HAPPY DRAGON RESTAURANT LTD v. THE DIRECTOR OF LANDS

CACV 201/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 201 OF 2009

(ON APPEAL FROM LDLR NO. 17 OF 2006)

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BETWEEN

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J U D G M E N T

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Hon Le Pichon JA:

1.  This is an appeal by the applicant from an order dated 28 April 2009 of the Lands Tribunal. The matter related to the applicant’s claims for compensation for loss or damage to the applicant’s business as a result of the resumption of certain properties held by the applicant under various leases and at which it operated its restaurant business. The tribunal rejected the applicant’s claims and held that no compensation was payable. On 27 May 2008, the applicant’s application for review was dismissed. At the conclusion of the hearing judgment was reserved which we now give.

Introduction

2.  The applicant was the tenant of premises (“the affected premises”) which were interlinked , comprising (1) the whole of the first and second floors at 329-331 Shau Kei Wan Road and 1-3 Nam On Lane (“the Part I property”); (2) the first floor at 327 Shau Kei Wan Road (“the Part II property”); and (3) shop number A on the ground floor of 329-331 Shau Kei Wan Road and 1-3 Nam On Lane (“the Part III property”). The Part I property was used as a restaurant, the Part II property was used as staff quarters and the Part III property was a shop for selling takeaway food. The applicant had a ten-year lease of the affected premises. The aggregate area of the resumed property was approximately 7,000 sq ft, the restaurant itself being over 6,000 sq ft.

3.  A related company, Bright Dragon Properties Ltd, was the owner of the Part I property.

4.  The applicant commenced business in December 2003 and ceased business at the end of February 2005. It is common ground that the restaurant was a thriving business despite the fact that it had been in existence for only 15 months.

5.  A notice of the resumption with a three-month notice period was gazetted on 16 February 2005 and affixed to the resumed property on 25 February 2005. The land resumed was required for the implementation of a development proposal of the Hong Kong Housing Society.

6.  The applicant sought compensation on the basis of the total extinguishment of its restaurant business. It claimed approximately $40 million for the permanent loss of business (“the extinguishment claim”) and $7.3 million for disturbance (“the disturbance claim”).

7.  The respondent contended that the applicant was not entitled to any compensation and, in the alternative, that the claim was excessive. On 22 June 2005, it offered the applicant $2,649,600 which was rejected. It is an agreed fact that two payments aggregating that amount were made to the applicant on 30 June 2005 and 2 August 2005 by way of provisional compensation.

The relevant statutory provisions

8.  In pertinent part, section 10of the Land Resumption Ordinance Cap. 124 provides:-

“(1)  The Tribunal shall determine the amount of compensation (if any) payable in respect of a claim submitted to it under section 6(3) or 8(2) on the basis of the loss or damage suffered by the claimant due to the resumption of the land specified in the claim.

(2)  The Tribunal shall determine the compensation (if any) payable under subsection (1) on the basis of:-

(d)  the amount of loss or damage to a business conducted by a claimant at the date of resumption on the land resumed or in any building erected thereon, due to the removal of the business from that land or building as a result of the resumption;

(e)  in the case of land resumed under an order made under section 3 on or after the commencement of the Crown Lands Resumption (Amendment) Ordinance 1984(5 of 1984)-

(i)  the amount of any expenses reasonably incurred by him in moving from any premises owned or occupied by him on the land resumed to, or in connection with the acquisition of, alternative land or land and buildings, but excluding any amount to which paragraph (d) applies;”

The facts

9.  The applicant first came to know of the resumption at the end of November 2003. It commenced business in early December 2003. As earlier noted, it held a ten-year lease of the affected premises. It commenced looking for alternative premises in earnest in August 2004. While it ceased business almost immediately after the notice of resumption was gazetted in February 2005, it continued to look for alternative premises until the end of 2005. Altogether, no less than 17 options had been considered.

10.  The tribunal held (at § 27) that the fact that the applicant started too late to look for alternative premises, ceased business too early and provided too little information on alternative premises other than for premises known as “the Wah Do site” did not lead the tribunal to conclude that it had not taken reasonable steps to find alternative premises for possible relocation. The tribunal then proceeded to consider whether the Wah Do site itself was suitable for relocation.

11.  In relation to the Wah Do site, the salient facts which emerged from Mr Ho’s evidence which the tribunal appeared to have accepted and which were not challenged are summarised below.

12.  The Wah Do site with a saleable area of 4,500 sq ft first came to the attention of Mr Ho of the applicant on 6 March 2005. Mr Ho wanted to secure a ten-year lease as he had done for the affected premises because he considered that to be a crucial factor for success. However, the offer was for a two-year lease renewable for another two years only which was not acceptable to the applicant. Inquiries were then made as to the possibility of purchasing the Wah Do site. The landlord wanted $18 million. Negotiations for a lease continued but the landlord would not go beyond a lease of 3 years renewable for another 3.

13.  In tandem with his negotiations with the landlord, Mr Ho conducted due diligence as to the suitability of the premises including licensing concerns and fung shui which, presumably, mattered to the potential investors which included a company called Ever Power International Investment Limited, the ultimate shareholder of the applicant comprising 24 investors. By 8 May 2005 Mr Ho had prepared a proposal for the purchase of the Wah Do site. While personally he had voted in favour of the proposal he was unable to persuade the other potential investors. Nevertheless, he continued with his due diligence (for example, obtaining catering plans from the Food and Environmental Hygiene Department acknowledge although such plans were not forthcoming until 22 June 2005 because the relevant officer was on leave) in order to try to persuade them as to the viability of the proposal.

14.  Unbeknownst to Mr Ho, the Wah Do site ceased to be available on 15 May 2005 when it was let to a furniture company. It was only some time after 22 June 2005 that Mr Ho became aware of this fact. Notwithstanding that, Mr Ho continued to look for other alternatives until December 2005when he finally gave up the exercise.

The proceedings below

15.  After a 11-day trial, the tribunal concluded that the applicant had acted unreasonably in extinguishing its business. It found that the Wah Do site was suitable and that the applicant had the financial resources for the relocation. While accepting that there was a shortfall in available cash to effect the relocation, the tribunal found the shortfall to be at $1.67 million and that the applicant could have made up that difference by (a) applying for and taking up bank loans; and (b) applying to the Government for provisional compensation to enable it to relocate and had it done so, “it was more probable than not” that the Government would also agree to pay the applicant “much more” provisional compensation than the $2.649 million odd already received. It therefore rejected the extinguishment claim.

16.  The tribunal also rejected the disturbance claim. That claimhad been made on the basis that it represented actual loss suffered by the applicant regardless of whether the business was extinguished or relocated. The tribunal accepted the respondent’s submission that the applicant should have relocated its business elsewhere and that as there had been no relocation, the expenses claimed had not been and were not incurred in such a relocation and thus were not compensable, relying upon a decision of this court in Yip Kui trading as Tai WoTrading Company v The Secretary for Transport, unreported, CACV 379 of 2002, 13 June 2003.

17.  A consequence of the rejection of the applicant’s claims is that the provisional compensation received of $2.64 million will have to be repaid to the Government.

18.  On 13 May 2009, the applicant applied by summons for a review of the judgment pursuant to section 11A of the Lands Tribunal Ordinance, Cap. 17. The tribunal dismissed the application on 27 May 2009 and on 26 June 2009 the tribunal handed down its Reasons for Decision.

The Reasons for Decision

19.  A preliminary matter arose at the appeal hearing was the status of statements made by the tribunal in its Reasons for refusing the review. The question arose because Mr Ismail who appeared for the respondent sought to place reliance on them as “findings of fact”.

20.  The review procedure is a two-stage process. Where the tribunal declines to review its decision, the reasons it gives cannot supplement, alter or qualify the findings of fact made in the judgment sought to be review. The findings of fact must be those within that judgment itself. Where the tribunal does decide to review its decision, it may of course receive additional evidence and make further findings of fact. But that is not the present case, and I agree with Mr Mok SC who appeared for the applicant that the facts are limited to those found in the judgment and that it is not permissible to have treat the observations made in the Reasons as findings of fact.

This appeal

  The disturbance claim

21.  On appeal, the disturbance claim was limited to 2 items only: (1) the value of fittings and fixtures lost due to the resumption; and (2) loss resulting from the early termination of the applicant' s general restaurant licence and liquor licence. There was also a claim in respect of professional fees incurred due to the resumption which, in accordance with its usual practice, the tribunal had adjourned to a date to be fixed for assessment. That latter claim is not part of this appealand will take its usual course. To avoid any misunderstanding, I should add that, in effect, the applicant has abandoned the other items that had formed part of the disturbance claim below.

22.  While the value of the fittings and fixtures was not in dispute, there was disagreement as to the rate of depreciation to be applied, with the applicant contending for 10% per annum and the respondent contending that it should be 20% per annum, the competing values being, respectively, $5,331,418 and $4,478,391. As regards the lost licence fees, the aggregate amount claimed is $6,278, made up as to $4,620 in respect of the general restaurant licence and as to $1,658 in respect of the liquor licence. It is not disputed that those licenses were ‘location-specific’ and were incapable of being transferred to another location.

23.  The respondent resisted the claim on the basis thatthe applicant was not entitled to any compensation because it never relocated, and to make any award by reason of relocation would be to make an award by reference to a hypothetical situation (i.e. a relocation that never took place)which is not permissible, citing Yip Kui. At the hearing, the argument further was developed and the claim was resisted on the basis that because the applicant was found to have unreasonably refused to relocate, that amounted to a novus actus interveniens, breaking the chain of causation.

24.  The first matter is to consider what Yip Kui did decide. In that case, the applicant’s business consisted of selling disposable cutlery and other disposable items to business entities. The tribunal found that Mr Yip had unreasonably refuse to relocate to new premises, there being ample evidence of many other similar premises available. It then proceeded to consider the claim on the basis of relocation pursuant to s.10(2)(e)(i) of the Ordinance.

25.  Mr Yip’s expert had put forward 10 items for compensation on the basis of relocation. See § 70 of the tribunal’s decision in Yip Kui, unreported, LDMR 52/2000, 18 September 2002. While the tribunal rejected 7 of those items, it made an award in respect of the 3 remaining items totalling $87,557 under s.10(2)(e)(i).

26.  The statement of principle is to be found in § 21 of the judgment of Rogers VP:

“… compensation can only be awarded in respect of loss or damage which has been suffered or expenses which have been incurred.  It is not possible for compensation to be awarded, whether under the Lands Resumption Ordinance or under the Railways Ordinance, on the basis of a hypothetical loss or expense which might be incurred if the applicant had taken a course which he or she would have been entitled to take but had not taken, and never intends to take.  On this basis any claim for the cost of renovation and adaptation of fixtures and fittings for use in the new premises, installation charges for installing equipment in new premises, solicitors’ fees in respect of acquiring a lease for new premises, rent in respect of new premises whether it be double rent or the first month’s rent, and publicity costs in connection with the move to new premises simply have no basis.”

27.  The claims specifically mentioned in the preceding citation from the judgment were those that had been rejected by the tribunal. On appeal, Mr Yip challenged the tribunal’s decision in rejecting those items. But as Rogers VP explained, those claims were entirely “spurious” because

“[t]here never were any new premises, there are not any new premises and they never will be any new premises.”

28.  The same may be said of the 3 items that the tribunal did allow under s.10(2)(e)(i), two of which were specifically mentioned at the end of § 21 of the Vice President’s judgment (i.e. removal costs of $81,000 and an agency fee of $5,850). The Yip Kui court (which included 2 members of this court) plainly considered that no award should have been made in respect of those 3 items also.

29.  It is relevant to mention that the compensation awarded in Yip Kuiof $111,000 odd actually included an amount ($23,500) in respect of the loss of fixtures and fittings. That item had formed part of the disturbance losses claimed under s.10(2)(d) of the Ordinance and was not a relocation claim under s.10(2)(e)(i). It should be noted that that part of the award was not the subject of any challenge or criticism.

30.  It is clear that the Yip Kui principle applies solely to claims for expenditure that had never been and never would be incurred. To the contrary, the ‘disturbance’ claim of the applicant represents actual loss suffered due to the resumption. A disturbance claim is not a relocation claim based on s.10(2)(e)(i). Rather, it is a claim within s.10(2)(d). In the present case, there is no doubt that expenditure had been incurred by the applicant for the fittings and fixtures which it used for its business and for the licences in question required to operate the business. It is equally clear that those fittings and fixtures as well as the unexpired portion of the licences were lost when the land reverted to the Government. There is nothing prospective or hypothetical or spurious about such loss.

31.  In my view, plainly Yip Kui is and can be no bar to the applicant’s disturbance claim. Reliance on that decision was misplaced, probably because it had not been properly read and understood and the principle stated by Rogers VP was sought to be applied, without regard to context. Nonetheless, this is surprising, not least because the tribunal recognised (at § 48) that the disturbance payments were “from the permanent loss of business” and not relocation.

32.  I now turn to consider the argument developed at the hearing that an applicant who is found to have unreasonably refused to relocate would necessarily fail in any disturbance claim. It would appear to be the respondent's stance that should an applicant make the ‘wrong’ decision i.e. one that did not accord with the tribunal’s view, that would disentitle the applicant to any compensation for disturbance because it is said that the loss would be directly attributable to the applicant's unreasonableness in deciding not to relocate rather than the resumption. That reasoning is wrong.

33.  From a causation point of view, I cannot see that the cause of the loss can be anything other than the fact of resumption. It cannot hinge on the correctness of the applicant’s decision whether or not to relocate. The respondent’s approach would penalize applicants who have the misfortune of making errors of judgment. That approach would seem to be at odds with the ‘principle of equivalence’ underlying the statutory provisions in question viz. to provide fair compensation for a claimant whose land has been compulsorily taken from him. See per Lord Nicholls in Director of Buildings and Lands v Shun Fung Ironworks Limited [1995] 2 AC 111 at 125C-D.

34.  For my part, I have no hesitation in concluding that the tribunal’s decision on the disturbance claim cannot stand and must be set aside.

35.  As to quantum, as earlier noted, the only difference between the parties is the rate of depreciation to be adopted. Mr Mok invited this court to resolve the difference on the basis that all the evidence is before it. He urged the court to accept the 10% rate put forward by the applicant.

36.  Under the Statements of Standard Accounting Practice, depreciation is provided to write-off the cost of fixed assets over their estimated useful lives using the straight line method. The applicant’s auditors adopted a 10% per annum rate which the applicant’s expert testified was reasonable given that the lease was a ten-year lease.

37.  In contrast, the provenance of the 20% depreciation rate adopted by the respondent’s expert (who was a surveyor) was apparently based on unspecified Inland Revenue rules and what she had been told by her company’s accountant who was not identified and who did not give evidence.

38.  I can see the force and logic of Mr Mok’s submissions. On the supposition that this court were to remit that question to the tribunal to decide as a discrete point, it would not be other than on the basis of a determination on the papers only, without any further hearing. That being the case, one asks rhetorically, is there a reason why the matter should not be dealt with by this court?

39.  While it was suggested that this court lacks the expertise, I am unable to see what part ‘expertise’ has to do with the determination where that determination is to be made solely on the basis of the evidence that for adduced. In so far there was some suggestion that, in some cases, it might be appropriate to ‘frontload’ the depreciation rate and not to calculate it on a straightline basis, no such evidence ever was adduced. To put it another way, any expertise the tribunal may have cannot displace or replace such evidence as the parties have chosen to adduce.

40.  On the basis of the evidence before the tribunal, no tribunal reasonably could reach a conclusion other than that the appropriate rate of depreciation is 10% and I so hold. Accordingly, the total amount of compensation for disturbance is $5,337,969 and I would make this award.

The extinguishment claim

41.  As earlier mentioned, the tribunal rejected the extinguishment claim on the basis that (1) the Wah Do site was suitable and (2) the applicant had the financial resources to relocate. I will deal with these in turn.

The Wah Do site

42.  In holding that the applicant had “acted unreasonably in extinguishing instead of relocating [its] business to the Wah Do location”, the tribunal obviously considered that the applicant could and should have moved to that site. I am somewhat troubled by that conclusion. From the uncontradicted evidence of Mr Ho, the only window of time that that could have been achieved was between 6 March and 15 May 2005, a period of 10 weeks.

43.  Mr Ho’s evidence (summarized in §§ 12-14 above) shows that he was not sitting on his hands during that 10 weeks; rather, he had make serious efforts to secure the site. But there are no findings as to whether Mr Ho had been dilatory or had acted unreasonably between 6 May 2005 and late June 2005 and, if so, in what respects. In the absence of such findings, I cannot see how a conclusion could have been reached that the applicant could and should have relocated to the Wah Do site. I would add that I do not consider it permissible to infer from the fact that because the Wah Do site was suitable in the abstract (i.e. without reference to the actual timeframe) that there were other suitable alternative premises.

44.  There is one other matter. The last sentence of § 33 of the judgment reads:

“At the end, after he failed to persuade the other shareholders of the Applicant in the meeting of shareholders, he reluctantly decided to cease the Restaurant business in February 2005.”

Pausing there, I would observe that that statement or ‘finding’ cannot be correct since it is common ground that the Wah Do site did not come to Mr Ho’s attention until 6 March 2005.

Whether the applicant had the financial resources to relocate

45.  At § 47 of its judgment, the tribunal gave two reasons for concluding that the applicant had the financial ability to relocate, namely, that (1) it could have applied for and taken up bank loans, and (2) it could have obtained additional provisional payments from the Government. The applicant challenged those findings on the basis that the tribunal had made an error of law in making those findings in that it had taken into account irrelevant matters and had made the findings when there was no proper evidential basis was so doing, rendering the findings perverse.

  Bank financing

46.  The tribunal considered that the shortfall was no more than $1.67 million. That is demonstrably incorrect. On the evidence, (as it was entitled to do) it took the view that the relocation would require $7.25 million. But contrary to what the tribunal thought, that figure did not include the amount of utilities deposit of approximately $1 million which is to be taken into account. If taken into account the amount required would be $8.25 million. The respondent’s position was that the applicant had cash of $5.69 million. On that basis the shortfall was $2.56 million. However, the figure of $5.6 million included the provisional compensation of $2.649 million which the applicant did not receive until well after 15 May 2005. Accordingly, the shortfall and, hence, the size of the bridging loan would have to have been in the region of $5 million.

47.  There is evidence from Mr Ho as to his past experience in obtaining loans from banks for a restaurant business. This is to be found in the following extract from the transcript:

“  COURT:  Right.  Even assuming the shareholders have no money, have you thought of raising a loan from a bank, a sort of bridging loan for you to relocate first, and then get the compensation from the Government and repay the loan later on?

A.  I think it is a way of raising funds, but you’ve got to understand with what I can give the security to the bank and I also recall that on one occasion when I went to the Housing Society, I asked them whether they can refer a bank to me so that I can make a loan, because I thought that if the Housing Society told the bank that they were going to resume my premises and that they could have sort of act as a guarantor and things like that, and whether a loan could be made to me.  Well, when I went up to the office of the Housing Society, I did ask the Housing Society whether they could refer a bank to me to take a loan because of their resumption of land, and at that time I actually had such a naive thought in my mind, and if it could be done, that would be the best way, but they replied -- but the Housing Society replied that this way of doing is not feasible and that was only my business -- own business.

COURT:  But this morning I think you mentioned that your company had around two million dollars.

A.  As I recall, well we have that much of cash flow.

COURT:  And also from the past record, it seems that your company is doing quite well.  I mean the income was quite constant.  And also with this track record, and also I’m sure the bank would know that your company is going to receive the compensation from the Government later on, so why will it be so difficult to get a loan from the bank?

A.  Not so.  Actually, I had on a few -- on many occasion to apply for a mortgage from banks.  Well let’s put aside this reason of relocation.  I hoped there would be a credit with the company to facilitate the business transaction of the company and while I was in the Sing Kwan for the -- for the 19 years when I was in the Sing Kwan Group, I also had a part in the financial matters.  Well, I cannot deny that I did not have a good reputation with the banks.  It was difficult to obtain in credit on behalf of the -- from the bank on behalf of the restaurant.  In the restaurant that I’m operating now, none of them could obtain a credit from the bank.  Even though I have an income every day, this is the reality.  Unless I can have a personal guarantor.”

48.  At § 44 of its judgment, the tribunal stated that

“[a]lthough Mr Ho claimed that it was his experience that a Chinese restaurant could not be lent any loan, we note that there was no evidence that Mr Ho had tried to obtain a loan and was rejected.  We agree with the respondent that having regard to the following positive factors in favour of borrowing by the Applicant, it was unreasonable for the Applicant not to borrow any extra marked that it need to enable the relocation:

…”

The reasons which it then proceeded to state was the restaurant track record by reference to its profit tax return for the year 2004-2005, the improved economy after the impact of SARS, the fact that the restaurant had an experienced management team and trained workforce led by Mr Ho who had a proven track record and the fact that the applicant “could expect to receive much more provisional compensation”.

49.  It is unclear from the opening words of § 44 whether the tribunal was rejecting Mr Ho’s evidence in its entirety or only as to specific parts of it and, if so,which and on what basis. In particular, Mr Ho had given evidence as to his past experience in obtaining loans from the bank for a restaurant business. To summarise his evidence, from his experience, if the applicant had no security to offer and no personal guarantee was available, no bank would give credit to the restaurant.

50.  In that connection, it is relevant to state that not only did the tribunal accept (at § 43) that Ever Power (the applicant’s ultimate parent) and Bright Dragon (the owner of the Part I property) were different entities and their resources could not be attributed to the applicant, it also rejected the respondent’s submissions (recorded in § 41 of the tribunal’s judgment) and accepted that the financial resources of the directors of the applicant also were not to be attributed to the applicant. The respondent has not challenged those findings.

51.  In relation to the Wah Do site, the applicant only had a 10-week window of time for obtaining a bank loan. When it is considered that it had no more than a 15-month track record and that no audited accounts were available at the material time, it is not apparent upon what evidence the tribunal based its conclusion that bridging finance could have been obtained from a bank. The proposition that as a matter of inference bridging finance could readily have been obtained is a proposition that I am wholly unable to accept. It is totally divorced from reality.

52.  In those circumstances, on the evidence that was before it, the only reasonable conclusion open to the tribunal was that the applicant was unable to obtain a bridging loan at the material time.

Provisional compensation

53.  The other limb of the tribunal’s reasoning (at § 46) was that had the applicant applied to the Government

“it was more probable than not that the Government would also agree to pay the Applicant a provisional compensation amount based on relocation.  This would be different from and likely to be more than the provisional payment of $2,649,600 received by the Applicant from the Government.”

54.  There was no evidence whatsoever before the tribunal as to how and when and to what extent the government would entertain applications for provisional compensation based on relocation.   Although Mr Ismail invited the court to make the inference that the tribunal, being highly experienced in such matters, had the requisite knowledge, I do not consider that it is open to this court to do so. If there be a ‘practice’, evidence of its precise nature should have been put before the tribunal. Absent such evidence, it was not open to the tribunal to make any such finding, much less to speculate on the degree of likelihood of such an occurrence.

Conclusion

55.  For the reasons stated, I consider the reasons given by the tribunal for rejecting the extinguishment claim unsustainable. The errors that have been identified are errors of law that nullify the findings made in § 45-48 (inclusive). There was insufficient evidence to justify the tribunal’s conclusion that the applicant had the financial resources to relocate. In those circumstances, the rejection of the extinguishment claim had no valid basis. Accordingly, the applicant must succeed on its extinguishment claim. As there has been no determination on quantum, that issue is to be remitted to the tribunal for determination.

Order

56.  I would allow the appeal and set aside the order below. I would order that

(1)  compensation for disturbance in the sum of $5,337,969 be paid to the applicant within 14 days of the date of this judgment, together with interest to be paid on such sum at the rate of 1% over Hong Kong prime rate from time to time prevailing for the period commencing on the date of resumption until the date of judgment herein, and thereafter upon the resultant sum at the judgment rate from time to time prevailing until payment; and

(2)  the issue of quantum under the extinguishment claim be remitted to the tribunal for determination.

57.  I would also order nisi that the costs here and below be to the applicant.

Hon Stone J:

58.  I respectfully agree with the judgment of Le Pichon JA.

59.  In light of the argument, I wish to add a few words of my own regarding the proposition propounded by Mr Ismail on behalf of the Director of Lands to the effect that if no relocation in fact has taken place, and that if and in so far as such non-relocation is to be regarded as ‘unreasonable’ in the prevailing circumstances, then not only can there be no valid ‘extinguishment claim’, but that it necessarily follows that no award is to be made even for that which is classified as a ‘disturbance’ claim.

60.  In common with Le Pichon JA – who crisply dealt with this submission at paragraphs 32-33 of her judgment – I reject this argument as firmly as I may.

61.  Such an uncompromising stance strikes me as illogical and devoid of common sense, and, with respect, as an unjustifiable attitude on the part of Government which is resuming the land in question, and hence directly is responsible for resultant claims on the part of those whose present interest in the land is affected by such resumption.

62.  For my part I am unable to perceive a necessary linkage between a decision not to relocate – which may be underpinned by a variety of factors personal to the entity subject to the resumption order – and to the issue of whether relocation is, or is not, justifiable, and thus whether an ‘extinguishment’ claim can, or cannot, be sustained.

63.  Should it be concluded that the decision not to relocate, and thus to abandon the business, cannot be justified, this decision will be reflected in disallowance of any ‘extinguishment’ element of the claim. However, rejection of any such claim has nothing to do with the fact that, depending on the circumstances, a certain amount of money necessarily and actually will be lost by the claimant reason of such land resumption.

64.  There is nothing remotely ‘hypothetical’ about this in the Yip Kui sense – the value of non-transferable accoutrements/assets of a business hitherto operating on resumed land is lost irrespective of whether any ‘extinguishment’ claim otherwise can be established; hence to attempt to link the two concepts, and thus to preclude a ‘disturbance claim’ on the ground that it was unreasonable not to have relocated, and therefore that no ‘extinguishment’ claim can be made out, strikes me as ambitious, unattractive and, more to the immediate point, as wholly unfair.

65.  I, too, agree with the Order as proposed by her Ladyship.

Hon Lam J:

66.  I agree with the judgment of Le Pichon JA.

67.  The result in this appeal should not be taken as this court’s endorsement of the approach of the Tribunal leading to its conclusion at paragraph 43 of its judgment. As decided in Shun Fung Ironworks the test is whether a reasonable businessman will relocate or extinguish the business. In applying that test, the court should have regard not only to the financial position of the company but also the reasonableness of the decisions of its shareholders/investors. Thus, in Shun Fung Ironworks the Privy Council referred to the position of New World in deciding whether to finance the relocation, see [1995] 1 HKC at p.432-433. The Tribunal’s approach can lead to this absurd result: a company operating on loan capital would inevitably be held to be justified in not relocating so long as its shareholders/investors refused to provide any support to finance the operation (no matter how unreasonable they were).

68.  At the same time, it is by no means clear to me whether the Tribunal was correct in concluding that the shareholders/investors were unreasonable in not financing the relocation. The Tribunal did not address this question having regard to the narrow time frame available for consideration of the Wah Do site. Further, the proposal actually put forward for the shareholders consideration on 8 May 2005 was a proposal for the purchase of Wah Do site instead of the capital needed for relocation as discussed at paras.33 to 34 of the judgment. It seems to me the Tribunal failed to consider whether the costs of acquisition of the new site should be taken into account in deciding whether the shareholders were acting reasonably.

69.  However, as pointed out by my Lady, there is no cross-appeal by the Respondent regarding the conclusions of the Tribunal at paragraph 43. Thus, after the reversal of the Tribunal’s other reasons on the finance for the relocation, the extinguishment claim falls to be considered on the basis that there was no financial resource available to the Applicant for relocation. Therefore the only possible conclusion is that the extinguishment claim must succeed as far as liability is concerned. The quantum is to be determined by the Tribunal.

70.  I also agree with the order proposed by Le Pichon JA.