOR OF LANDS

Property law - resumption compensation agreed at $155,700,000 but disputes over liability for costs of prior High Court proceedings and interest - whether costs of High Court proceedings reasonably incurred - whether average lowest deposit rates of several banks or of one bank only provided applicable interest rate - whether 24 hour call deposits are time deposits - whether Crown delay in making payment provided good reason to increase lowest rate - whether delay in payment of interest a further reason supporting an increase in the simple interest rate if not excluded as amounting to compound interest - Lands Tribunal generally awards High Court costs unless dispute as to quantum otherwise within the limited District Court land jurisidiction - Held:

IN THE LANDS TRIBUNAL OF HONG KONG

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JUDGMENT

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1. The Applicant was the owner of Inland Lots 4747, 4748, 4749 and 4872 known as Nos. 13 to 21 Wing Lok Street, Central, Hong Kong. The land was resumed under the Crown Lands Resumption Ordinance, Cap.124,("CLRO") on 10th July 1992. The notice of resumption published in No.15 Volume CXXXIV The Hong Kong Government Gazette on 10th April 1992 as G.N.1245, expressly stated that the land was being resumed for the implementation of Development Scheme H3 by the Land Development Corporation ("LDC").

2. The origins of the Development Scheme go back to 1st March 1989, when the LDC submitted a scheme plan to the Town Planning Board. The plan was for the redevelopment of land in Wing Lok Street and Queen's Road, sought by the LDC to be designated as a Comprehensive Development Area. The Board approved this plan for urban redevelopment on 21st May 1990.

3. The LDC commenced active negotiations for the purchase of the subject property from the Applicant during May 1990. The negotiations were prolonged by differences over the development potential of the subject property. These led the Applicant on 16th January 1991, to commence High Court proceedings against the LDC and the Attorney General, for a declaration that the development of Inland Lot 4872 was not affected by any height restriction.

4. I record that where the LDC is unable to purchase a property by agreement it is empowered, in certain circumstances, pursuant to Section 15 of the Land Development Corporation Ordinance, Cap.15, to request the Secretary for Planning, Environment and Lands, to recommend to the Governor in Council, that the land be resumed under the CLRO. The land was in fact formally resumed consequent to such a request.

5. On 30th August 1991 the Applicant applied to stay the High Court proceedings. The proceedings were thereupon stayed in accordance with terms of settlement, which included an acknowledgement by the Crown that there was no height restriction, affecting Inland Lot 4872. By consent the Applicant paid the defendants costs.

6. On 17th October 1991, the LDC made an offer to the Applicant of $51,865,000, which was rejected. On 26th February 1992, the offer was increased to $125,000,000. The Applicant on 23rd March 1992 countered with an offer of $160,000,000. After notice of the resumption was gazetted on 10th April 1992, the subject property reverted to the Crown on 10th July 1992. An agreed provisional payment of compensation of $108,555,000, was made on 28th May 1993. On 5th July 1994 agreement was reached for total compensation in the sum of $155,700,000. The unpaid balance of $47,145,000, plus $5,000 on account of interest, was paid to the Applicant on 14th October 1994.

7. The settlement did not extend to any agreement on interest, costs and other remuneration. The dispute over these consequential matters, has continued and resulted in the present application to the Tribunal. On the first day of the hearing submissions were heard on the costs issue but argument on interest had to be twice adjourned. It is convenient to deal with those issues in the order in which submissions were heard.

8. High Court proceedings costs and remuneration:

Section 10 (2) (e) (ii) of the CLRO provides that in addition to the value of the land resumed, the Tribunal shall determine compensation, of any, payable for the amount of any costs or other remuneration mentioned in Sections 6(2A) and 8(4). In this application, the former Section applies where, as here, a Crown lessee has either received an offer or made a claim for compensation. It provides that the claim for compensation:

"... may include a claim for, any costs or remuneration reasonably incurred or paid by him in employing persons to act in a professional capacity in connection with such offer or claim."

9. The Applicant's costs claim under Section 10(2)(e) (ii), initially extended to costs incurred in 1990 for an objection to the LDC's proposal to the Town Planning Board under which the subject property and other land, was later rezoned for urban redevelopment. At the commencement of the hearing before the Tribunal, the Applicant confirmed it had abandoned that claim.

10. The dispute is therefore now reduced to the sum of $2,292,509 being the costs allegedly occurred in the High Court height restriction proceedings. The Crown has rejected that claim on the ground that the High Court proceedings were not in connection with the claim for compensation. Further, that the LDC was only involved in a private sale and is a different entity to the Crown. In any event the Crown submitted, the High Court proceedings were unnecessary and the costs unreasonably incurred.

11. Counsel for the Applicant traced the alleged direct involvement of the LDC, from its submission on 1st March 1989 of the scheme plan for the redevelopment, which was later approved by the Town Planning Board. The LDC from its initial negotiations in May 1990 for the voluntary purchase of the property, had it was alleged, undervalued the property, by inaccurately asserting that the Crown lease of Inland Lot 4872, was subject to a height restriction.

12. On 18th May 1990 the LDC by letter, after referring to the height restriction dispute, suggested that "we should seek the decision of Government" and went on to make alternative offers of $61 million and $87 million, based on different development assumptions. On 27th June 1990 the Applicant replied, pointing out that the Government in 1966 had approved plans for the existing building, now registered in the Land Office, without any height restriction.

13. Negotiations then became deadlocked over the height restriction issue. There is no evidence whether the LDC, as suggested in its letter of 18th May 1990, ever sought a decision from Government. Certainly the LDC never conveyed any favourable decision to the Applicant. The High Court proceedings commenced on 16th January 1991, sought a declaration that optimum redevelopment would not be affected by any Crown lease restrictions together with related other declarations.

14. The affirmation filed in those proceedings for the LDC, by its Assistant Director, Mr. Y.M.Ying, concluded with the following significant final paragraph:

The LDC on 4th April 1991, through its solicitors, made three alternative further offers, each expressly conditional on the nature of the final judgment, in the then pending High Court proceedings.

15. The stance of the Crown, first appears in the letter of the Attorney General, to the Applicant's solicitors dated 12th April 1991. The letter expressed the view, that there was no height restriction under the Crown lease. The letter goes on to describe the remaining declarations as being hypothetical, for building plans had not yet been submitted to the Building Authority.

16. The Attorney General shortly afterwards, on 24th April 1991, wrote in critical terms to the LDC, including a reference to Mr. Ying's affirmation. The letter reminds the LDC of its statutory duty to negotiate the purchase on terms that were fair and reasonable. It continues that if agreement is not reached, the land might be resumed. I infer that the statutory duty mentioned, is that contained in Section 15(4)(c) of the LDC Ordinance.

17. Section 15(4)(c) requires the Secretary for Planning, Environment and Lands, before recommending a resumption, to be satisfied that the LDC has taken all reasonable steps, to otherwise acquire the land "including negotiating for the purchase thereof on terms that are fair and reasonable." In other words, before the LDC resorts to the exceptional course of compulsory resumption, it is required to exhaust all reasonable steps, to purchase the land voluntarily by agreement.

18. The correspondence from the Attorney General in reaction to the High Court proceedings, appeared to resolve the height restriction dispute, in favour of the Applicant. It is therefore not surprising to find that the High Court proceedings were soon afterwards, on 30th August 1991, disposed of by various consent orders. I confirm that by consent the proceedings against the Attorney General were stayed in terms, which included his acknowledgment that there was no height restriction. The proceedings against the LDC, by another consent order, were discontinued.

19. Those substantive orders, in the circumstances, were unremarkable. However, the reasons which led to those orders also providing that the Applicant pay each Defendants costs, are less clear. The costs now claimed by the Applicant in relation to the High Court proceedings, include its own solicitor-client costs and also the party and party costs it paid by consent.

20. Counsel for the Applicant reminded the Tribunal that in Suen Sun-yau v. Director of Buildings and Lands [1991] HKDCLR 33 it had allowed an Applicant his solicitor-client costs in his misconceived High Court proceedings, brought to clarify the status as claimants, of a Crown lessee and their sub-lessee.

21. The present position of the Applicant, it was argued, was far stronger. It was submitted that the High Court proceedings were not misconceived but sensibly not further pursued once the Crown, despite the LDC's contrary prior stance, had accepted the land was not subject to a height restriction.

22. The Crown's major submission that the LDC and the Crown are separate entities, makes it necessary to pause and examine the status of the LDC. The relationship of the LDC, if any, to the Crown will also be relevant to another of the Crown's submissions, namely that the High Court proceedings, were not in connection with a claim for compensation.

23. It is elementary that the Crown and the LDC are different legal entities. The LDC is a statutory corporation, created in 1988, under the Land Development Corporation Ordinance, in terms of its long title, "for the purpose of urban renewal and matters incidental thereto." The persons constituting the governing body of the LDC are all appointed by the Governor. The financial resources of the LDC are provided by Government and the other sources set out in Section 6.

24. The LDC was largely a Government response, to meet in part the need for urban renewal, on a commercial basis, rather than through the agency of a Government department. To enable the LDC to overcome the difficulty faced by the private sector of assembling suitable sites for redevelopment Section 15, providing machinery for compulsory resumption, was enacted. These provisions are also unusual, because of the direct involvement of the LDC in many of the steps, leading up to resumption.

25. Where the Crown wishes to acquire private land and is prepared, if necessary, to invoke its compulsory resumption powers, generally the initial, subsequent and final negotiations, are carried out by the relevant Government department. Depending on manpower and other resources, a department may at times employ consultants from the private sector. However, any negotiations are carried out by the relevant Government department.

26. Until the creation of the LDC, this also occurred where the end use of the land was not for a Government department, but for a statutory corporation. For example, the Mass Transit Railway, constructed and operated by Mass Transit Railway Corporation, a statutory corporation established under Chapter 270, from time to time requires land for railway purposes. Any such land is acquired by the Crown. If land has to be resumed, all such steps are exclusively taken by the Crown, pursuant to the Mass Transit Railway(Land Resumption and Related Provisions) Ordinance, Cap.,276, under which the Mass Transit Railway Corporation has neither powers or stautory recognition.

27. The position of the LDC under its Ordinance is quite different. Section 5 gives it wide powers, either alone or with others, of property ownership and development. Under Section 13, its power to prepare development schemes extends, subject to the permission of the Town Planing Board, to prohibiting incompatible developments in the same area. The LDC plan, in effect, thereupon replaces the Government's statutory approved or draft plan. This is precisely what occurred here. As a result the LDC effectively sterilised any different or alternative development by the Applicant.

28. Section 15 also exceptionally provides for the LDC to obtain resumption of private land, for its own developments, including those which may result in joint ventures, with private developers. It is not surprising that such an uncommon power of compulsory purchase, is subject to several restrictions. An LDC resumption request is filtered through the Secretary for Planning, Environment and Lands, before it reaches the Governor in Council. The legislative scheme requires the LDC first to take reasonable steps to acquire the land voluntarily on fair and reasonable terms.

29. The legislation is clearly aimed at ensuring that the LDC does not use these exceptional powers, to pressurise a private owner, who may be an unwilling seller, into parting with his property, on unfair terms. Counsel for the Applicant submitted that the LDC's substantial increase on 26th February 1992, of its rejected offer of $51,865,000, to $125,000,000 was to satisfy the Secretary, that it had made a fair and reasonable offer.

30. I do not propose to enquire into whether that submission was fair or cynical. I also record that where the Secretary's recommendation is favourable, the resumption is deemed to be for a public purpose, within the meaning of the CLRO. There is therefore a very close statutory relationship between the Crown and the LDC, from the approval of a scheme plan, to the resumption of private land for sole or joint development.

31. The close statutory relationship, was mirrored in practice, by a large number of factual ties. The same firm of solicitors who acted for the LDC from before 12th March 1991, including sending offers to the Applicant, was by at least 6th April 1991, also acting for the Crown on the resumption. The LDC solicitors continued to so act for the Crown, until the settlement of compensation. This culminated in the solicitors letter of 29th September 1994 enclosing the draft, they had prepared for the Crown, of the agreement for Final Payment of Compensation and Indemnity.

32. The Respondent's submission that the transaction with LDC was merely a proposed private sale, ignores the reality of the legal position and what actually occurred. The LDC when initiating a proposed private purchase, does so clothed with exceptional statutory powers, which can culminate in the property of an unwilling seller, being compulsorily expropriated.

33. The LDC was never inhibited, during even early negotiations, from first informing then repeatedly reminding the Applicant, of these resumption powers. As early as 4th April 1991, more than 1 year before notice of resumption, the LDC in making three alternative purchase offers, added the written qualification, that they remained open until "any notice of resumption of the Property published under the Crown Lands Resumption Ordinance."

34. So at an early stage of the proposed "private" sale, the LDC as willing purchaser, in an offer letter, was referring to the resumption powers, which could be invoked if those offers were not accepted. On 17th October 1991, the LDC in its own increased offer letter of $51,865,000, stressed if it were not accepted, the LDC "will have no alternative but to request Government to resume the property." A later letter from LDC of 21st March 1992, after the making of an increased offer of $125,000,000, similarly repeated that, if unaccepted, the Government would be requested to resume.

35. The negotiations were therefore not only conducted by a purchaser, with these available special statutory powers, but from a very early stage, it repeatedly invoked the threat of resumption, in an attempt to achieve acceptance of its offers. The Tribunal will refrain from commenting whether those tactics comply with the Section 15 requirement, for the LDC first to take all reasonable steps to acquire a property voluntarily, including negotiating, on terms which are also fair and reasonable.

36. Although formal notice of resumption was only given on 10th April 1992, the possibility of a resumption existed at least from the Town Planning Board approval of 9th February 1990. Further, the LDC in its subsequent negotiations, consistently referred to the ultimate power of resumption, which was in fact exercised. In these circumstances, the Tribunal does not consider it is now open to the Crown, to oppose reimbursement of the Applicant's own High Court costs, on the ground of the separate legal personality of the LDC.

37. The Tribunal is entitled to look at the reality of the overall legal process, whereby land under a LDC Development Scheme approved by the Town Planning Board, after unsuccessful negotiations, was finally compulsorily resumed, for the implementation of the Scheme. All those steps occurred in the present application.

38. Although there are important differences, there are some similarities to the factual realities taken into account, where on a resumption, interrelated companies owning contiguous resumed lots, seek higher compensation for the loss of their potential joint development value. The Tribunal's recent judgment in Million - Add Development Ltd v. Secretary for Transport MR 3/94 is an example of where the Tribunal has been prepared to lift the corporate veil and consider the the reality of actual control.

39. Quite apart from contest on liability, the parties also disputed the amount of those costs. The Crown submitted that even if the Applicant was entitled to be reimbursed for its own High Court solicitor-client costs, it could not recover the party and party costs, because they formed part of a Court order, which gave rise between the parties, to the doctrine of res judicata. The Tribunal is not satisfied that circumstances could not arise, where unaffected by the doctrine of res judicata, such adverse costs might be recovered.

40. The substantial obstacle the Applicant faces is not any issue of res judicata but the fact that the costs orders were made by cosent. The law is well settled that while a consent order is not a contract, it is sufficent evidence of the contract upon which it is based, to which apply all the incidents of contract law. Under the agreement reached as to costs, as evidenced by the order, the Applicant waived all its rights to recover those sums. The defendants could have successfully defended any such claims by pleading estoppel.

41. To return to the wider costs issue, the Tribunal finds that the High Court proceedings were brought in connection with the compensation claim. I am well satisfied that in the circumstances, they were taken as a reasonable and proper step, to resolve the prolonged height restriction dispute. In the event, as a condition of the stay, the Crown expressly acknowledged that no height restriction existed. The Applicant succeeded on the merits. This led to substantial increased offers.

42. On the evidence I am satisfied that the High Court proceedings were not only reasonably brought but also successfully concluded. I find that the Applicant is entitled to recover its own solicitor-client costs, as having been properly incurred. I confirm that reimbursement shall be limited to those costs. They shall exclude any provision for the party and party costs, paid by the Applicant, pursuant to the consent order. If the amount of the allowed costs cannot be agreed, they may be determined on taxation.

Interest:

Lowest time deposit interest rate:

43. The parties were agreed that the lowest time deposit interest rate was the basic statutory rate. When the hearing commenced the Applicant had claimed interest at not less than 7 day call plus 2%. The Crown originally submitted that the lowest time deposit rate was the 24 hour call deposit rate. The Crown was later prepared, if only in the alternative, to accept the 24 hour fixed deposit rate. The Applicant's final position was that it was at least entitled to the latter rate plus 2%.

44. Until the recent trilogy of judgments in Shun Fung Ironworks Ltd v. Director of Buildings and Lands [1995] 2 HKLR 311 (LT), [1994] 1 HKC 35 (CA), [1995] 2 AC 111 (PC), the award of interest was largely uncontroversial. The statutory authority for payment of interest is to be found in Section 17 of the Crown Lands Resumption Ordinance. Sub-section (3A) specifies the rate of interest in these terms:

"The rate of interest for the purposes of subsection (3) shall be such rate as the Lands Tribunal may fix having regard to the lowest rate payable from time to time by members of The Hong Kong Association of Banks on time deposits."

45. In the majority of claims, orders for interest have been undisputed. The practice of this particular Tribunal has been to order interest after having regard to member banks lowest time deposit rates. Suen Sun-yau (supra) is an example of where the Tribunal's order expressly ordered a rate of interest fixed at 2% above "the lowest time deposit rates ..." In Weco Textiles Manufacturers Ltd v. Secretary for Transport [1991] HKDCLR 77 interest was expressly awarded at the rate of 2% above "the lowest time deposit rates." It was also pointed out that for non-resumption claims under the Roads (Works, Use and Compensation) Ordinance, Cap. 370, the rate must be "not below the lowest rate payable...on time deposits."

46. The law is therefore crystal clear, that the rate under the CLRO, is to be calculated on the basis of the lowest time deposit rates. The initial dispute between the parties was whether a 24 hour call deposit was a "time deposit." Counsel for the Applicant submitted that overnight deposits or deposits repayable on demand or on call, for periods not exceeding one day, were not time deposits. Counsel for the Crown contended that 24 hour call deposits were time deposits and that certainly 24 hour fixed deposits, were time deposits.

47. In summary, the Applicant initially submitted that the minimum duration of a time deposit is for a period in excess of 24 hours. It was submitted that this interpretion corresponded with intention of the Legislature when Section 17(3A) was enacted. The Tribunal was taken to the proceedings of the Legislative Council on 27th July 1977, when it was resolved to amend the then rate in the same terms, as were later enacted in 1986, by way of amendment, and now form Section 17(3A).

48. We record that in the case of ambiguity or obscurity, it has been open to the Tribunal, at least since the House of Lords judgment in Pepper v. Hart [1993] AC 593, to look at Hong Kong Hansard as an aid to construction. The prior Section 17(3A) provided for interest to be payable on deposits at 7 days call or such other rate determined by resolution of the Legislative Council. In 1977 the Secretary of the Environment informed the Council that the Exchange Banks Association had abolished deposits at 7 days call. The Council was informed that the then current lowest rate payable, was on 3 months deposit.

49. No distinction was made before the Council between 24 hour or longer durations or between call and fixed deposits. Under the former legal criteria the rate was 7 days call while under the new statutory formula, the then current rate, as a matter of fact, was 3 months deposit. Perhaps influenced by the prior legal criteria, the Tribunal after 1977, by agreement or otherwise, frequently based awards, on the 7 days call rate.

50. No doubt because of this practice and the apparent similar agreement of the parties, the Tribunal in Shun Fung, at page 442, stated:

"It was common ground that the interest payable on seven-day call should be treated as the lowest .... rate payable .... the seven-day call rate can, in our view, be treated as in the nature of a benchmark at the very bottom of the scale. That seven-day call rate is suitable for run-of-the-mill resumption cases involving the sort of unsophisticated, small, non-business owner for whom it is natural to keep his money on deposit with banks..."

51. However, the Tribunal, went on to adopt the novel course of awarding interest at the much higher prime lending rate plus 1%. The Court of Appeal held that the sole legal basis for an award of interest, required the Tribunal to have regard to the lowest time deposit rate. It rejected the Tribunal's purported prime lending rate basis. The Court of Appeal further found, that if a claimant put money on 7 day call with a bank, he would generally receive interest at the lowest payable rate.

52. The Court of Appeal reversed the Tribunal's prime lending rate plus 1% award and after referring to Weco Textiles,(supra), ordered that interest be calculated at the 7 day call rate plus 2%. The Privy Council, if with reservations on the additional percentage, upheld the latter award. The Privy Council's more significant observations on interest, related to extent to which the words "having regard to the lowest rate" in Section 17(3A), fettered the Tribunal's discretion.

53. The Privy Council adopted an arguably narrower approach, than prior Hong Kong judicial practice, when at page 139, it declared:

"... in requiring the tribunal to have regard to the lowest time deposit rate the legislative purpose must be that this should be the rate fixed by the tribunal unless in a particular case there is good reason for departing from it. The rate specified is a low one, but the legislature must be taken to have intended that ordinarily this should be adequate recompense to a claimant for being kept out of his money. This would not cover a case where one of the parties has behaved unreasonably, and by his conduct protracted the time taken in determining the claim. In a suitable case that could furnish good reason for the tribunal fixing a higher or lower rate, depending on who was at fault."

54. It will be necessary later to determine, whether the facts of the present case furnish good reason, to fix interest, other than for an amount equal to the lowest time deposit rate. I am satisfied that more often than not, the Tribunal has calculated interest on the basis of the 7 day rate, which may be contrasted with a 7 day fixed deposit rate.

55. I accept Counsel for the Respondent's submission on the difference between these call and fixed deposit rates. A deposit on 7 days call remains on deposit subject to being called up on 7 days notice at any time thereafter. On the other hand, a 7 day fixed deposit matures on the expiration of 7 days without the necessity of any call. These distinctions are, of course, only generally applicable, for it is entirely a matter of contract between the parties, as to the precise conditions, governing a particular deposit.

56. Both Counsel, after considerable research, were unable to find any satisfactory authority on the issue whether a time deposit included a 24 hour call deposit. There certainly appears to be no statutory definition. The Banking Ordinance, Cap. 155, is silent on this issue merely defining a short-term deposit as maturing for a period less than 3 months. "Paget's Law of Banking' (10th Edn) 184 states that the normal threefold classification of deposit accounts is repayable at call or on demand; withdrawable on specified notice; or for a fixed term. The Tribunal accepts this classification but it does not directly assist in resolving the present dispute.

57. Counsel for the Applicant referred to the American Dictionary of Banking Terms' (2nd Edn) 621 which defines "time deposit" as follows:

"1. deposit account paying interest for a fixed term, with the understanding that funds cannot be withdrawn before maturity without giving advance notice....normally pay a fixed rate of interest, and have maturities of seven days to seven years or longer ..."

58. Counsel agreed that this citation may not be of direct application to banking in Hong Kong. However, it is consistent with the submission, that time deposits are generally for minimum durations and typically of at least 7 days. The Crown referred to the 'The New Shorter Oxford Dictionary which defines "time deposit" as "(a deposit) in a bank account from which money cannot be drawn before a set date or for which notice of withdrawal is required." This wider definition while probably excluding demand deposits, would seem to extend to both call and fixed deposits.

59. One consequence of the original hearing being adjourned, was that it gave the parties time to pursue further enquiries into the lowest time deposit rates current during the relevant period from 10th July 1992 to 14th October 1994. The Crown sent written requests, strictly framed in accordance with Section 17(3A), to a large number of banks. By the final hearing, replies from 31 banks had been received. Unfortunately, the majority failed to answer in terms of the written requests. Others stated that they no longer held records of interest rates for the period.

60. The majority who supplied rates, gave only call deposit rates, without stating whether they were within their bank's definition of time deposit rates. The replies included HIBOR interbank overnight rates; 1 to 7 day call rates; a common rate for standard savings and 24 hour call deposits; 44 to 368 day rates. One bank gave rates for 24 hours and 7 day call deposits followed by rates for 1, 2, 3, 6, 9 and 12 months fixed deposits. Another bank failed to reply to the precise enquiry by stating that the Government usually placed deposits on 7 day or 1 month deposits on a roll-over basis.

61. The variety of replies at least enables the Tribunal to find that HIBOR interbank rates are not time deposit rates, within the meaning of Section 17(3A). At the other end of the spectrum, I am satisfied that both call and fixed deposits, for periods of 7 days or more, are time deposits. The more difficult question is whether 24 hour deposits of either class, are also time deposits.

62. The Crown, in the hope of obtaining better evidence, also wrote to The Hong Kong Association of Banks, which replied by a further letter on 12th November 1996. Unfortunately, the reply was so emasculated by qualifications, that it was of very little, if any help. Perhaps this was inevitable, in view of its frank, opening paragraph:

"1. We are not aware that there is a generally accepted definition of "time deposit" as used in banking practices in Hong Kong."

63. The Association's legal adviser on another enquiry, had stated that whether a 24 hour call deposit was a time deposit, depended largely upon the intention of the parties. As a matter of language, rather than banking practice, he concluded "I would have thought however that a "24-hour call deposit" could be regarded as a time deposit in the context he is thinking of (i.e. interest rates)." In the circumstances the Association, perhaps predictably, suggested the Crown seek its own legal advice.

64. Counsel for the Crown, at the hearing on 1st November 1996, referred to the bank replies available by 27th September 1996 and exhibited to the affirmation of Mr. K.W.Wong, filed by the Crown on the same date. The Crown selected the lowest rates paid by five of those banks, principally for 24 hour call deposits, during the relevant period. The lowest rates of each of those banks were then averaged.

65. The relevant period commenced on 10th July 1992 when the subject property was resumed. The eventually agreed compensation of $155,700,000 was paid as to $108,555,000 on 28th May 1993 and as to the balance of $47,145,000 on 14th October 1994. It was therefore necessary, for interest purposes, to divide the relevant duration into two periods, namely from 10th July 1992 to 27th May 1993 and from 28th May 1993 to the date of final payment on 14th October 1994.

66. The Crown wrongly calculated the total interest periods on an exclusive basis from 11th July 1992 to 13th October 1994, instead of on the correct and conventional inclusive basis from 10th July 1992 to 14th October 1994. The Crown's calculations for first period on $155,700,000 were 2.0162% and on $47,145,000, for the second period, 2.7378%. The Applicant at that stage, sought interest at not less than 7 day call, plus 2%.

67. In the absence of any clear banking practice and in view of the evidential confusion and contradictions, it was no doubt open for the Tribunal, to have followed its own prior perception of banking practice, never reversed on appeal, and to have adopted a 7 day rate. However, in view of the evidential ambiguities and the relatively large sums involved, another adjournment was granted, to enable the parties to carry out further enquiries.

68. At the final resumed hearing, further evidence and calculations, narrowed the parties previous differences. The Crown still sought 24 hour call deposit rates but produced new tables and now relied, in the alternative, on the 24 hour fixed deposit rates of two member banks. The Crown's calculations on these 24 hour fixed deposit rates produced higher average rates for the first period of $2.0358% and for the second period of $3.0417.

69. Counsel for the Applicant accepted that these new tables affected the principal thrust of his earlier submissions. It was now clear that 24 hour fixed deposit as well as 24 hour call deposits, were available. The earlier dispute had concentrated on whether 24 call deposits were time deposits. It had been accepted that fixed deposits were a species of time deposits. In the light of this evidence, the Applicant now invited the Tribunal to adopt at least the higher 24 fixed deposit and not the lower 24 hour call rate.

70. The Crown's different averaged interest rates for 24 hour call and 24 hour fixed deposits for the first period were 2.0162% and 2.0358% and for the second period 2.7378% and 3.0417% respectively. Section 17(3A) does not provide for the averaging of member banks interest rates. In past cases parties have usually selected one member bank and agreed upon the lowest deposit rate.

71. The different course followed by the Crown in the first of the tables it produced, had been to select on each day throughout the relevant duration, the lowest rate offered by any of the five banks, and use those rates for averaging. A similar course was followed in the more recent set of tables, where the Crown selected the lowest daily rates, offered by either of the two banks, which were then averaged.

72. Counsel for the Applicant strongly objected to the Crown's selective averaging exercise. In his submission it was impractical and unreasonable to assume that the depositor of multi-million sums, invested for 24 hour periods, would have the foresight and time on a daily basis, to give due notice to the first deposit holding bank, uplift the deposit and re-deposit the sum at a new bank, with the knowledge that it was offering a lower rate than the former bank.

73. The Tribunal appreciates that with the benefit of hindsight and the possession of the lowest historical bank interest rates over the relevant period, the Crown's exercise before the Tribunal, was very easy to carry out. Turning to the realities of the bank investment market, I find that apart from it being unreasonable to have expected an investor to have deposited money on the basis advanced by the Crown its notional exercise, as a matter of fact, would have been impractical if not impossible to carry out.

74. The Crown's tables shows that over a period one bank rather than others, tended to have the lowest time deposit rate. However, on some days the latter banks would have lower rates than the former bank. This pattern quickly emerged from a perusal of the tables. It was confirmed by the separate averages of each bank's lowest rates. These showed that the average rate of the bank with the lowest rate, was still higher, than the lowest averaged daily rate of all the banks in the table.

75. The consequence of the Crown's selective approach, was to arrive at an artifically lower rate, than the lowest rate offered by any one bank. For example, the alternative rates the Crown invites the Tribunal to adopt of 2.0162%, 2.0385%, 2.7378% and 3.0417%, were all lower than those offered by any one bank over the same period. The Tribunal accepts that once the bank with the lowest rate is selected, its interest in terms of Section 17(3A), should not be averaged but strictly calculated on a daily basis, with the total of those daily amounts being the amount payable.

76. The Tribunal now proceeds to determine whether a 24 hour call deposit is a time deposit within the meaning of Section 17(3A). The Applicant at the final hearing recognised the difficulty of contending that a 24 hour fixed deposit was not a time deposit. It had earlier accepted that a 7 day call was a time deposit, which also reflected the previous approach of this Tribunal, if without deeper analysis, and also of several appellate judgments.

77. Once a 24 hour fixed deposit is accepted to be a time deposit, it is no longer arguable that a 24 hour call deposit is not a time deposit. Although this Tribunal still has reservations whether either species of 24 hour deposits, is of sufficent duration to constitute a time deposit, it is prepared on the present evidence and submissions, to hold that a 24 hour fixed deposit is a time deposit. On this basis, there can be no material distinction, between a 24 hour call and a 24 hour fixed deposit. The Tribunal therefore finds that the applicable rates, are the lower 24 hour call deposit rates.

78. Although Counsel for the Crown had earlier reminded the Tribunal, that interest should be calculated on a daily and not an averaged basis, in her final submissions, she used merely average rates. There is unlikely to be any significant difference in the resulting total sums. The Tribunal, in relation to the daily rates of the single bank with the generally lowest rates, is content to follow the same course.

79. On the basis of the Crown's tables, the Tribunal finds that the lowest time deposit rates of the one selected bank, for the two relevant periods, are 2.0627% per annum and 2.8844% per annum respectively.

Whether lowest time deposit rate requires to be increased

80. The Applicant submitted that the lowest time deposit interest rate allowed, should be increased by at least 2%. The grounds advanced for this increase, principally related to delay on the part of the Crown. It was pointed out that the Crown's offer on 2nd September 1992 was quickly accepted by the Applicant, only eight days later on 10th September 1992. Despite the Applicant's complaints over non-payment, it took the Crown over 8 months to make the provisional payment, which was not received by the Applicant until 28th May 1993.

81. The Applicant accepted the Crown's offer for the remaining compensation of $47,145,000 on 5th July 1994 but payment was not made until over 3 months later on 14th October 1994. On that date $5,000 towards interest was also paid. No further payment on account of interest has yet been made. At the commencementof this hearing liability for further interest was admitted. At that date more than 4 years had passed since the date of resumption and 3 years 3 months since the date of the provisional payment.

82. The statutory disretion of the Tribunal, to award interest higher than the lowest time deposit rate, is fettered by the words of Section 17(3A). The Tribunal has already referred to the Privy Council's judgment in Shun Fung which sets out some of the considerations, which could furnish good reason, for fixing a higher rate. These may be summarised as including unreasonable behaviour and delay by the other party.

83. The only reason given the Crown, for the delay of over 8 months in paying an already agreed sum of $108,555,000, were the internal administrative steps of the Crown, in arranging payment. The Applicant, who had quickly agreed within 8 days on the amount of the provisional payment, did not contribute to any of the delay. This delay by the Crown was both unreasonable and unjustified. The later delay of more than 3 months, in making the final payment of $47,145,000, if for a lesser period, was also excessive.

84. The remaining delay on which the Applicant founded its claim for a higher rate, related to payment of interest. The only interest payment made so far, was a sum of $5,000, paid on 14th October 1994 with the final compensation payment of $47,145,000. I am informed that payment was calculated at a rate of 1%. The Crown has admitted liability for interest of more than twice that rate but has as yet made no further payment.

85. Counsel for the Crown submitted that any delay in payment of interest was irrelevant, because the Tribunal has no power to award compound interest. The Tribunal was reminded of its holding in Shun Fung [1995] 2 HKLR 443, that to award compound interest would be too radical a departure from settled practice and the initiative should come from the legislature or the appellate courts. The Court of Appeal later held that Section 17 only permitted the payment of simple interest - Shun Fung [1994] HKC 96.

86. The present claim is quite different to that advanced in Shun Fung. The Applicant is not seeking compound interest on compensation. It is instead asking that delays in payment of both compensation and interest, should be taken into account, in fixing a higher rate rate of simple interest. A further distinction, which adds to the present delays, is that the Applicant has been kept out of the balance of its interest, for more than 2 years.

87. If the Crown is right, there is no incentive to pay interest promptly nor any sanction to encourage payment. Where the Tribunal delivers judgment for compensation and interest, those two sums form one judgment debt. Simple interest is then payable on the judgment debt for the post-judgment period. Where instead a claim is settled, then when the compensation is paid, it merges with the thereupon capitalised accrued interest. This occurs whether or not by that date interest is quantified. The total of these two sums, similarly becomes a debt due by the Crown, to the claimant.

88. In the former case the amount due is a judgment debt and in the latter it is a contractual debt. In both cases the debt includes an original element of interest. Interest on the judgment debt for the post-judgment period is payable pursuant to Section 49 of the Supreme Court Ordinance, Cap.4. The current rate is 11.5% per annum. The discretion to award interest for the pre-judgment period, is contained in the preceding Section 48. These two sections apply to the Tribunal, by virtue of Section 8(9) of the Lands Tribunal Ordinance, Cap.17.

89. The pre-judgment period may, of course, involve very different considerations, complicated by provisional payments of compensation and part payments of interest. Although there is no statutory authority for payment of compound interest and Hong Kong case law may be to the contrary, there has long existed in equity a power to award compound interest. In England it has recently been held, that compound interest may be awarded, where it is justified by commercial circumstances - Guardian Ocean Cargos Ltd v. Banco Do Brasil SA The Times 19.3.92.

90. This Tribunal accepts that it has no power, in the present proceedings, to award compound interest. However, it is equally satisfied that in the exercise of the Section 17(3A) discretion and fixing the rate of simple interest thereunder, it may take into account any delay in the payment of interest. In doing so, it is not awarding compound interest on compensation. Further, interest on the balance of the debt, after 14th October 1994, when the final compensation was paid, is also clearly payable at the discretion of the Tribunal, pursuant to Section 48.

91. After reviewing all the relevant evidence, the Tribunal is satisfied that the behaviour of the Crown was solely responsible for the delay in payment of the two instalments of compensation. It is further satisfied that the Crown was also responsible for continuing delay, by its election not to make at least a further payment, on account of interest. I find those delays were unreasonable and provide good reason to increase the rate of simple interest.

92. The extent of any increase, should properly take into account the lowest time deposit interest rates. After considering these, to some extent controlling factors, together with all other relevant matters, the cumulative delays in payment of compensation warrants an increase in the region of 1% per annum. The delay in payment of any further sum after 14th October 1994, towards the remaining unpaid debt, certainly supports such increase being fixed at 1% per annum.

93. On the evidence, the Tribunal finds that the lowest deposit rates, should be so increased by 1% per annum. Interest for the first period from 10th July 1992 to 27th May 1993 on the sum of $155,700,000 is therefore fixed at 3.0627% per annum and for the period from 28th May 1993 to 14th October 1994 on $47,145,000 at 3.8844% per annum.

94. Because of exceptional delays, this still leaves the Applicant out of his money for a period of well over 2 years, since 14th October 1994, in respect of the remaining unpaid debt. In principle the Applicant requires to be compensated for this delay. Adopting a broad approach as to rates, I find that this remaining unpaid debt, should be increased by 3.8844% per annum for the period from 15th October 1994 until 14th February 1997.

Lands Tribunal Costs

95. The principles on which the Lands Tribunal awards costs are tolerably well established but it may be convenient for them to be restated. The award of costs is, of course, discretionary but the discretion always requires to be judicially exercised. The long followed guideline of the Tribunal is to award High Court costs, unless the sum claimed or the value of the estate or interest in dispute, falls within the lower jurisdiction of the District Court.

96. The majority of costs awarded are on the High Court scale. This in part follows, from the District Court's limited jurisdiction, in respect of land. Sections 35 and 36 of the District Court Ordinance provide that the District Court only has jurisdiction where the the annual rent or rateable value does not exceed $100,000. The majority of compensation, rating appeal and building management cases, are well above the District Court's jurisdiction. It may be expected that in those cases High Court costs will usually be awarded.

97. In Landlord and Tenant (Consolidation) Ordinance, Cap.7, applications, the costs discretion under Parts I, II and IV is fettered. Where costs are awarded, no doubt Part I, most Part II and some Part IV cases would attract District Court scale costs. However, in accordance with the general guideline, all Part IV, and common law applications with rateable values of $8,334 or more per month, would be eligible for High Court costs. The same guideline applies to Part V.

98. In this claim, compensation was agreed in the sum of $155,700,000 and the ancillary matters remaining in dispute, amount to several further million dollars. Clearly any costs awarded, should be on the High Court scale.

Orders

99. On the basis of these findings the Tribunal now orders:

100. It remains for the Tribunal to express its thanks to Counsel for their skill and persistence, including their considerable efforts to assist the Tribunal, by supplying particulars of banking practice and interest rates, which were surprisingly difficult to obtain.

DATED this 14th day of February 1997.