CALTEX OIL OF HONG KONG LTD v. DIRECTOR OF BUILDINGS AND LANDS

Mass Transit Railway works - compensation for pecuniary loss suffered by Caltex Lai Chi Kok Road Station and Caltex Nullah Road Station due to Nathan Road closures and alterations during periods from 1976 to 1984 - disputes over period of claim, basis for assessment of pecuniary loss and recovery period in the absence of direct comparables secondary evidence relied upon for Lai Chi Kok Station claim - Nullah Station loss based on comparison with average growth rates during claim period of 12 other Kowloon stations rather than 30 Hong Kong stations - on the evidence further refinement of Kowloon average growth figures rejected Held : 1 Compensation for Lai Chi Kok Station $ 6,250,000 plus interest; 2. Compensation for Nullah Station $ 3,300,000 plus interest -Section 10 and item 4 of Part I of First Schedule of Mass Transit Railway (Land Resumption and Related Provisions) Ordinance, Cap. 276.

IN THE LANDS TRIBUNAL OF HONG KONG

Mass Transit Railway References Nos. 2 and 3 of 1988.

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JUDGMENT

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1. The Applicant ('Coaltex') is the owner of two service stations on opposite sides of a major road junction in Nathan Road, Mongkok, Kowloon. One of the service stations is situate at the intersection of Nathan Road and Lai Chi Kok Road ('Lai Chi Kok Station'). The other is situate on an island site in Nullah Road between its junction with Nathan Road and Sai Yeung Choi Street ('Nullah Station'). Commencing in 1976, various roads contiguous to the two service stations, were temporarily closed or substantially altered by the Crown to facilitate the construction of the Mass Transit Railway pursuant to Section 10 of the Mass Transit Railway (Land Resumption and Related Provisions) Ordinance, Cap. 276.

2. Caltex claims that the road closures and alterations caused each of the service stations to suffer pecuniary loss or damage. As a consequence Caltex is applying in these proceedings, pursuant to Section 18, for compensation on the basis specified in Item 4 of Part I of the First Schedule to the Ordinance. Under Item 4, such pecuniary loss or damage is compensatable, in favour of the owner of a property held under Crown lease provided the road closure or alteration continued for a period exceeding 6 months. In the present application it is undisputed that Caltex is the owner of each service station under separate Crown leases and that the road closures and alterations continued for periods exceeding 6 months.

3. The dispute between the parties at the hearing was limited to quantum. The two claims were earlier consolidated and although some of the evidence was common to both stations, it remains necessary to consider the claims for each station separately.

Lai Chi Kok Station

4. The parties filed pre-hearing expert reports under Rule 18 of the Lands Tribunal Rules Cap. 17. Caltex in its Rule 18 report quantified its claim at $ 10,886,000 plus accumulative interest. The Crowns Rule 18 documents calculated the pecuniary loss suffered by Caltex at $2,568,356 before calculation of interest. At the hearing Caltex conceded that it was only entitled to simple interest at Hong Kong Bank prime rate. The concession disposed of the earlier dispute on interest. This reduces the Tribunal's consideration to the capital sum to be awarded as compensation:

5. The parties further agreed that the proper basis for determining Item 4 pecuniary loss in this particular case, was to assess the difference between the actual net merchanise earnings of the Lai Chi Kok Station during the relevant period and the estimated net merchandise earnings which would have been achieved if the road closures and street alterations had not been implemented under Section 10.

6. The Lai Chi Kok station remained open throughout the claim period. The actual sales volumes and net merchandise earnings for the Lai Chi KoK station before during and after the road closures and alterations were certified by Peat Marwick Mitchell & Co. and accepted by the Crown. Caltex first asserted that the claim period commenced on 1st January 1976. During the hearing it agreed to a later commencement date of 1st March 1976. Caltex further submitted that after the road closures and alterations ended on 22nd October 1982, the recovery period before the Lai Chi Kok station returned to normality, continued to 31st October 1984. The Crown maintained that recovery was achieved by 31st December 1983.

7. Mr. A. R. Currie, the General Manager of Caltex, gave evidence on a number of relevant matters including the recovery of the Lai Chi Kok station after the road closer and street alterations ceased. Mr. Currie has been employed by Caltex since 1974 and has considerable knowledge and experience in the retail sector of the petroluem industry. Mr. Currie stated that the average maturity period for a new station in Hong Kong is more than 3 years. From 1979 to 1982 Caltex opened new stations at Chaiwan Kwun Tong, Sing Woo Road and the Po Kong Service Station, which respectively took 3 years, 3 years, 5 years and 4 years to achieve maturity, Caltex defines maturity as the stage reached when a new station's sales growth is in line with market sales growth. Mr. Currie considered that it took at least 2 years for the Lai Chi Kok station to recover from the road closures and alterations.

8. The Crown asserted that recovery was achieved 10 months earlier, submitting that compensation was only payable to 31st December 1983. This submission was largely based on the evidence of Mr. J. B. Wilkinson, a chartered accountant and partner of Price Waterhouse. He was the Crown's principal witness on the issue of pecuniary loss. Mr. Wilkinson was satisfied that when the effect of the Section 10 road closure and alterations were eliminated, the Lai Chi Kok Station sales during the claim period, would have been some 1000 Imperial gallons per annum. Sales of that magnitude were in fact achieved in 1984, so he considered that the claim period, terminated on 31st December 1983. For the reasons which will be expanded in more detail, when I come to consider the parties various estimates of net merchandise earnings, I consider that the consequences of the disruption continue beyond 1983.

9. On the evidence I accept Mr. Currie's evidence and find that the effect of the disruption continued for about 2 years to 31st October 1984. Earning figures were only available on a monthly basis and it was accepted by both parties that in relation to the relatively long claim period, inclusion of the periods 1st to 2nd March 1976 (inclusive) and 23rd to 31st October 1984 (inclusive) was immaterial.

10. Moving on to the major issue of net merchandise earnings, I confirm that as the Lai Chi Kok station remain open throughout the claim period evidence was adduced of actual earnings from 1st March 1976 to 31st October 1984 The task is to determine the additional net merchandise earnings which would have been received, if the road closures and alterations had not been implemented. One potential variable, which the Tribunal may have had to consider in that task, was when the reduction in earnings would also nave enabled Caltex to reduce station overheads. After reviewing actual overheads, the Crown accepted that they would not have been materially affected by a drop in sales volume. I therefore proceed on the assumption that overheads before, during and after the claim period, remained the same.

11. The Crown also agreed with Caltex's method of calculation of merchandise earnings per Imperial gallon for both petrol ('MOGAS') and diesel fuel ('ADO'). Mr. A. T. Lam, the chartered surveyor called by Caltex, set these figures out in Appendix L of his Report - Exhibit A2. The same rates were adopted by Mr Wilkinson as an element in his calculation of profits in Appendix IV of his Report - Exhibit

12. Caltex&s estimate of the pecuniary loss suffered, assumed that Lai Chi Kok Station sale would have followed the pattern established by the average growth figures produced from the actual sales volumes of 30 other Caltex stations during the claim period. The 30 other stations were spread throughout Hong Kong Island, Kowloon and the New Territories. The 30 stations in fact represented the remaining Caltex stations in Hong Kong stations after eliminating, in relation to the claim period, all new stations and all stations which had ceased business as well as the Lai Chi Kok and Nullah stations the subject of the present application for compensation. I am satisfied that all those stations were properly excluded. Their exclusion reduced the degree to which the average annual growth figures would otherwise have been distorted.

13. The Crown submitted that differences in growth figures for retail sales between Hong Kong Island, Kowloon and the New Territories, made it unsafe to apply those average annual growth figures, to the Lai Chi Kok station in Kowloon. The parties experts assessed these regional growth differences from 1975 to 1984 as follows : -

14. These figures clearly show that the growth rates in the New Territories far exceeded Kowloon growth. I record that the Kowloon sales figures include New Kowloon. Hong Kong Island MOGAS growth also exceeded Kowloon growth, although in the case of ADO the position was reversed. Caltex submitted that the larger the number of stations included, the more likely it was that the effect of idiosyncrasies of an individual station were reduced. However, that submission only holds good, if the larger sample continues to be at least as representative as a smaller sample.

15. Mr. Currie reminded the Tribunal that Hong Kong is relatively small and congested and similar factors affect Hong Kong Island, Kowloon and the New Territories. At the same time Mr. Currie conceded that the real growth areas were in the New Territories. Mr. Wilkinson at page 41 of his Report - Exhibit R1 - at Appendix IV tabulates the very much smaller growth, including in some years declines, for the remaining Kowloon stations. I accept that the transport systems of Hong Kong Island, Kowloon and the New Territories are closely interlinked. The geographical divisions if overemphasised, tend to obscure the closely integrated traffic links of each of these three regions. on the other hand, the regional sales growth figures show substantial differences, at least between the New Territories and the other two regions. These differences simply cannot be ignored. I am satisfied that they are sufficiently material that a sample limited to Kowloon stations only would be more representative, than the larger sample including 30 Hong Kong stations.

16. However, annual growth rates even if based on Caltex's mature Kowloon stations excluding the Lai Chi Kok and Nullah stations, remain only averages. As a matter of valuation methodology, averaging is usually a technique of last resort. If the other Kowloon stations were sufficiently similar an average of several Kowloon stations might well be helpful. On the evidence that is a matter purely for speculation for the Tribunal, with one exception, was not supplied with the individual retail sales figures for the other mature Kowloon stations.

17. Mr. Currie recognised the desirability of analysing each peculiarity of the Kowloon stations in detail but paradoxically he used the absence of those details, to support his view that it was better to rely instead on the equally unanalysed retail sales figures of the larger sample of 30 stations throughout Hong Kong. During the evidence there was repeated reference to the very limited sales of the Caltex Kowloon station situated in the Ocean Terminal. Yet the sales figures of this station were never disclosed. As the Tribunal observed during the hearing, while the Kowloon sample was more reliable than a Hong Kong territory wide sample, it may have been improved, if individual figures had been disclosed, This would have enabled possibly the Ocean terminal station and other unrepresentative stations to have been eliminated from the Kowloon sample

18. Mr. Lam, with his considerable background of valuation experience, was clearly not satisfied with the $ 10,886,000 figure for pecuniary loss produced from his averaging the net merchandising earnings of the, larger sample of 30 Caltex stations. This was the sole valuation approach he adopted for the purpose of his Rule 18 report, produced as Exhibit Al. However, during his oral evidence he stated in evidence-in-chief, that the $ 10,886,000 based on averages from the 30 stations, exaggerated Caltex's claim. Since compiling his Rule 18 report, he had reviewed other Caltex stations and selected the Caltex station in Taipo Road, Shamshuipo, which was about 1500 metres north of the Lai Chi Kok Station, as the best comparable.

19. Mr. Lam applied the Taipo Road Station growth figures to Lai Chi Kok and including interest to 31.10.84, arrived at a rounded up figure of $8,325,000 compared with his Rule 18 report inclusive of interest valuation of $ 17,048,000. When interst is excluded, the more significant comparison is that the original pecuniary loss figure without interest; of $ 10,886,000 is reduced to $ 5,430,000. However, Mr. Lam emphasised that the lower sum of $ 5,430,000 was calculated on the assumption that Taipo Road Station and Lai Chi Kok Station were identical The evidence of both Mr. Currie and Mr. Lam was that Taipo Road Station was inferior to Lai Chi Kok Station.

20. The Crown's witness Mr. L.N. Parker, a traffic engineer, also stated that of the northbound Nathan Road traffic which passed the Lai Chi Kok station, up to 50% would turn into Cheung Sha Wan Road and only the balance would proceed up Taipo Road and pass the Taipo Road Station. The Lai Chi Kok Station is also the only station on that site. In Taipo Road two stations adjoin each other on the same site. However Caltex has the advantage of being on the southern side of the site while a Shell Station is immediately next door but to the north. On the other hand the Taipo Road station is not, dependent solely on traffic coming from Nathan Road.

21. I find that Lai Chi Kok Station is a better station that Taipo Road station The difficulty is to quanitify the difference. It was on this issue that Mr. Lam's attempt to adopt a direct comparative analysis ran into difficulties. The Taipo Road Station was very near Lai Chi Kok Station and at a position on Taipo Road which is a continuation of the same northern arterial route which commences in Nathan Road. The similarities between the two stations suggested that it would be an excellent direct comparable. Mr. Lam's researches unfortunately, did not disclose sufficient material him to complete an analysed comparison between the two stations.

22. Mr. Lam instead attempted to estimate the degree to which he considered the Lai Chi Kok Station to be better than the Taipo Road Station. After calculating the actual growth rate of the Taipo Road Station, he applied that rate to the base figures of the Lai Chi Kok Station. Because he was, unable to make customary analysed upward adjustments to reflect the difference, he adopted an alternative but novel approach. This involved calculating the difference between the 30 station growth rate and the notional growth rate of the Lai Chi Kok Station based on the Taipo Road Station figures. Mr. Lam then deducted one-third of the difference and added the remaining two thirds, to the notional Lai Chi Kok Station growth based on Taipo Road Station. These calculations were complicated, for present purposes, because Mr. Lam included interest to 31.10.84 in his figures. This quasi - comparable approach reduced the interest inclusive growth based on 30 stations of $15,721,000 down to $13,256,000. If interest were excluded it would have reduced the capital figure of $10,886,000 down to $9,068,000.

23. Under cross-examination Mr. Lam candidly conceded that the deduction of one-third of the difference was not based on any analysed evidence but was a subjective figure arrived at after his overall consideration of the evidence. Apart from the unnecessarily convoluted formula which added nothing to the soundness of the adjustment his approach is open to other objections. The very large scale of the adjustment would normally cast serious doubt on the quality of the comparable. Yet the other evidence suggests that the Taipo Road station was not only the best comparable but was sufficiently similar to require relatively small and therefore more reliable adjustments. Further, Mr. Lam's formula of applying the Taipo Road Station growth rate to the actual Lai Chi Kok Station base figures, resulted in a partial adjustment having already been made, before he made the final adjustment of one-third of the difference. Mr. Lam appeared to overlook that fact which has the effect of making his very large final adjustment even larger. The final adjustment, while not resulting in double compensation, does include a degree of overlapping. In the event, despite the apparent mathematical approach, it remains a broad estimate of the difference, based on the surveyor's experience, rather than on specific evidence. I am satisfied the adjustment inflates the difference between the two stations.

24. On the evidence so far, Caltex's surveyor considers the original figure of $10,886,000 to be too high but the unadjusted Taipo Station based figure of 5,430,000,tpo low. These figures are to be contrasted with Mr. Wilkinson's valuation for the Crown of $2,568,356. Mr. Wilkinson set out in Appendix IV.of his Rule 18 Report - Exhibit R1 - details of the formula he followed. Mr. Wilkinson rejected an averaged approach based on 30 stations. Instead he based his approach on the retail sales for the Lai Chi Kok station in 1975, 1984, 1985 and 1986. These years cover the period before and after the road closures and alterations. In 1975 MOGAS and ADO sales totalled 1,016,600 Imperial gallons. The total annual figures for 1984 to 1986 were 1,003,453, 996,018 and 996,426 Imperial gallons,

25. Although accepting that sales figures up to 1976 showing a continuing increase for Lai Chi Kok Station, Mr. Wilkinson was satisfied the overall figures indicated that sales during the claim period would also have been in the region of 1,000,000 Imperial gallons per annum. Mr. Wilkinson observed that the failure of the Lai Chi Kok station to increase sales after 1976,might be due to a variety of factors but he was satisfied that none could be attributed to the road closures and alterations. Mr. Wilkinson's calculation also reflected, within the annual sales of 1,000,000 Imperial gallons, the continuing decline in MOGAS and increase in ADO sales.

26. Before determining he relatively static sales pattern during the claim period advanced by Mr. Wilkinson is supported by evidence, it is convenient at this stage to deal with another element of Mr. Wilkinson's calculation. From the annual estimated sales he deducted 5% for sales redirected to other Caltex stations before arriving at a revised estimate of sales from which he then deducted actual sales. The balance represented the compensatable shortfall. The annual shortfall, apportioned between MOGAS and ADO, was then multiplied by the agreed mechandise earnings rate per Imperialgallon, to produce the annual merchandise earnings shortfall. Mr. Wilkinson stated that it was reasonable to assume that some customers because of credit arrangements, brand loyalty and other reasons would have continued to purchase MOGAS and ADO from other Caltex stations and he presumed that the Caltex Taipo Road station would have been the principal beneficiary Caltex asserted that compared with the Hong Kong overall average there was no evidence of any increase in credit sales during the claim period at the Taipo Road station. Mr. Wilkinson accepted that any redirection could not be accurately assessed but that it would be unrealistic to assume that no sales were redirected. The 5% deduction was therefore an entirely subjective assessment.

27. I am prepared to accept that some sales were redirected to other Caltex stations. Fortunately, it is not necessary to attempt to quantify the percentage, for any such redirection is, as a matter of law, irrelevant to the present claim. If there were redirection that certainly would reduce the loss otherwise suffered by Caltex in relation to its Hong Kong trading operations. However, this present application is not founded on any loss of Caltex's overall profitability. Under Item 4 compensation is to be assessed for :

"The amount of any pecuniary loss or damage to any property held under a Crown lease.".

28. The loss to be assessed is therefore the loss suffered by Caltex, as Crown leasee of the Lai Chi Kok station under the Crown lease granted on 8th February 1967. There is no provision in the Mass Transit Railway (Land Resumption and Related Provisions Ordinance which allows any sum in the nature of betterment to be offset against compensation payable under Item 4. In any event a deduction for redirected sales would not fall within the customary definitions of betterment even in jurisdictions where statutory deductions for betterment are allowed. I accordingly hold, as a matter of law, that no deduction for redirected sales may be made from any estimate of the Lai Chi Kok Station's estimated loss of profits. On Mr. Wilkinson's own formula, if the deduction for redirected sales is added back, his calculation of loss to 31.12.83, rounded up, would equal $3,000,000.

29. I now return to the competing allegations in relation to estimated sales during the claim period. I have already held that Caltex's assertion that Lai Chi Kok Station sales would follow the growth trends or the other 30 stations is unsound and that if average trends are to be adopted the lower growth figures produced by the 12 Kowloon stations are to be preferred. On the other hand, the Crown submitted that on the evidence the proper inference is that annual sales during the claim period would have remained in the region of 1,000,000 Imperial gallons per annum. The opposing approaches are further contrasted by the fact that Caltex alleges that the fall in actual sales is wholly due to the road closures and alterations, while the Crown asserts that the failure of the Lai Chi Kok station to share in the growth enjoyed by other stations, is entirely due to non-Section 10 factors.

30. Unfortunately, the difficult task of recreating the sales position which would have existed if the road closures and alterations had not been implemented, is further complicated by other major relevant changes which occurred during the clam period. Some of the changes were temporary others were permanent. Some were introduced because of the disruption to traffic caused by the Mass Transit Railway works, Others were part of an overall strategic plan to improve traffic in Kowloon. In addition, fiscal steps were taken by the Crown during the claim period which increased motor vehicle registration fees and caused a fall in the registration of private cars.

31. On many of these matters the Tribunal was considerably assisted by the careful evidence of the Crown's Mr. L.N. Parker, who was called as an expert in traffic engineering. Mr. Parker is the holder of a Bachelor of Science (Hons) degree in Civil Engineering, a Master of Science in Urban Planning and a Diploma in Traffic Engineering. For the past 21 years he has been employed by the Hong Kong Government as a traffic engineer and from 1974 to 1979 was responsible for planning and monitoring the traffic diversions which affected the Lai Chi Kok station during the earlier part of the claim period Notwithstanding Mr. Parker's qualifications and personal knowledge of the traffic diversions relevant. to the present application, he cautioned that hi s evidence was to a large extent based on subjective opinion on which there was little hard evidence.

32. Mr. Parker stated that the twofold steps taken to facilitate construction of the Mass Transit Railway were to provide well sign post temporary diversions and to exploit major new transport infrastructure developments as they became available The immediate steps taken were to provide alternative routes on existing streets parallel to Nathan Road to cater for traffic which formerly used Nathan Road At certain stages traffic in Nathan Road was reduced to one way only, with opposing lanes closed At times the number of lanes in either direction were altered.

33. I do not propose to record the details of these changes but have considered the effect of all of them. They included for the period from 15th August 1977 to 25th August 1978 prohibiting all private cars, taxis and public hire cars from 7 a.m. to 7 p.m. along that portion of Nathan Road between Prince Edward Road and Dundas Street; Nullah Road between Nathan Road and Sai Yeung Choi Street; Arran Street between Nathan Road and Lai Chi Kok Road; and southbound traffic in Lai Chi Kok Road between Portland Street and Nathan Road.

34. The traffic prohibition introduced on 15th August 1977, while having a major adverse affect on the Lai Chi Kok Station, was merely one of several alterations to traffic flow. The frequency of the changes aggravated their overall detrimental affect. The effect on actual sales was dramatic. This was apparent from the figures produced by Mr. Lam but was even more clearly highlighted by the graphs based on those figures produced by Mr. Parker as Exhibit R69. Mr. Currie when he gave evidence stressed that the Lai Chi Kok and Nullah Stations were both situated at a major strategic Kowloon intersection. The map of Kowloon and part of the New Territories produced as Exhibit A135 emphasised the excellence of the Lai Chi Kok and Nullah sites. I find that they were superior sites to the sites occupied by other companies in the same locality.

35. Mr. Currie also explained that factors affecting the profitability of a station were location, brand loyalty, service, easy credit and space. The latter was particularly important to commercial drivers: A spacious station enabled them to change shifts, fill up, service and wash their vehicles at or near the station. The Lai Chi Kok station was relatively spacious and in addition to its own site area was flanked on all sides by public streets. On one side Arran Street in particular was available as additional parking area for commercial drivers. According to Mr. Currie, the road diversions affected the availability of these areas for commercial drivers. Access to the station was also reduced. From time to time the reduced entry and exit points were altered. These factors combined to force many customers to go to more accessible and convenient station unaffected by the Mass Transit Railway works.

36. Mr. Currie pointed out that in the immediate locality bounded, by Dundas Street in the south and Boundary Street in the north there were seven other stations but none were on the Mass Transit route along the Nathan Road axis or disrupted by the Mass Transit Railway works Exhibit A135 depicted all of these stations using different coloured dots, to identify the oil companies who owned those stations. In this particular locality, five of those stations were owned by Shell and two by Mobil Mr. Cirrie, more neutrally but no less accurately, described the geographical position of Caltex's two stations as being surrounded by yellow dots. He stated that at least local traffic would tend to go to those other more accessible and convenient stations. According Mr. Currie's marketing experience, once a customer developes a changed habit of going to a different station, it is very difficult to entice him to return to the original station. This specific form of retail behavior has some similarities to the traffic inertia referred to Mr. Parker.

37. The major infrastructure proposal which quite independently of the Mass Transit Railway project, affected Kowloon traffic during the claim period, was the staged development of the West Kowloon Corridor. In November 1977 that portion of Stage 1 from the Yau Ma Tei Carpark, along Ferry Street to Tai Kok Tsui Road, was opened. In November 19B2 the northbound section of Stage 2 from Tai Kok Tsui Road to Yen Chow Street was opened. Mr. Parker stated that a proportion of traffic previously using Nathan Road was likely to have been diverted to the new West Kowloon Corridor. Traffic counts at the intersection of Nathan Road and Dundas Street indicated a significant drop in Nathan Road traffic between 1977 and 1978.

38. Mr. Parker took a more cautious approach, than the bare traffic count figures migh have suggested and was of the opinion that when the West Kowloon Corridor opened, about 10% of Nathan Road traffic would have been diverted to the new road. Mr. Parker agreed that because of the inconvenience to motorists caused by the Mass Transit Railway works in Nathan Road, that would probably have given an added impetus to the amount of traffic which would otherwise have diverted to the West Kowloon Corridor at that stage.

39. A further infrastructure change was that when the Mass Transit Railway works in Nathan Road were completed, it was decided not to reinstate Nathan Road to its pre-1976 condition. The reopened Nathan Road was in certain sectors reduced from 3 lanes to 2 lanes This enabled wider pavements to be provided for heavy pedestrian traffic. There was a reduction of right tinning movements to reduce traffic congestion and to provide more pedestrian light controlled crossings. Bus only lanes in Shanghai Street, temporarily introduced as an alternative route to Nathan Road, were permanently retained. Along sections of Nathan Road 12 hour clear ways were permanently introduced which forced taxis, and service vehicles into side streets.

40. Mr. Parker stated that when these permanent alterations were introduced it was anticipated that traffic in Nathan Road would return to its pe 1976 levels. However, traffic counts indicated this had not occurred. For example at the Nathan Road/Dundas Street intersection, south of the Lai Chi Kok Station, annual average daily traffic figures show the following vehiclar movements :

41. Lai Chi Kok Station serves northbound Nathan Road traffic so the directional change of pre-1976 traffic to post 1984 traffic, is particularly significant.

42. Mr. Parker mentioned two other factors which contributed to this major change in Nathan Road traffic flows. First, the inertia effect of traffic Diverted traffic once having become accustomed to a new route is slow to change back to an alternative route unless there is major congestion. Secondly, the introduction in April 1982 and 1983 of major increases in first registration tag and annual vehicle licence fees. These increases caused a sharp drop in private motor ear registrations from a high of just under 200,000 vehicles in 1982 to a low of under 140,000 vehicles in 1987. This fall was immediately reflected in lower MOGAS sales.

43. Mr. Parker concluded that there was insufficient data to quantify the individual or cumulative effect of these factors However (he was satisfied that the Annual Traffic Census Reports of the Transport Department suggest that from 1982 approximate traffic stability had been reached in Nathan Road. He agreed that from a traffic engineering viewpoint, the measures taken to reduce congestion in Nathan Road after the Mass Transit Railway works were completed, had been more successful than anticipated.

44. I am satisfied that the reduced traffic in Nathan Road post 1984 compared with pre-1976, was not due to the Section 10 read closures and alterations imposed for the prose of the Mass Transit Railway works. Instead it was part of major infrastructure changes implemented by the Government. Accordingly, it represents non - compensatable regulation of traffic by Government which is not relevant to Caltex's present claim. On the other hand, I am satisfied that during the claim period, the existence of the Section 10 road closures and alterations in Nathan Road, accelerated the movement of traffic to the new alternative roads which became available during that period. The major reason for the change in traffic movements was the attractiveness of the new facilities. However, the Section 10 imposed road closures and alterations was responsible for at least some of the motivation which caused motorists to elect to use the new facilities.

45. When I review the whole of the evidence I am also satisfied that the Lai Chi Kok station lost customers to other stations, within the same locality, due to the Section 10 imposed closures and alterations. I am further satisfied that the movement of traffic to new or alternative routes was accelerated by the same Section 10 road closures and alterations. To that extent I reject Mr. Wilkinson's assumption, that the road closures and alterations did not contribute to the fact that sales levels before and after the Mass Transit Railway works, remained static.

46. The difficulty which faced Mr. Lam, Mr. Wilkinson and Mr. Parker of quantifying the Section 10 element remains. The Tribunal is largely a captive of the evidence which the parties elected to adduce The burden, of course, ever remains on Caltex to establish its claim on the balance of probabilities. It is at this stage that I am prepared to accede to Mr. Litton's emphatic submission that the Tribunal should take a broad approach to the evidence. All the experts agreed that their conclusions were based on assumptions, many of which were not verifiable. The figures produced by the experts on those assumptions are susceptible of further theoretical refinement. However, if I were to adopt that course the conclusions arrived at would tend to present a picture of false accuracy. I am satisfied that this is one case where the dangers of over analysis are at least as great as the dangers of under analysis.

47. To return to the earlier figures, Mr. Lam considered his average based assessment of $ 10,886,000 too high but the Taipo Road Station comparable figure of $ 5,430,000 too low. Mr. Wilkinson's original assessment has to be increased to nearly $ 3,000,000 for the 5% wrongly deducted for relocated sales. This figure, in turn, has to be further increased for the final 10 months of the claim period for which he made no allowance. All these calculations remain relevant. The must helpful is the quasi-comparable figure of $ 5,430,000. On the evidence I consider that it requires to adjusted upwards by an amount in the region of 20%. This produces a figure of $ 6,244,500. If rounded up to $6,250,000 it may be compared with Caltex's alternative figures of $10,886,000 and 9,068,000 and the calculations advanced by the Crown which when adjusted exceed $3,000,000.

48. Adopting a broad approach imposed by the evidence, I find that the pecuniary loss suffered by Caltex under Item 4, as Crown lessee of the Lai Chi Kok Station, is $6,250,000 plus interest as agreed between the parties.

Nullah Station

49. Caltex claimed $ 5,988,000 for pecuniary loss under Item 4 excluding interest. The calculations advanced by the Crown only reached $ 995,053. Despite this substantial difference there was agreement by the parties on a number of issues. Caltex originally based its claim for the period from 1st January 1977 to 31st October 1984. The Crown considered the claim should only have commenced on 15th August 1977 when the road alterations came into effect. At the hearing Caltex accepted that August was the appropriate month. Road alterations ceased on 22nd October 1982 and Caltax confirmed that in its experience a station took 2 years to recover. Mr. Wilkinson agreed that a 2 years period was not unreasonable in the case of the Nullah Station. However, on the evidence he was only prepared to allow compensation for MOGAS to 31st October 1982 and for ADO to 31st October 1983. 1 propose to consider a claim period from 1st August 1977 to 31st October 1984. The Crown's objections to compensation for the final years of that period can, without prejudice to its position, be considered further when it comes to determine quantum.

50. The earlier disagreement over interest was resolved by agreement. Simple interest will be allowed at the agreed rate. The Crown accepted the same merchandise rates per Imperial gallon used by Caltex. The Crown agreed that it was unnecessary to make any adjustment in relation to variable overheads. Agreement was also reached on the adjustment necessary to take into account the fact that during the claim period, namely on 16th July 1979, the Nullah Station increased its hours of operation from 16 hours to 24 hours per day.

51. The major dispute continued to be the basis on which lost sales should be calculated. Caltex again relied on the average sales volumes of "MOGAS and ADO from the other 30 stations. The pattern of annual growth rates was then applied to the Nullah Station on the assumption that it would have enjoyed the same growth, if the Section 10 imposed road closures and alterations had not been implemented. The ratios of net merchandise earnings per sales volume of MOGAS and ADO, were established on an annual basis by dividing the net merchandise earnings by the corresponding sales volume. These ratios were accepted by the Crown in its calculations.

52. Unlike his alternative approach in the case of Lai Chi Kok Station, Mr. Lam did not attempt to use the Taipo Road Station as a comparable. Lam's explanation in evidence was that Taipo Road Station was not a comparable, by which I infer he considered it was not sufficiently similar to Nullah Station. It was agreed that Nullah Station was inferior to Lai Chi Kok Station. There were a number differences between Lai Chi Kok Station and Nullah Station Lai Chi Kok principally catered for Nathan Road north bound traffic and was clearly visible and easily accessible to approaching Nathan Road motorists. The relatively large on-site space and the extensive road parking available in the vicinity, enhanced its attractiveness to commercial users.

53. The Nullah Station was on an island site in Nullah Road and sufficiently back from Nathan Road to be much less visible to southbound motorists. I accept the evidence that it depended to a greater degree on local traffic and was less dependent on Nathan Road traffic. In addition to these pre-claim and post claim characteristics, Nullah Station was also far less affected by the Mass Transit Railway works. For example from 1976 to 1980 Lai Chi Kok was seriously affected by the north bound lanes of Nathan Rod being closed. However, throughout the claim period the southbound lanes, if from time to time altered and reduced, remained continuously open, to at least some categories of vehicular traffic.

54. The Crown relied on Mr. Wilkinson's pecuniary loss calculation of 995,053. Mr. Wilkinson again rejected Mr. Lam's approach based on 30 stations. However, unlike his approach to the Lai Chi Kok station, Mr. Wilkinson considered it difficult to use the pre-claim period performance of the Nullah station, as the base for its estimated performance during the claim period. Instead, the Crown was prepared as a first step; to adopt an averaged approach but based on the 12 Kowloon stations and not the 30 Caltex stations.

55. The sum of $ 955,053 was made up of $ 848,260 being losses suffered on MOGAS and ADO for the period 15th August 1977 to 31st October 1982 and 146,433 for loss on ADO sales from 31st October 1982 to 31st October 1983. The Crown approach attempted to refine the Kowloon averaged based figures, by_. making three separate deductions. The first deduction was 5% for redirected sales to other Caltex Stations. The second and third deductions were more complex. In the absence of similar evidence to that which existed in the case of Lai Chi Kok Station, Mr. Wilkinson analysed the Nullah Station sales for the 12 months before the road closures and alterations and the sales for the following year. While recognising that the fall in Sales could also be in part due to other factors, he assumed for the purpose of the exercise, that the percentage loss of sales in the first year wholly attributed to the road closures and alterations, would remain constant for the remainder of the claim period. In his view this was the most reliable approach to eliminate non-Section 10 factors in the remaining years.

56. The third and final deduction was an attempt to quantify and then eliminate, the beneficial affect further traffic alterations on 25th August 1978 were assured to have had on Nullah Station sales. On that date Mr. Wilkinson understood the opacity of Nathan Road southbound lanes was increased from 2 lanes to 3 lanes. But there were also other changes. The increase in. sales thereafter were assumed to be due to the increase in lanes. Mr. Wilkinson considered that the assured beneficial affect on sales, had to be deducted from his projected 1978 percentages, to eliminate the benefits of those changes

57. As part of the second step of the Crown's calculation, the Shortfall of sales due to the Mass Transit Railway works was assessed at 34.1% of estimated sales for MOGAS and 15.3% for ADD. The traffic alterations on 25th August 1978 caused Mr. Wilkinson to reduce these percentages in the third step of the Crown calculation to 10.3% for MOGAS and 14.3% for ADO These percentage reductions substantially reduced the shortfall and when multiplied by the agreed mechandise earning per Imperial gallon, produced the Crown's figure of $ 848,620.

58. Caltex's claim of 5,988, 000 was directly based on the average sales growth figures of 30 stations. In the case of the Lai Chi Kok Station, Mr. Lara considered that approach exaggerated the claim and reached a lower figure by using the Taipo Road Station figures as a comparable. I confirm that Mr. Lam was only able to make partial adjustments in the attempt to relate them to the Lai Chi Kok Station. I find that both the Taipo Road and Nullah Stations are inferior to the Lai Chi Kok Station. The Mullah Station, if less dependent on Nathan Road traffic, remains in the same locality as the Taipo Road Station. I recognise that Nullah Station serves southbound and not northbound Nathan Road traffic. Mr. Lam's opinion that the Taipo Road Station was not comparable to the Nullah Station still remains unconvincing.

59. I am satisfied that as the 30 station average on Caltex's own evidence, exaggerated Ms Lai Chi KoK Station claim, so too it exaggerates even more the Nullah Station claim. On the evidence, I am further satisfied that the Taipo Road Station, subject to adjustments for material differences, is the best available comparable arable to use in relation to Nullah Station. The degree of inferiority of both the Nullah and Taipo Stations to the Lai Chi Kok Station, is not dissimilar. Unfortunately, none of the experts attempted to adjust the Taipo Road Station figures to the Nullah Station. If that course were followed, then I am satisfied that smaller adjustments would have been necessary, than those I have held were appropriate in the case of the Lai Chi Kok Station. In the absence of a more detailed analysis, I record that, if the same proportion Mr. Lam's partially adjusted Taipo Road Station comparable bore to his average based Lai Chi Kok Station figure, is applied to his average based figure for Nullah Station, it produces a pecuniary loss of $ 2,986,849.

60. Turning to the Crown's calculations, unlike the approach to Lai Chi Kok Station it initially adopted estimated sales based on the averages of the 12 Kowloon stations. I find that is a more reliable approach than the wider but less representative sample of 30 stations used by Caltex. However, from that acceptable base the Crown again erred by deducting 5% for directed sales. If that deduction had not been made the Crown's calculations down to that stage would have produced a pecuniary loss of $ 2,696,389 which interestingly is similar to the earlier figure of $ 2,986,849 arrived at when using, if rather crudely, the Taipo Road Station as a comparable.

61. The difficulty with Mr. Wilkinson's further second and third steps leading to his final lower figure of $ 848,620, is that they are based on a series of assumptions which are not necessarily supported by the evidence. In his own words Mr. Wilkinson conceded that these latter steps were subjective but he maintained they remained valid. The first assumption that the drop in sales at the Nullah Station in the first year year from 15th August 1977 would continue to equal the loss due to Mass Transit Railway works for the remainder of each year of the claim period, was not only subjective but speculative.

62. The second assumption requires the 1977 limited projection to be further reduced by eliminating increases in sales after the relaxation of the traffic restrictions in 1978 Initially the extent of the relaxation was disputed. The former assumption is not only subjective but highly speculative. The latter assumption depends on a close correlation between traffic flows and sales. As a matter of general principle, it might be expected that increased traffic flows will result in increased sales. However the actual evidence in relation to the Nullah Station, clearly shows that there is not necessarily a close correlation between the two. Mr. Lam pointed out that in 1978 Nathan Road traffic flows decreased by 29.4% but Nullah Station sales dropped by only 8.7%. Figures for other years show similar divergences. In the case at least of the Nullah Station, changing traffic flows do not result in parallel changes in sales.

63. There are other peculiarities which exist in respect of the Nullah Station. For the period from 1975 to 1978 annual MOGAS sales in Imperial gallons were 175,800; 152,940; 124,365; and 113,600: After allowing for the increase to 24 hour sales during July 1979, the MOGAS sales showed a continuing decline to 1984. This trend reflected similar wider Hong Kong trends, The fall was attributed to a number of factors, including the sharp post-1981 drop in private car registrations caused by the increases in first registration tax and annual vehicle licences fees.

64. On the other hand during the claim period, sales of ADO by the Nullah Station increased. The explanation given in evidence was that the Station was less dependent on Nathan Road, had better alternative access from other adjacent streets and was more reliant on local custom. I find that while ADO sales generally increased during the claim period that the rate of increase still remained lower than the rate of increase of average growth of the other Kowloon stations.

65. On the evidence the question is whether a more accurate indication of pecuniary loss for the Nullah Station can be obtained from the calculations based on the Kowloon average growth figures, or whether those figures are reasonably capable of being_.further refined on the basis advanced by Mr. Wilkinson. I confirm that I reject the 5% redirection deduction. The second assumption I find is speculative rather than probable. As to the third assumption the direct evidence of_. Nullah Station sales and Nathan Road traffic flows clearly renders it unsafe.

66. In these circumstances, the better course is to rely on the Crown's primary calculations based on the average sales growth of the 12 Kowloon Stations. The actual Kowloon average sales figures supplied by Caltex were undisputed. They produce for the period down to 31st October 1982 the sum of 2,696,389. The road closures and alterations ceased on 22nd October 1982 and the Crown agreed in principle with the two year recovery period clamed by Caltex However, Mr. Wilkinson while accepting that general principle, carried out a further survey of the actual figures for the Nullah Station. The survey showed that there was an immediate drop in both MOGAS and ADO sales. Mr. Wilkinson assumed that the drop was not related to cessation of the road closures and alterations.

67. On the actual sales figures, Mr. Wilkinson considered that no compensation was payable for MOGAS during the recovery period and that compensation for ADO lost sales should be for only 1 year to 31st October 1983. For the latter purpose he again applied his percentage ADO figure of 14.3% and thereafter made a further one-third reduction to reflect an element of recovery which would have existed during that year. The compensation allowed for ADO during the recovery period on this basis amounted to $ 146, 433 which increased the Crown's valuation to $ 995,053.

68. There is considerable merit in Mr. Wilkinson's conclusion that a two year recovery period would in the case of the Nullah Station be excessive. A two year recovery period has already been allowed for the Lai Chi Kok Station but that was very much more dependent on northbound Nathan Road traffic which for several years was wholly diverted elsewhere with the northbound lanes being closed. Nullah station was less dependent on south bond Nathan Road traffic which operated, if by reduced lanes and limited categories of motor vehicles, throughout the claim period. I accept that there was a sharp fall in MOGAS sales after October 1982 but this seems less remarkable when two relevant factors not mentioned by Mr. Wilkinson are taken into account. The first is that while Kowloon stations from 1976 to 1981 enjoyed annual growth in sales these fell from 1982 to 1984. A major factor in this fall was the drop in private car registrations which affected MOGAS far more than ADO The second factor was that the redevelopment of Nathan Road after the Mass Transit Railway works were completed, resulted in an unexpected fall in traffic flow compared with the pre-claim period. This fall if smaller in the case of southbound traffic, was due to non-compensatable regulation of traffic by the Crown and did not result from the earlier Section 10 imposed closures and alterations.

69. I find that compensation for a lesser period than the two years allowed for the Lai Chi Kok Station has been established. I further find that the appropriate period in respect of the Nullah Station for both MOGAS and ADO is 12 months from 1st November 1982. I consider that the proper basis for assessing compensation for the recovery period remains the average growth figures produced by the Kowloon stations. The recovery period assessment therefore requires the actual monthly sales for the 12 months, to be deducted from the average monthly Kowloon sales. The resulting monthly shortfalls then require to be multiplied by the agreed merchandise earnings ratio per Imperial gallon, to arrive in dollar terms at the merchandise earnings shortfall. On assessment on that basis produces a merchandise earnings shortfall for the recovery period of $ 877,957. I accept that recovery would have occurred progressively throughout the 12 month period. Allowance has to be made for that progressive recovery and I find Mr. Wilkinson's rebate of one-third reasonable This reduces the pecuniary loss for the recovery period from 1st November 1982 to 31st October 1983 to $ 585,305. When that $ 585,305 is added to $ 2,696,389 for the prior claim period, it produces a total of $ 3,281,694.

70. The sum of $ 3,281,694 may be compared to the figure of $ 2,986,849 arrived at by reducing Caltex's 30 station averaged based figure by the more realistic amount suggested by the Taipo Road station comparable, While the method of arriving at the latter amount was not entirely satisfactory, it remains useful for checking purposes. After standing back and reviewing these figures and all the other relevant evidence, I am satisfied on a broad approach, that the pecuniary loss suffered by Caltex under Item 4, as Crown lessee of the Nullah Station, is in the region of $ 3,281,694 which I round up to $ 3,300,000. I accordingly award $ 3,300,000 compensation for the Nullah Station claim plus interest as agreed.

71. The total compensation in this consolidated application is therefore 9,550,000 plus agreed interest. There shall also be an order nisi as to costs, on the Supreme Court scale, including a certificate for two Counsel, to be taxed if not agreed; the order to become absolute within 14 days unless application is made within that period to the contrary. Liberty to apply is reserved in respect of any consequential matters.

DATED this 11th day of December 1989.